- August 6, 2017
- Posted by: steve
- Category: mortgage rates
Are you not getting the mortgage rates that you want? It’s time to change the way you shop. Try these tricks for finding the best mortgage rates online.
Finding a good mortgage isn’t the most fun thing in the world. But if you’re going to be buying a new house, there’s not really a way around it.
The most stressful part of finding a good mortgage is locking down a good mortgage rate. While mortgage rates might not have a huge effect on your monthly payment, a higher rate will find you paying much more over the life of the loan.
Obviously, you’re going to want to find the lowest rate possible.
But that’s easier said than done. Getting a good rate on a mortgage isn’t as simple as walking into a bank and asking for one. You’re going to need to put a little more elbow grease into it.
Luckily, there are many tools to help you find the best mortgage rates online, without ever having to step foot in a bank.
What Affects Mortgage Rates?
There are a plethora of factors that can determine what interest rate you get on your mortgage. Mortgage rates change daily, at the mercy of the housing market, overall economic health, or the mood of the stock market.
How’s the Housing Market?
It should go without saying that the state of the real estate market has a huge effect on mortgage rates.
The real estate climate swings between being a buyer’s market or seller’s market.
In a buyer’s market, there are more homes for sale than people interested in them. The supply is outweighing the demand.
In a seller’s market, it is flipped. There aren’t enough homes available to satisfy the demand.
In the last several years since the collapse of the housing market, it has pretty reliably been a buyer’s market. As a result, mortgage rates have been historically low. But as demand for homes outpaces supply, that’s likely to change.
What’s the Fed Say?
While the Federal Reserve doesn’t actually set exact interest rates on its own, it can have a huge difference.
The Federal Reserve sets actions in place to steer economic policy in a very broad direction. While they can’t decide what the rate is, they can set minimums or maximums in place.
Mortgage rates are also very reactive to the inflation rate. As you probably know, inflation is affected by changes in the money supply. And who affects money supply?
That’s right: the Fed.
If the Federal reserve predicts a harmful rise in inflation, they purchase Treasury bonds. This puts more money into the market, which keeps mortgage rates low.
Mortgage rates aren’t only affected by the supply of available homes. They can also change due to potential homes.
If there has been a significant rise in the construction of new homes, this can also point to a healthy housing market. And, as mentioned earlier, market health has a huge effect on rates.
What’s My Credit Score Got to Do With It?
Before you even start Googling mortgage rates or trying to get prequalified, you should get an accurate picture of your own financial situation.
Namely, your credit score.
Your credit score is a number that tells lenders how good you are at paying off debt. Obviously, the better you are at making payments in a timely manner, the more attractive you’ll look to lenders.
It makes sense then that home buyers with higher credit scores receive lower interest rates.
In most cases, you are going to be saddled with your interest rate for a very long time. If you have the time to wait, take some time to raise your credit score before looking for a house.
To keep your credit score in good shape, avoid missing a payment—ever. Make sure you keep your credit card balances well below your maximum.
If you have a low credit score, don’t worry. There are a few simple ways you can raise your credit score.
If you have any accounts with late payments, prioritize getting—and keeping—them current. Make extra payments to reduce the total amount of debt you owe. If you have a hard time remembering due dates, set yourself monthly reminders.
Improving your credit score might take a while, but it’s better than dealing with a high-interest rate for thirty years.
Different Loans for Different Folks
Not every mortgage is created equally. There are a number of options to consider before you ever apply for a loan.
Deciding on a Loan Length
Mortgages have term lengths of fifteen or thirty years.
Fifteen-year mortgages typically have lower interest rates, but because the term is half the time, your monthly payment will be much more.
Thirty-year terms are far more common because their monthly payments are low. However, thirty-year mortgage rates are slightly higher than with a fifteen-year. You will also end up paying much more over the life of the loan.
For example, let’s say you are looking to purchase a home for $100,000.
Imagining that a fifteen-year mortgage has an interest rate of 3.25%, your monthly payment will be $703. Over the entire life of the loan, you will pay $126,480.
Let’s say we want a thirty-year mortgage at a 3.75% interest rate instead. The monthly payment is much more manageable—only $463. However, over the life of the loan, you will have paid $166,722 towards your $100,000 home.
Because the monthly payment is so low, many people prefer a thirty-year mortgage despite the higher overall cost.
Fixed- or Adjustable-Rate?
Mortgage rates don’t have to be set in stone. Not even after you’re paying it.
Most often, home buyers prefer fixed-rate mortgages. In a fixed-rate mortgage, you maintain the same interest rate through the entire life of the loan.
However, if you think that mortgage rates might drop during the life of the loan, you might want to get an adjustable-rate mortgage.
With an ARM, you start off with a very low introductory rate. Often called the “teaser rate,” this is often lower than the rate you can get with a fixed-rate mortgage.
After the introductory period, your rate will change periodically. This can have a huge effect on your monthly payment.
ARMs are typically used by buyers in a high-rate market to avoid being stuck with a high-interest rate, or buyers who will not stay in the home for very long.
Conventional or Government-funded Mortgage?
Most mortgages are funded by private companies: banks, brokers, etc. These conventional mortgages generally have a few mandatory requirements attached to them, such as the size of the down payment.
There are also a number of government-funded mortgage options. These often have less rigid requirements.
The most common of these is the FHA loan. FHA loans are funded by private banks, but they are backed by the Federal Housing Association.
FHA loans require a much lower down payment—as low as 3% in most cases. FHA loans are also available to buyers with lower credit scores than conventional loans.
There are a number of stipulations, however.
To be eligible for an FHA loan, the home must be your primary residence. It cannot be vacant or occupied by renters. Because these loans are geared towards low-income or first-time home buyers, you will also be required to pay mortgage insurance.
If you are a military veteran or serviceman, you may also be eligible for a VA loan. These loans are privately funded and insured by the Department of Veteran Affairs.
However, military service alone is not enough to guarantee eligibility for a VA loan. There other requirements such as service length and income.
What’s Up with Your Down Payment?
While most conventional loans require at least 6% of the cost of the home as a down payment, there are a number of benefits of paying more down.
For one, the more money you pay down up front, the less money you’ll be paying back on your loan.
But did you know that making a larger down payment can open the door to lower mortgage rates?
Lenders often determine interest rates based on risk. If you are a risky borrower (if you have a low credit score, for instance), they will give you a higher interest rate.
By making a large down payment, you are telling the lender that you are a low-risk borrower. Since you’re able to come up with all of this money up front, it shouldn’t be a problem for you to come up with the rest of the money for the house.
A big down payment makes a big statement to the lender. If you can afford to save up a large sum before buying a house, do so. It will make a huge difference for your mortgage rates.
Use that Mortgage Calculator
Before looking for a mortgage lender, you should have a good idea of what you can afford. After all, your monthly payment won’t only include your mortgage payment. Often, property tax, home insurance, and PMI will also be included in your monthly payment.
Use an online mortgage calculator to get an idea of your price range. Knowing what you can afford won’t only save time when looking for a house—it will also give you leverage when negotiating.
Many lenders will try to pressure you into a mortgage that is far more than you would actually want to pay. Having a number in place will give you a solid point to walk away.
How to Find Good Mortgage Rates Online
The internet has completely changed the way we buy houses. And that includes how we find mortgages.
But the internet is a minefield of scammers and scallywags. Not knowing how to navigate the web’s perilous waters can spell disaster for you and your credit score.
Before you even send a mortgage company an email asking for more info, you’ve got to shop around. Compare the different mortgage rates offered by companies that service your city.
There are a number of online tools that make it easy to compare the mortgages available in your area.
Run Your Own Background Check
As mentioned earlier, not every mortgage company you find on the internet is trustworthy. If you find a great deal but something doesn’t feel right, there are a number of ways to determine if the business is legitimate.
Look through the website for contact information. A legitimate business would have a telephone number and mailing address. If you can’t find either, steer clear.
It’s always a good idea to look for the company on the Better Business Bureau. This will show you the company’s business history, customer reviews, and even an official ranking.
If you can’t find your too-good-to-be-true mortgage company on the Better Business Bureau, it probably is.
Locking It In
Once you find an interest rate that you like, lock it in.
Locking in a mortgage rate guarantees that you will receive that rate if you close by a certain date. Usually, the terms of a rate lock last for 30, 45, or 60 days.
Again, mortgage rates change daily. If you find a rate that you like, it pays to jump at the chance. You never know if the rates are about to jump up.
Even if mortgage rates plummet after you lock in your rate, you may be able to refinance your mortgage for a lower rate later on.
Get the Best Mortgage Rates Today
Looking to buy a home in Florida? You deserve a mortgage company that isn’t out only to profit off of you. You deserve a company that is going to meet your individual needs.