With a title like this, some readers may think I am trying to justify higher interest rates than my competitors. The fact is, I have very competitive interest rates, I just think that if that’s all you focus on when getting a mortgage, you miss a lot of other things. For instance, the timing of when you lock can be more important than working with a lender who might have a lower rate on any given day because if they don’t have the tools and expertise to help provide you with some guidance about when to lock, you may end up locking at a high-point in an interest rate cycle – check out this post about how to get the lowest interest rates.
Another thing to consider is your credit score which is a huge driver in interest rates – especially when it comes to conventional loans. I’ve worked with many clients who were able to do a few simple things that I recommended and their credit score increased enough to save them .25% in rate or about 1 point in fees. An improvement in credit score not only benefits borrowers when it comes to interest rates but it can also make a significant difference in the rate you pay for mortgage insurance if you are putting less than 20% down.
Specialty Loan Programs
Some loan programs have unique elements that offer things that the lowest rates don’t provide. For instance, we have a loan program that insures a borrower won’t lose on of their down payment in the event they have to sell their home and the market has declined since they bought it – ask me about the Noble +Plus Program. It’s designed to help buyers who my be nervous about a real estate bubble to buy with confidence knowing that they won’t lose their down payment if the market does go down.
Lowest Rates vs. Leniency
Many mortgage banks sell the servicing rights to mortgage servicers on the secondary market – these are the companies who collect the monthly payment and administer the impound (taxes, homeowners’ insurance, and mortgage insurance) accounts. Often times the servicers are big banks who allow smaller mortgage banks to close loans in their own name and then sell the servicing rights to the bigger bank – the ones with the lowest rates typically have stricter underwriting guidelines as they are hoping to minimize their risk by only buying loans from the highest quality borrowers. The average credit score these loans is often 760 or higher and debt ratios frequently below 30%. These banks are also typically looking for borrowers who have been on their job a long time and have relatively substantial assets for down payments and reserves. Borrowers who don’t meet these extremely high standards or who have some minor flaws such as a fairly recent 30-day late on their credit need lenders who are a little more forgiving. Higher risk means a higher rate – it’s often barely noticeable, especially if you don’t lock on the same day as your buddy who qualifies for the ultra great rate.
Timing and Time-value of Money
Comparing rates with a friend who recently got a mortgage is like comparing Michael Jordan to LeBron James – they played in different times against different people. Two borrowers closing at different times with different borrowing circumstances will have different rates – even if they only close their loans a few weeks or months apart. The key is using a mortgage professional you feel comfortable with and can trust. Couple trust with a loan officer who understands financial principals like time-value of money and has tools to provide a good educated guess about when to lock the rate is probably going to help you structure your loan in a way that helps you maximize your ability to create wealth – check out this post for information on this topic: What is the optimal down-payment amount?.
As always, feel free to call (702-812-1214 or 801-893-1737) or email (firstname.lastname@example.org) if you have any questions or I can help in any way.