When shopping for a mortgage, whether it’s a purchase loan or mortgage refinance, borrowers naturally want to find the best program for their needs at the lowest possible interest rate. But its not uncommon for potential home buyers and homeowners to have questions about the mortgage rate process. In this post, we’ll go over some of the more frequently asked questions about mortgage rates. Read through them and be sure to consult your mortgage professional for details.
How can I qualify for the best rate?
Even when rates are trending higher, there are ways to increase your chances of qualifying for a more affordable low rate. This might include paying points (paying interest up front to secure a lower fixed rate), working on establishing an excellent credit score, or making a hefty down payment.
When it comes to paying points, you’re essentially paying interest up front in order to get a lower rate on your mortgage. A point equals 1% of the mortgage amount. The more points you’re able to pay, the lower your fixed rate can go. Paying points isn’t the best option for everyone though. Crunch the numbers with your loan consultant to see if it’s worth it, or if you’d be better off putting less money up front and paying a slightly higher rate.
As for your credit, a good score to shoot for is 740 or higher. Credit scores range from 300 to 850, with 850 being the best. If your credit score is below 740, that doesn’t mean you won’t be able to qualify for a mortgage. But you will probably have a tougher time qualifying for the lowest possible rate.
Your down payment represents your up front investment in the home, so it stands to reason that the more you can put down, the more lenders will see you as someone who can handle the financial responsibility and will therefore be less of a risk. Most conforming mortgages require a down payment of 20%. FHA, VA and USDA loans are exceptions. Borrowers can pay as little as 3.5% on an FHA loan and VA and USDA loans offer zero down payment options. Whatever type of loan you’re applying for, consider putting more than the required amount into your down payment if you can afford to.
When is the best time to lock in a rate?
This is a very common question among home buyers, especially first time home buyers. Unfortunately, it’s a question that’s very difficult to answer. Mortgage rates change so frequently it makes it difficult to predict the best time to lock in. However, there are a few things you can do to make sure your timing is as good as possible.
Rate locks are typically good for 30, 45 or 60 days. Once that time expires, the borrower is no longer guaranteed the rate unless the lender agrees to extend it. Because the rate lock periods are not very long, it makes sense to wait until you sign a purchase agreement on a specific property before you try to secure a rate. If you lock in a rate before you have a home in mind, you’ll likely see it expire well before you’re ready to purchase.
Because mortgage rates are greatly affected by the economy, it might also be a good idea to try to stay abreast of the latest economic news and developments. For instance, if unemployment figures are low, the Federal Reserve Board my decide to increase interest rates. If unemployment figures are high, the Fed may decide to lower rates or maintain already low rates to stimulate the economy. Being aware of such economic data won’t guarantee you impeccable timing, but it might (at the very least) give you some insight into why rates change as they do.
If my rates fall after I lock, can I float my rate down?
Some lenders do offer the option to float your mortgage rate for a specific period of time. At eLEND, we offer what’s known as Rate Assurance – a service that allows qualified borrowers the ability to float their rate down if rates drop .25% or more before their rate lock period expires or before they close (whichever happens first). This helps provide additional peace of mind to our clients who may be locking in when the market/economy is in transition.
For more information on today’s mortgage rates, please don’t hesitate to contact the home loan experts at eLEND. You’ll receive a free, no-obligation rate quote when you reach out to us.
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