March 1, 2018
March 1, 2018
Want to know a little secret about getting the lowest mortgage rate?
Spending hours shopping online mortgage rates, filling out lots of online applications, and then trying to sort through hundreds of phone calls from eager loan officers is a complete waste of everyone’s time! That’s not how mortgage rates work.
Every one of those websites and loan officers offer the same rates. Truth is “the market” and the economic factors that move Wall Street determine the mortgage rates lender can offer. But, the mortgage rate that you get from the lender is all about you, not them.
I’m going to take you behind the curtain to reveal the real wizardry behind mortgage rates.
The interest rate you get for your mortgage is slightly higher or lower depending on how likely the lender thinks you are to repay them in full. There are several factors that they will evaluate to make this determination and set your rate. Here are a few the key factors, in order of what typically creates the biggest adjustments, up or down.
As I mentioned before, it’s a really important thing to remember that mortgage rates are market driven and therefore there isn’t much difference from lender to lender. Your goals and credit profile, along with how the loan officer interprets your stated goals makes the biggest difference in the rate you get quoted from a lender.
Selecting the right loan and understanding how to meet the goals of the borrower can become complicated. People’s financial situations are often messy. If you get a loan officer that hasn’t experienced a lot of scenarios or doesn’t understand the products they have available, you could end up with a really expensive loan or be disqualified unnecessarily.
Unfortunately, a high percentage of loan officers don’t and have never actually owned a home. This inexperience can cost you tens of thousands of dollars over the life of your mortgage loan.
Make sure your lender or mortgage broker has access to all of the available products on the market. Here are just a few common examples:
FHA, VA, USDA, are government loans that are designed to increase home affordability for certain categories of borrowers and home buyers. Because they are attempting to increase the access to homeownership for these groups of people, they are typically best for folks that have a little less to put down, tend to be on the lower end of the credit spectrum, or have a little higher debt-to-income.
If you are a first-time homebuyer or qualify for these type of mortgages, they can be a big benefit and save you a lot of money. You certainly don’t want to get turned down or pay thousands more just because the lender you go with does have these types of loan programs.
Mortgage insurance is not necessarily a factor in your mortgage rate, but it will be a significant factor in your monthly payment and the total cost of your mortgage.
Mortgage insurance is one of those good and bad things. For people that have less than 20% to put as a downpayment (almost everyone), it helps to get qualified, but you want to know how to get rid of it as soon as you can. Here’s why.
Mortgage insurance is 100% to the benefit of the lender. Mortgage insurance is insuring the lender against your non-repayment of the loan. It’s a great feature because it allows most borrowers to buy a home with less than 20% or get an FHA loan when you have a bit weaker credit profile, but over the long-term, you should work toward paying down their loan and removing this insurance. After all, the insurance you’re footing the bill for is for the sole benefit of the lender.
Questions? Comments? Talk to me on Twitter @billrice and please include a link to this article for my reference.