Best current mortgage rates today – quite a mouthful.
Many chase the best mortgage interest rates, few know how to get them. Because they don’t know how lenders use them.
Here’s a brief discussion that covers the relationship borrower – lenders – best mortgage rates.
Best Mortgage Rates and You
Best is relative, means different things to different people, right?
But in this context the differences are not that different.
For most people, the best rate on a given day is the lowest interest rate they find advertised. Most people never get that kind of rate, the low advertised rate.
What lenders advertise is for the ideal borrower. To that, they apply what is called adjustments. And they have adjustments for a lot of things, adjustments for type of property (they like 3-unit buildings less than they like single family houses; they like low credit scores less than they like high credit scores, they like high loan-to-value ratios less than they like low loan-to-value ratios.
Best Mortgage Rates and Adjustments
Adjustments help lenders get what they think is proper compensation for the risk they take. Most are negative; a few are positive. Below are a few scenarios to help you understand better how lenders get you your interest rate.
The lender is the same, the scenarios are done on the same day, so the rate the lender gives is the same, the variations are due to the differences in the situation / borrower.
|Scenario 1||Scenario 2||Scenario 3|
|Price: $220,000, purchase||Price: $220,000, purchase||Price: $220,000, purchase|
|Down payment: 5%||Down payment: 5%||Down payment: 5%|
|Loan: $209,000||Loan: $209,000||Price: $209,000|
|LTV: 95%||LTV: 95%||LTV: 95%|
|Credit score: 740||Credit: 659||Credit: 740|
|Property Type: detached house||Property Type: detached house||Property Type: 3-unit building|
|Loan type: 30-year, fixed, conventional||Loan type: 30-year, fixed, conventional||Loan type: 30-year, fixed, conventional|
|Interest Rate: 4.000%||Interest Rate: 4.375%||Interest Rate: 5.125% (and
you’d have to pay $3,135 to get this lender to lend to you)
With this particular lender, the same program is not available at all if your credit score is less than 640. Yes, they have programs for people with lower scores, but they are more expensive: there is higher mortgage insurance.
Not all lenders were created equal. Some have adjustments even for loan amounts that are large and credit scores that are good (i.e., 700+) within the same program. They all have a cutoff point for credit (credit and LTV combination). Some lenders with good interest rates for people with credit scores of, say, 657, have terrible rates for people with scores of 639.
Getting Mortgage Interest Rates You Like
Increasing your down payment significantly reduces the interest rate you get. Buying a single family house, not a 3 or 4-unit property, reduces the interest rate you get. Increasing your credit scores reduces your credit scores.
Increasing significantly your down payment is often easier said than done; even when it can be done, it might not be the best thing for you to do.
Buying a single family house might be the right thing for you; but if a 3 or 4-unit property is what’s best for you, then what?
Increasing your credit scores is the easier thing to do… though not easy. Maybe simple is the right word?
The first thing you should do, check your credit report for accuracy (www.annualcreditreport.com is where you can get a free report once a year).
If your credit scores are low but the report is accurate, work on increasing your scores. Here are some things you can do:
- reduce debt on each credit card under 30% of limit
- stop paying things late (more than 29 days late, to be precise).
Best Chicago Mortgage Rates
So, if you find yourself Googling Chicago mortgage rates today or something similar after you’ve taken care of your credit report?
You shop around, understanding that the best interest rate lenders have is for ‘perfect’ clients.
Shopping around means getting an LE (Loan Estimate) from more than 1 lender / broker at the same time (or about the same time).
The time is important because mortgage rates change often, sometimes, they change a couple of times the same day. That means, if someone offers you 3.750%, for instance, on Tuesday and someone offers you 4.00% on the next day, you do not know if the 3.750% is the lowest rate you can get. For all you know, on Wednesday, the lender that offered you 3.75% on Tuesday can only offer you 4.250% on Wednesday.
Shopping around also means you pay attention to the closing costs, not just the interest rate. Why? Because they can vary by a few hundred dollars. Because the lowest interest rate offer might have closing costs so much higher that it is not the best option for you.