Top five causes that near-record low mortgage rates are not within the reach for many. Although interest rates for mortgages are hovering around historical lows, however rates mortgage lenders are quoting are no where near as mind boggling as those you've see on the news.
Reasons For This?
First, keep in mind that that mortgage interest rates are constantly changing, and most surveys on rates are interest rates from past times. For instance,
The Freddie Mac weekly survey obtains rate data during the course of the past week. The Bankrate.com survey obtains rate data each Wednesday. By the time this data is released released, it's already out of date.
There are other causes your mortgage rate could be higher. Here are the top five.
1. You Are Paying No Points
Average rates for the Freddie Mac survey include typical discount points paid toward the mortgage. However not everyone agrees to pay points.
For the week that ended Oct. 27, fixed-rate 30-year mortgage rates
averaged 4.1%, However that rate required on average 0.8 in points to obtain it. A point equals 1% of the loan amount, charged up front as prepaid interest. Unless you’re planning to stay in your home over an extremely long time frame,
paying points often makes no sense,
Where paying points works is if the loan you’re getting is going to be for a long time frame. By making a money investment now and paying the points to obtain the advantage of lower monthly payments for many years down the road, The more years there are on those lower payments each month, the bigger the return on your initial payment in points.
The Bankrate weekly survey consists of as many no-point loans as they can, One more reason rates included in the Bankrate survey are not the same as those in the Freddie Mac survey. The fixed-rate 30 year mortgage average was 4.33%, however points necessary to obtain that mortgage rate averaged 0.42, in a Bankrate survey announced Oct. 27.
2. Your Borrower Traits Mean Rate Adjustments
A lower than normal credit score will stop you from obtaining the best rates. A Low home equity position will also cost you a higher mortgage rate. You can thank Freddie Mac and Fannie Mae for these price adjustments at the loan level which have been responsible for prospective borrowers being unable to obtain the best rates over the past several years. "The deeper down the FICO rabbit hole you fall, and the greater your ratio of loan-to-value, all the more it's going to cost you. Those having credit scores less than 700 will have difficulty getting any rates near a low range of 4% that has been the talk among everyone. However, a 20% equity position as a down payment for purchasing, or even a refinance is the thing that's needed for today's best rates. And if you need a jumbo loan, lenders typically look for 25% or even 30% down to pick up the best rates. Although, borrowers who are
qualified for the newly updated Home Affordable Refinance Program can get in on these low rates, even though their home equity position may have taken a big hit
3. The Type of Property Could Mean A Higher Rate
On condo mortgages, a loan-to-value ratio of 75%, or having 25% equity is required, for the get the better rates. And if your loan is for an investment property or a vacation home, expect the rate to be higher.
4. Lacking Proof of Your Recent Income
If you're self-employed, or those who have no pay stubs as recent income proof. Your latest tax returns are the items a lender is going to be looking before granting you a mortgage. If business has picked up since your last tax return, This is not going to help much as you attempt to take out a mortgage in today's environment. Your income could now be up off the charts, however if your tax returns show a some other story, then obtaining a loan approval or obtaining the best rates is going to be an issue.
5. Your lender Has Plenty of Business
There is often a big discrepancy in rates which are offered from one lender to another. And this just might have something do with the volume of loans they’ve originated recently. Those with less volume will often tend to be somewhat more competitive. Those that have lots of volume may keep the rates higher However rates aren't everything, While shopping for a loan, borrowers should concentrate on comparing monthly payments. People are often attracted to the rate of interest, however you must take a deeper look. Go over the documentation. For example it’s possible to find a
mortgage with very low rate insured by FHA, however that loan may also have a higher mortgage insurance premium attached to it. You might be in a better position choosing a conventional loan with private mortgage insurance, a lower cost even if their rate of interest is a little more.
Nov 7, 2012
Real Estate Finance