Get the best rate without paying for it
March 19, 2022
Most people who need a mortgage loan would prefer to get the lowest and best rate.
All too often getting the lowest rate comes at the highest costs. This is referred to as a discounted rate or paying points. When a borrower pays a point, they are paying one percent of the loan amount in a fee to reduce the rate. Other fees some lenders charge to quote a lower rate may be titled origination fees, document fees, processing fees or administrative fees. These fees determine what the discount is that you are paying toward lowering the rate.
In contrast, there is a qualifying rate that is a rate without paying fees to discount it, and a premium rate in which a lender will give you credit to reduce costs associated with obtaining your loan. So how do you obtain the lowest and best rate without having to pays fees to get it?
These are several key factors that determine what rate you are eligible for versus someone else. Focusing on maximizing these key factors allows you to take advantage of the best market rate without the extra fees.
Loan program: It is common knowledge that multiple different loan programs exist. The most common are categories such as conventional, FHA, VA and USDA. Rates will likely be very different for each loan program and each loan program will have other factors that impact your payment other than rate.
FICO/credit score: Simply put, the higher the credit score the better history of repayment of debt. To a lender this means reduced risk. Reduced risk is more desirable so better rates are offered. Working with a professional to increase your credit 4-6 months prior to wanting to get pre-approved can prove to be very beneficial.
Down payment: A lender also views the amount of equity in home as a risk factor. The larger the down payment, the more likely the lender will recoup costs in the event of default. Therefor the more money a buyer puts down on a purchase creating equity, the lower the rate will typically be. Buyers do not need 20% down to purchase a primary residence, but the rate will be higher with 3% down compared to 20% down.
Location: Believe it or not, lenders often offer different rates depending on what state you live in. A state's economic health can impact the people that live there. The difference is not vast, but important to note due to the risk the state's economy can pose on foreclosure risk.
Loan term: Typically, the shorter the period you are borrowing money for, the lower the rate will be. If a lender knows they will have their money back in 15 years, they are likely to provide a much lower rate than waiting 30 years with unknown increases to the cost of a dollar.
When you see an advertised rate, an assumption is being made in each of these categories. Unless the assumptions match you perfectly, chances are the advertised rate is more of a best-case scenario. Working with a Mortgage Professional can help you maximize these qualifying factors before, or even after your purchase to ensure that your mortgage strategy is the best for you and your situation.
Alysha Boles – Mortgage Strategy Advisor for the Navigate Lending Team is a licensed loan officer serving California and Texas personally and in multiple states nationwide as a team. She can be reached at (661) 858-7214, or inquire online http://www.advisoralysha.com.