Although mortgage rates continue to be at historic lows, some home buyers continue to question whether this is the right time to buy or refinance their current mortgage. Rates have risen in the past several years but are still at lows that haven’t been seen in half a century.
“Shopping for a better mortgage in this current market is like shooting a fish in a barrel,” says Steven McCarthy, a loan officer with www.iWantaBetterMortgage.Com. Current mortgage rates are still running under 5 percent for a typical 30-year fixed rate loan, as reported by Bankrate.com. Published rates are not always the best rate a customer can get as they fluctuate daily, and not all applicants can get the best rates. Hidden is a dirty secret that many people don’t know – they can easily check current mortgage rates by just going online and taking a few minutes to do some research. Even today, most borrowers do not go to the internet first, they instead go to their local bank and feel that they are going to get a better mortgage rate because they bank with that institution.
Mortgage lenders have closely watched the rise of the stock market along with their banks loosening up on the credit requirements imposed by Dodd Frank. If history is any indication, the current market is wide open for getting a great mortgage rate. The general consensus is that these current rates will not stay this low much longer. Mortgage rates have fluctuated less in the past several years; however, they currently seem to be on an upward trend. The moral of the story seems to be to lock in now if you are shopping for a mortgage in order to ensure the lowest possible rate.
With rates heading up, borrowers will have to search wider and work harder to find a good loan at a better rate. Truth be told, once you find a desirable mortgage rate, you will need to be prepared to lock the loan in quickly.
What do the experts say you do to ensure the best possible rate? Here are some quick tips.
(1) Obtain your credit score.
If you don’t want to spend the money, you are eligible to get one free report each year. If you find any mistakes, get them corrected prior to filling out a loan application. Remember, FICO scores remain the standard by which most mortgage lenders determine a borrower’s credit worthiness. With the advent of the new Dodd Frank rules, it now may take a score of 750 or better (on an 850 scale) to get the best mortgage rate available. FICO scores are calculated on the basis of information in credit reports, so as mentioned above, if you’ve had any credit problems in recent years, it is a good idea to make sure your score is solid before you apply for a loan.
Further, it’s a good idea to check your score every six months in order to give yourself plenty of time to correct any errors or to improve your credit performance. If you find mistakes, the Federal Trade Commission outlines a two-step process for fixing credit report errors that can affect scores. First, tell the credit reporting company, in writing, what information you think is inaccurate. Then, dispute the items in question with the creditor or other information provider.
(2) Get all of your paperwork ready.
This may sound simple, but the reality is that it will take longer than you think. By having your paperwork ready, it will allow you to jump on a good rate when it appears. The documents you’ll need can be daunting, but take your time, begin early (better to have it up to date at all times) and the process will go smoothly. You will need at a minimum, (a) your federal tax returns for the last two years, (b) a minimum of three months of pay stubs, and (c) three months of bank statements.
(3) There is a saying, “Go long and deep.”
When you are shopping for quotes, the best place to start is online. There are many websites that can give you an idea of the current mortgage rates in your geographic area. Next, follow up by seeing what your local bank is offering. If you have a good relationship with your bank, you may be able to get a better rate by talking to them. Remember, they want your business and will work hard to get it. Relationships are worth a lot, so start getting to know your local banker.
(4) Watch out for the fees, not just rates
There is more to your loan then the rate. Be very careful. The problem is that you won’t learn the true cost of your mortgage until you know about all the fees that come with the loan. You may not be aware of this, but you can be charged everything from photocopying to legal fees. These fees can add up quickly. Do not be afraid to take the time to review all documents provided. One extra cost to watch out for is the “Rate Lock”. Should you need to lock in a rate 60 days out instead of 45 days, the extra 15 days could raise your costs even though the rate stays the same. If you know that you’re going to be living in this new house (or the refinance) for at least 7 years, you may want to pay the mortgage rate down by paying the points. Either way, it’s an additional cost up front.
At websites such as iWantaBetterMortgage.Com, an estimate of the closing costs can be quoted. If you’re working with a broker or lender directly, you should ask for a “good faith estimate”. When comparing two different loans, compare annual percentage rates (APR), which take account of points and closing costs as well as the basic mortgage interest rate.
(5) It is good to monitor rates closely but don’t go overboard.
Be prepared to make a decision if rates drop for a few days, but don’t obsess about it, as you could miss out on the buying opportunity. If you are refinancing, 45 days in advance is a reasonable time to lock in your rate. When buying, 90 days is much safer because various events could delay the closing.
(6) Go over your numbers and then go over them again.
Online calculators can help borrowers evaluate whether they’re better off paying points for a lower rate, or a higher rate without the points. These calculators can also help you decide whether to take a shorter-term loan or a longer one. You can find mortgage point adviser calculators at Bankrate.com or I Want a Better Mortgage; (http://www.iwantabettermortgage.com/calculator.php).
Just remember, mortgage rates continue to be at historic lows. They most certainly will not be this low forever. Take your time, do your homework and react when you get the rate you have been looking for.