How to Get the Best Interest Rate in Town

What you need to do before, during, and after the entire mortgage process to make sure you are getting the right product.
How to get the lowest interest rate possible.
What to ask your lender before you buy a home (it’s not a pre-approval!).
How to avoid PMI.

Getting the best interest rate can be puzzling for many first-time buyers. It’s not as straightforward as getting the rate you advertised online or in the news. Believe it or not, the rate you see “out there” is rarely an interest rate that is offered to consumers!You’ll get the lowest rate only if you figure out how to fit all these pieces together – fees, points, down payment, credit score, your specific home, your goals, and more.And it’s not as simple as lower interest rate equals lower monthly payments either – you may be surprised what could also tag along with your mortgage payment each month!First and foremost, go back to the beginning of our mortgage series and make sure you’ve done what we’ve recommended. Can’t remember? Here’s a refresher.1.) Figure out what you want to pay per month before you talk to the lender and ask to get approved for that monthly payment, not how much you could possibly qualify for qualified for! My lesson in Week 1 explained that what you want to pay per month help determines your corresponding purchase price and essentially your loan amount. Your mortgage rate will vary based on the amount of your loan. Usually the more you need to borrow, the higher the interest rate.2.) Not sure how to determine what your monthly mortgage payment should be in order to afford a new home? Head on over to Week 2 where I’ll show you how to calculate this number with some of my “rules of thumb” that can be used for your specific financial situation.3.) Next, it’s time for Week 3 of my series. You need to figure out how much you want to put down. Why? Because the amount of your down payment affects the interest rate. However, and please hear this loudly — YOU DON’T HAVE TO PUT 20% DOWN! You can get a great interest rate, even if you have as little as 3 or 5% to put down, so don’t count yourself out if you don’t have a ton of cash.4.) Last, but not least, in Week 4 I explained how your credit score affects your mortgage interest rate — he higher your score, the lower your rate — and how to build up your credit score.Ok, this is important. Do not pass Go unless you’ve figured out the four steps above!!Stop right now and write out your answers to the steps above, call whomever you have to call to find out whatever you need to find out, and research whatever you have to research. Pick up right here once you are done.

Ok…ready to move on? Great, let’s go!Remember (and I say this over and over again!), you need to make sure you are looking at the entire loan picture — the program, the time period you are going to own the home, and the terms of the loan and how all of that creates the best financial position for you. Do not just focus on getting the lowest interest rate or you will do yourself a huge disservice!Here are several other factors to consider on your way to getting the best interest rate:Time Period – How Long You Plan to OwnOne reason to shop around and talk to different lenders is to get a sense of what loan products will work best with your budget and your goals as a homeowner.You need to ask yourself questions about your finances and future, since buying a home is a commitment. That’s why the “go-to” 30-year fixed loan may not be the right choice for you but was for your friend or a family member.If you don’t plan on owning this home for more than 5 or 6 years, you might want to consider an adjustable-rate mortgage (ARM). These loans typically offer a substantially lower interest rate, saving you thousands of dollars while you live there.We know that the “A” word can be a scary word to many buyers, but the ARMs of today are much, much better. They are more straight-forward, conservative, and safer for homeowners than the ones in the past.It’s worth considering one of today’s ARMs if you really aren’t going to own this home for more than a few years. If you invest the extra money you’d save with your monthly mortgage payment because of its lower rate, you could really do much better than having had higher mortgage payments with the 30-year fixed loan.This recommendation can be a hard one for many people. What’s right for one person could be the worst decision for another, so really consider YOUR personal situation and make decisions about your mortgage accordingly.Do know, though, that after the initial low rate of an ARM, the rate can adjust so you must sell, refinance, or be ready for a likely increase in payment when the fixed time period ends.Points — Should You or Shouldn’t You Pay As a buyer you’ll come across a mortgage chart with examples of interest rates next to “points” or “discount points.” This is usually for 30-year fixed rate loans.As a first-time buyer you may be confused. You’re told if you pay one point, you’re interest rate will be lower than if you pay zero points, and if you pay two points even lower.You may ask yourself what exactly are these points and should I pay them to get a lower rate? A point is equal to 1% of your mortgage amount (or $1,000 for every $100,000). So points are basically an “upfront payment of interest” at closing. Rather than pay it over the life of your loan, you can pay a large chunk when you get the loan.Since interest rates are pretty low right now and you’re not planning to stay in your home for more than 5 years or more, then paying points doesn’t make sense. Why? You’ll never recoup the costs of your upfront payment over the life of the loan even if lower monthly payments seem tempting.However, if you plan to live in your home for many years or interest rates go up, then the benefit of the lower rate will kick in and save you money in the long run. However, you’ll need to determine if you can afford to pay an extra couple thousand or more at the time of your closing for those points.As a buyer, you will need to weigh the pros and cons in getting the lower rate and paying for points upfront. Does it work with your long-term goals as a homeowner?Fees – Beware of Hidden Ones

Don’t be fooled by advertised rates! Behind that rate could be a long list of fees, points, or closing costs. Ask the lender to break down the fees and give you the total amount for closing the loan.
Avoid penalties for lock-in extensions. Some lenders will increase your interest rate slightly if you need to lock in your loan for 60 days or more. Make sure you know any requirements before signing any paperwork. It’s another reason to get all of your finances and paperwork in order before you apply for a loan.
Review fees for FHA loans. Don’t always assume a FHA loan will be cheaper or better. Not only do you pay an upfront premium for mortgage insurance (1.75% of the loan amount), but you’ll also pay a recurring annual cost of up to 1.35% of the outstanding loan amount (added to the monthly payment) for the life of the loan. Review the pros and cons of these loans carefully.
Take advantage of the new mortgage disclosure forms. There is no excuse for buyers not know about “hidden fees”! As of October 2nd there are new forms that simplify and improve the disclosure of a loan’s terms and cost to borrowers. The new forms include: the Loan Estimate, given three business days after application, and the Closing Disclosure, given three business days before closing.

As you can see, there are many factors or “puzzle pieces” that go into getting the best interest rate for your mortgage. Carefully consider all the factors we covered above and play out different scenarios. And we can’t emphasize enough that you need to review your own goals as a homeowner and what YOU want down the road. Remember, we’re here to help you when things get confusing!Next week, we continue our How to Get the Best Mortgage series with our blog, Should You or Shouldn’t You Avoid PMI? It’s the perfect topic for what we just discussed about interest rates and monthly costs!

InspirationadminOctober 29, 2015