It’s Monday, which means more mortgage Q&A: “How to get the best mortgage rate.”
We’ve all heard about the super-low mortgage rates, but how do you actually get your hands on them?
When it’s all said and done, it never seems to be as low as the banks claimed, which can be pretty disappointing or even problematic.
Morgage Rates on TV Are Best Case Scenario
One important thing to note is that the mortgage rates you see advertised are best case scenario, not necessarily the average interest rate being extended to borrowers.
By best case, I mean an owner-occupied, single-family home, purchase or rate and term refinance, 800 credit score, huge down payment, and so forth.
These types of loans can be closed virtually anywhere, so banks will be eager to offer a super low mortgage rate.
Conversely, if you’ve got poor or marginal credit, a 3-unit investor-owned condo with little down, you’re going to have a hard time obtaining a low mortgage rate, let alone a mortgage.
Now that we know mortgage rates aren’t really as low as they claim in the real world, let’s look at some practical ways to get closer to those magical rates we see advertised.
Look at Your Credit Report Early On
Long before you begin the refinance or purchase process, take a good hard look at your credit report.
If your credit score is 740 and above, you’re pretty much in the clear in that department; if it’s below 700, you may want to pay off some high balances or fix a couple things before applying.
Without question, credit score can move your mortgage rate significantly, and it’s one of the few things you can actually control, so keep a close eye on it.
Documentation type can also push your interest rate higher, that is, if you fail to provide much of it.
While stated income loans make life easier, going full doc will afford you the lowest rate, so do your best to provide income and asset documentation if possible.
Another factor where you have some semblance of control is down payment; generally, the more you put down, the lower the mortgage rate, as pricing improves at certain thresholds like 65 percent loan-to-value, 70 percent loan-to-value, and so on (see mortgage adjustments).
If you can put more down, you’ll typically get a lower interest rate or more financing options, though this doesn’t mean it’s necessarily the best option for you.
This can be especially important if your loan size is close to the conforming loan limit, as jumbo loans price about one percentage point higher or more.
Things like property type and occupancy can bump your mortgage rate higher, but obviously you don’t have much control over these if you already own the property.
Of course, if you’re still shopping, understand that condos are more difficult and expensive to finance in many situations, as are multi-unit and investor-owned properties.
Along those same lines, the reason for obtaining a mortgage will affect your given rate; if it’s a purchase or rate and term refinance you should qualify for the lowest rate, but a cash-out refinance will generally carry adjustments that push the rate higher.
Make Sure You Negotiate Your Mortgage Rate
Finally, there is the negotiation and the shopping. Make sure you actually take the time to shop around for the lowest rate; consider both mortgage brokers and banks.
And don’t be afraid to ask for a lower rate if you think you can do better; there’s always room to negotiate.
Remember, the more you know about your mortgage, the better off you’ll be when pleading for a reduced rate.
If you know your loan is low-risk, based on the criteria explained above, you’ll have a better idea as to where your mortgage rate should lie and can argue accordingly.
One final note: don’t forget the fees…your mortgage rate may be low, but it could come at a cost.
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