- August 20, 2017
- Posted by: steve
- Category: mortgage rates
Comparing mortgage rates is critical for scoring the best rates possible. But how do you properly compare rates? Read on to find out.
So you’re looking to buy a piece of that American Dream. You’re ready to buy a home and start comparing mortgage rates for your first or next house.
Well, you’ve picked one of the best times in history to do it.
Home ownership is at historically low levels. In fact, it’s at the lowest level it’s been in over half a century.
There are lots of reasons for this. One, of course, was the housing crash of the late 2000s. Although many people recovered, home buyers became skittish about trying the home market out again.
Two, most of the houses that went under water around that time were snapped up by buyers who turned them into rental units.
At the same time, a rush of Millennials have entered the market, a generation not nearly as ready or eager as their parents to get married and settle down.
Rental households in America are up, way up: about nine million in the last decade alone.
That means mortgages have to be made more attractive than ever. You’re going to be offered a much better deal than even your grandparents might have gotten.
This Is a Great Time to Be Comparing Mortgage Rates
The Federal National Mortgage Association, the largest source of U.S. mortgages, is doing something unprecedented. It’s raising the debt-to-income ratio threshold needed to qualify for a mortgage. That means if you’re already paying off more monthly bills and notes than you’d like, you still might qualify.
Lenders are also easing up on the average FICO credit score needed to get a mortgage. Nearly 13% of Fannie Mae and Freddie Mac approved mortgages in July 2017 had FICO scores as low as 650. A select few were in the lower 500s, which was previously unheard of.
Mortgage lenders are making it easier and easier to get started on that new or next home, although the process hasn’t been simplified at all.
It’s still very complex and full of hidden fees and adjustments that can severely affect your future payments. Make sure you don’t get caught signing up for something you won’t be able to afford.
What to Look For When Comparing Mortgage Rates
When you’re comparing mortgage rates, you need to know where you stand. Let’s take a look at some of the ways you can find the best mortgage for you by comparing mortgage rates.
Lenders or Brokers?
The first thing you need to do is decide whether not you want to go this alone or enlist the services of a mortgage broker.
Mortgages are offered by mortgage companies, banks, and credit unions. Any institution that offers loans will have some sort of mortgage package available, depending on your cash reserves and credit history.
Often a mortgage broker will simplify things by offering you several competing mortgages from different companies.
Before mortgage brokering became big business, a home buyer would get quotes from several different lenders before deciding.
These days, the market is so volatile that many would-be homeowners actually pit mortgage lenders against each other. This gives themselves an even broader field of mortgages to choose from.
You should shop, compare, and even negotiate to find the best rate for you. The negotiation part is especially important; even if you have bad credit or a lot of debt, the market’s not going to get any easier than this.
Even when you are comparing mortgage rates, you need to be aware that the interest rate is not the only factor involved in getting a great mortgage. There are many variables hidden costs.
Daily vs. Weekly Rates
When comparing mortgage rates, the interest rate is definitely where you want to start looking.
They’re big, bold, shiny numbers that mortgage lenders like to flash in order to get you to sign up, but they can be tricky. For one, they fluctuate with the market on an hourly basis. You have to know whether you’re getting the lowest mortgage rate of the day or of the week.
Mortgage rates are actually determined by mortgage-backed securities. All this means is that they’re actually part of the stock market, which is why they fluctuate so wildly on a day-to-day basis.
Mondays are typically when the market is more stable. Wednesdays are the least stable day of the work week and therefore probably the worst day to try and lock down a mortgage rate.
Make sure when you’re comparing mortgage rates that you’re analyzing them from the same day or the same week. Otherwise, there’s no point in looking them.
When you get a mortgage rate you’re satisfied with, you can lock it down for at least 15 and up to 30 days. 30 days is the usual amount of time it takes to close a mortgage. You can get a longer lock-in, sometimes for as much as four months, but the longer your lock-in is, the higher your rate is going to go.
It only makes sense to the lender to keep things as fluid as possible. This is done so that whatever you agree on is going to be locked down within the month, no matter what the market does.
Fixed or Adjustable?
The next question you have to ask yourself is whether the rate you like is fixed or adjustable.
Fixed means just that; it stays the same no matter what kind of disaster happens to you or the economy. It’s usually the better bet.
Adjustable rate mortgages are a bit cheaper to get in the first place but can add up in the long run as they fluctuate with the market.
Which one you get depends primarily on how much you have to spend now and how stable you preside your situation to be in the future. If you don’t see yourself keeping the house for the length of the mortgage, adjustable may be the way to go.
What’s in the APR?
When comparing mortgage rates, make sure you ask about the APR, or annual percentage rate of your mortgage.
Like any other loan, APR represents the cost of doing business to get the loan in the first place. This might be one of those hidden costs we mentioned earlier. They can also include a “points” system that represents a percentage of the loan that goes to the lender.
One point equals 1% annual of your total loan. Points can cover everything from appraisal fees, application fees, tax fees, wire transfer fees, and credit report fees. They may even include fees for processing, underwriting, and commitment, charges for title and escrow transfers, and good old fashioned government paperwork.
More About Points
Points, sometimes known as “closing costs” or “total lender fees,” will probably also include mortgage insurance. Mortgage insurance is exactly what it sounds like: the policy you take out to protect you in case you default on your mortgage.
This is where it’s important to know the LTV rate, or loan-to-value rate, in your mortgage. Loan-to-value is just a fancy way of determining how much of the home the mortgage will pay for. The ratio almost never goes over 90%, and an LTV of at least 80% is usually required to get mortgage insurance as part of the package, so be aware of that as well.
Further complicating matters, these “points” are split up into two different types. There are origination points, which cover many of the costs we just talked about. But there’s also something called a “discount point,” which you can pay at closing, that is, when you seal the deal within the month.
A “discount point” is simply a percentage of money you can put down now that will help lower your interest rate for a while. It’s a good deal if you’re sitting on some ready cash and want to ease your burden as you start out.
Make sure, however, to convert both types of points into raw dollars so that you know exactly what you’re getting yourself into.
Kicking the Can
Your rate can also have “lender paid compensation” and “lender credit” built into it. This is a fancy way of saying that you’ll offset the commission to the mortgage broker and some of those upfront points costs. You’ll pay those later in the form of a higher interest rate.
This is similar to what happens in a mortgage refinance. In order to bail the lender out, a “no-cost” loan is offered that substantially jacks up the price of the interest rate.
These are all ways of kicking the can down the road as far as payment goes. They may sound attractive, but they’re a large part of the reason that people end up defaulting.
Your best bet is to spread your money evenly between now and later.
If you’d like even more deals to choose from when you’re comparing mortgage rates, the U.S. government has several options for potential home buyers to consider.
The Federal Housing Administration is the first place to go when considering a government mortgage. Because the feds have more money at their disposal, mortgages can be cheaper and easier to get, although not always. Veterans can always look into a VA loan from the Veterans Administration.
If you’re looking to get that country cottage you’ve always dreamed of, try the Rural Housing Service. It’s a government institution that can help you get a mortgage for something a little further out from the city. Check your state and local governments for mortgage programs as well.
Remember the Federal Equal Credit Opportunity Act and the Fair Housing Act. They ensure that you can’t be offered a terrible mortgage by any lender or broker because of anything other than your financial situation.
Your FICO score, your debt-to-income ratio, and your assets are the only things that should be taken into account by lenders. Make sure you come prepared by knowing those numbers when you’re comparing mortgage rates.
Comparing Mortgage Rates Doesn’t Have to be Confusing
Securing a mortgage can be an incredibly complicated process, and, yes, it’s filled with potentially hidden trap doors. Offers that may sound good at the time could turn out to be more trouble than you intended.
The best thing you can do is shop around for the best deal, preferably using several mortgage brokers. When you’re comparing mortgage rates, take into account hidden costs and fees, points, APR, and the like.
When you find something you’re comfortable with, negotiate the best possible deal. Mortgages are just as important a purchase as a new car, and if you’re ready to haggle over that, you should be willing to haggle over this.
Don’t be afraid to root out and itemize every single cost that comes with the price of your new mortgage. If you don’t know what something is, ask. If you don’t know what a rate represents, ask.
Tools That Can Help You Get Started Comparing Mortgage Rates Today
Your best bet is to get started today comparing mortgage rates. You can do this through a simple mortgage calculator that will help you determine where you generally stand. Remember that you’ll need to know your FICO score and your debt-to-income ratio when you’re comparing mortgage rates.
After that, you can work on the details with your broker or brokers. You may be committing to as much as thirty years of monthly payments in order to secure your cozy little dream home. It’s important to get the details right from the start.
Find a broker that’s willing to listen to you and your concerns and work for the best possible bargain. There are more bargains out there than ever, and they’re getting snapped up quickly. So make that move today and get a mortgage you can live with for the house that you live in.