Mortgage Rates | Direct Your Own Loan

How to Get the Lowest Rate on Your Home Loan

The interest rate you get for your home loan will determine how much you pay in interest over the entire life of your loan.

Even small fractions of a percentage can add up thousands of extra dollars in interest payments. Whether you’re applying for an FHA loan, a VA loan or a conventional loan there are steps you can take to get your lender to offer you a lower rate.

One Quick Trick to Get a Better Rate

FHA guidelines require borrowers to have credit scores of at least 500. Mortgage applicants with a credit score of less than 500 will be unable to get an FHA backed mortgage. However, even if you qualify for an FHA loan, a VA loan or a conventional loan backed by Fannie Mae and Freddie Mac this doesn’t mean you’re guaranteed the best rate.

For example, a mortgage applicant looking for an FHA loan whose credit score is 680 will get a much better rate than an applicant with a credit score of 580. In many cases such an applicant could get a rate ½ percentage point lower than the borrower with a lower credit score.

According to the Federal Trade Commission, one out of every four credit reports has errors which may negatively affect the mortgage rate offer they’ve received from a lender. Consequently, millions of borrowers are needlessly paying a higher interest rate than what they deserve.

To get the rate that you deserve it is essential to obtain a copy of credit report and check it for errors. Correcting a mistake on a credit report can raise your credit score by as much as 100 points or more. In fact, many lenders will give you free access to your credit report as part of their rate quoting process.

Getting a Lower Rate with Conventional Loans and VA Loans

It is possible to pay less interest with conventional loans simply by making a larger down payment. For example, if you’re buying a condominium you can gain access to lower mortgage rates simply by paying 25% down instead of the 20% that many buyers put up. This could possibly be an attractive option if you’re able to afford the extra money down.

VA loans are unique in that the rates offered don’t change with high or low credit scores. Veterans are able to save money on their VA loan through VA streamline loans. These are no verification refinance loans which can give the borrower access to better mortgage rates.

With this type of loan the VA wives the typical documentation requirements that most lenders look for when they’re refinancing a home loan. This includes W-2s and bank statements as well as the need for a home appraisal. The only thing that VA requires for getting access to the loan is that it has a tangible benefit for the borrower.

No matter what type of loan you have, there is likely a way that you can save money on your loan by getting a better rate. It’s often simply a matter of finding the right lender who is willing to work with you.

Home Sales Stronger Than Expected for April

Sales of new homes are up 6.4% for the month of April according to new data released by the census bureau.

It was the only increase in home sales since January and has generated speculation that the housing market may be picking up steam once more heading into spring. Along with the increase in sales of new homes, the sales of previously owned homes rose at a rate of 1.3%.

Why Sales Have Picked Up After Falling Off

To give some perspective, this month’s increase in home sales is still 4.2% below where the market was in April of 2013. Back in 2013, rates were still relatively low and there was a flood of new buyers entering into the market before they shot up even further.

But one year can make a lot difference. As mortgage rates started picking up, buyers began to slow down with the purchase of new homes. At the same time home prices were also raising, which had the effect of shutting a lot of potential buyers out of the market. This was especially true with first time buyers.

Buyers have been consistently struggling to afford a new home after last year’s price increases. However, as mortgage rates have begun to stabilize in the past few months, more buyers started to enter into the market.

What’s interesting is how the market has shifted in different regions. Not all places in the country are experiencing an increase in sales. The new sales are being driven largely in the Midwest where buyers are purchasing homes 47.4% faster now than in April of 2013. In the Northeast, sales dropped by 26.7%. Sales in the South are up by a meager 1.3%.

Purchasing a Home in Today’s Market

There are a number of good reasons why now may be better than latter when it comes to getting a new home. Homes prices are still steadily increasing, meaning that even more buyers will be priced out of the market. Even for those buyers who are still able to afford a home, they may eventually no longer able to afford the home that they were hoping for.

Mortgage rate stabilization provides another strong incentive for prospective buyers. Rates will not likely dip back to the historic lows that they were at near the end of 2012. However, they are still relatively very low compared to where they were prior to the financial crisis. This is incidentally the same reason why it would be advantageous for many homeowners to refinance to a new lower rate if they have not done so recently.

Whether you’re buying a house or refinancing, the temporary ease in mortgage rate hikes could potentially help save you a lot of money. Just fractions of a percentage with mortgage rates can mean the difference between saving and paying tens of thousands of extra dollars on your home. So, while rates might not likely be heading back down, there is still ample opportunity to save money with a home loan in today’s market as opposed to waiting several months down the road.

How to Get a Low Mortgage Rate on Your Home Loan

If you are shopping for a low mortgage rate, there are ways to make sure that you get the best deal possible. It starts by understanding how lenders determine interest rates and making sure that you are in the ideal position to receive a low one. Aside from market conditions, which are beyond any one person or lenders control, there are things you can do to get the best interest rate possible.

Here are specific things that will make your mortgage interest rate either go up or go down.

Credit Score

If you have excellent credit that is over a 740 FICO score, you may qualify for a rate discount because you are perceived as a lower risk than someone with average or poor credit. If your credit is 680 or higher you are typically considered having good enough credit to qualify for the advertised interest rate. As your credit score drops below 680 you may be hit with additional rate bumps for every 20 points you lose to your credit score. Each lender is different, but this is a general rule of thumb. By improving your credit score to above 680, you will have the best chance of securing the mortgage loan you want at the interest rate you want.

Occupancy Status

When you get a home loan on an owner occupied property, you will get a better interest rate than if it is for a rental property. This is because mortgage lenders view rental properties as being a greater risk. For example, if you were to face financial difficulties it is more likely that you would pay the mortgage where you live over a rental property. If you want a low interest rate buy the property and live there for a while before you turn it into a rental.

Loan to Value

Your loan to value is the difference between how much your mortgage is and the value of the property. For example, if you owe $160,000 on a home that is valued at $200,000 your loan to value would be 80 percent. There are financial advantages to owing 80 percent or less on your home in that you don’t have to pay private mortgage insurance. You will also qualify for a low mortgage rate. Many lenders will give you an interest rate discount the lower your loan to value is. This is an incentive to pay down your mortgage balance when refinancing or give a larger down payment on your home purchase.

Loan Amount

A conforming loan is anything under $417,000. If you buy a home and need a jumbo mortgage to finance it, there will be a rate increase. If you have excellent credit and have a decent down payment, the rate increase may not be significant. If you are debating on the size of the house to get you should speak with your mortgage lender about the differences between jumbo mortgage rates and conventional mortgage rates and how it will impact your payment.

To learn more about how you can secure a low mortgage rate call your local mortgage lender today.

Qualify for the VA’s Interest Rate Reduction Loan

If you are looking to reduce your monthly mortgage payment, the VA’s Interest Rate Reduction Loan (IRRL) may be exactly what you are looking for. This is the VA’s version of a streamline refinance program. Their goal is to lower your interest rate in order to make it easier and more affordable to make your monthly mortgage payment. When home owners can better afford their monthly payment, it decreases the risk that they will default on their home loan.

Qualify for the IRRL Program

• Have an existing VA home loan. This is a streamline program, so you have to already have a VA home loan. If you want to refinance from a conventional or FHA loan to the VA you can, but you have to start a new refinance application.

• You had to have lived there at some point. Most VA home loans require that you occupy the property as your primary residence. With the IRRL, you only have to show that you lived there at some point. If you have turned it into a rental, that is okay, as long as you have the proof of original occupancy.

• Entitlement. You need to have used your VA entitlement to obtain the original mortgage loan.

• Save money. This refinance has to save you money. The only exception to this is if you are switching from an adjustable rate mortgage (ARM) to a fixed rate loan.

• No cash out. The refinance cannot increase the balance of your home loan. This is simply a way to reduce your interest rate, not increase the loan balance.
There are many benefits to using this VA streamline refinance program. It is one of the easiest ways to refinance and lower your interest rate. Here are additional reasons you should consider it.

• No appraisal. There are no appraisal requirements, so it doesn’t matter if the value of your property has decreased.

• No credit report. The underwriter will not be reviewing your credit information which is great news for anyone that has struggled in the economic downturn.

• No money out of pocket. You automatically save money by not having an appraisal complete. The remaining closing cost can be rolled into the loan so that you don’t have to bring in any money to close. This makes the VA Interest Rate Reduction loan an inexpensive, risk-free way to refinance.

In order to get started, you need to contact a VA approved lender. Many lenders do not offer VA home loans, and those that do may elect to not offer the IRRL program. By working with the right mortgage banker, you can benefit from lowering your interest rate without paying refinance fees or going through the appraisal and approval process of a traditional refinance.

Mortgage interest rates are still low so now is an excellent time to speak with a mortgage lender and determine if you could be saving money. Discuss your goals, and if the IRRL is not right for you, they can suggest a loan program that is.

Fed Official Suggests Lowering Interest Rates

Mortgage interest rates have stayed low this year in spite of the Federal Reserve’s commitment to reduce bond buying. It was anticipated that this would send interest rates soaring, which fortunately has not been the case thus far. Homeowners can take advantage of low interest rates to purchase a home or to refinance and save money. With 30 year mortgage rates hovering around 4.42 percent, now is an excellent time to start a loan application.

Narayana Kocherlakota, president of the Minneapolis Federal Reserve Bank, told reporters that he thinks the Federal Reserve hasn’t done enough and needs to do more. While home mortgage rates are still low, overall lending rates aren’t low enough to encourage economic growth. Lower interest rates could encourage more people to purchase homes, businesses to expands, and people to buy consumer goods.

Since 2008,the Federal Reserve has kept interest rates in between zero and 0.25 percent. He thinks that the Fed should be thinking about lowering rates again stating, “It’s really about demonstrating a commitment to stay with the recovery for as long as it takes to get the economy fully recovered.” While unemployment rates have dropped to 6.7 percent the job market is nowhere near what it should be,and until we reach an unemployment rate of 5.5 percent with an inflation rate of two percent, President Kocherlakota believes that the Fed needs to take a more progressive stance.

What Does this Mean for Homeowners?

If the Federal Reserve decided to lower interest rates, they would not be directly lowering your mortgage interest rate. Instead, this would lower the interest rate that they charge banks to borrow money. Banks base their interest rates, in part, on what the Federal Reserve rate is because that is how they make a profit. When the Fed lowers rates, banks typically respond by lowering them,as well. This impacts home mortgage rates, auto loan rates, and even credit cards. Businesses can also benefit from lower interest rates, which can lead to additional job creation.

If the Fed lower interest rates, there would likely be more people in the market to purchase a home because their overall cost of borrowing would be reduced. When this happens it can become cheaper to buy a home than to rent one. With low down payment mortgages like FHA home loans, or zero down payment options through the VA, first time home buyers can enter the market. This is an ideal situation for a family that wants to sell their existing home and acquire a different property. More buyers mean you can sell faster while low interest rates make a new home affordable.
It is unknown whether the Federal Reserve will follow this advice and lower interest rates again. What is known is that mortgage rates are low right now, making this an excellent time to buy or refinance. If you have an existing home loan contact, your FHA approved lender to see if you qualify for an FHA streamline refinance which will lower your interest rate without an appraisal. This is one of the many options available to homeowners so contact your mortgage banker to see how much you can save.

What is a Hybrid (ARM) Adjustable Rate Mortgage?

As a homeowner mortgage loan products can get confusing. There are multiple options to choose from including a 30 year fixed rate mortgage, 15 year fixed, adjustable rate mortgage (ARM), and even a hybrid ARM. The type of home loan you select should be based on what will help you to accomplish your financial goals. Your mortgage is more than a way to purchase a home. It is a financial tool to help you plan for your current and future financial needs. Hybrid ARM’s were developed because sometimes those financial needs change.

The Hybrid Arm Explained

The Hybrid ARM is not fixed or variable only; it is a combination home loan. The initial term is fixed then becomes variable after a set period of time. The most common ARM terms have fixed interest rates for the first three, five, or seven years. The loan payment is calculated using a 30 year amortization but the interest rate is lower than what the going thirty year fixed loan rate would be. That is how borrowers save money. You are in essence paying a lower interest rate now and subject to the market interest rate later.

For example, if you owe $200,000 on your home loan and had a 30 year fixed mortgage with an interest rate of 4.3% your monthly principal and interest payment would be $989. If instead, you had a five year ARM at 3.37% your payment would be $883. In essence, your family would save over $100 a month, every month for those five years.

The Benefit of a Hybrid Loan

The flexibility of the loan can help your family to decrease expenses now, in order to help you achieve life goals. This is ideal for someone that has a spouse going back to school, is paying for the last remaining years of private education, has temporary daycare expense, or is confident in a future promotion and raise. If you need to save money now but will have more cash in the future, an ARM loan makes sense.

The risk that you face with a Hybrid ARM is that when the fixed rate period expires the market conditions could be unfavorable. If interest rates have risen significantly you could be stuck with a mortgage payment that you cannot afford. This is why many people elected to move from an ARM to a fixed rate home loan. The opposite can also be true. If the market adjusts and interest rates drop, you could end up paying less money when your rate expires. When your home loan is tied to the market, it’s a gamble either way. You could win, or you could lose. If the unknown frightens you, stick with a fixed rate mortgage. If you believe that the current financial benefit outweighs the risk, look into an ARM loan.

Speak with your mortgage lender to discuss your financial goals, current needs, and home loan. They can show you what the payment difference will be with a variety of mortgage programs and help you to select the one that helps you to achieve your family’s goals. Call your mortgage banker today to get started.

Congress Debates Mortgage Interest Deduction

Homeowners in the United States have relied on the mortgage interest deduction for many years to save substantial amounts of money off of their federal taxes.

The mortgage interest deduction has been very popular in the general public and has enjoyed support from both political parties. But a new round of budget talks that would include a broad tax overhaul could potentially put this tax deduction into jeopardy. Here is what you need to know.

Why Some Support the Mortgage Interest Deduction

People who support the mortgage interest deduction say that it encourages homeownership and that it gives members of the middle class more financial secularity. One of the effects of the deduction is that it makes mortgage payments more affordable and helps families build up equity in their homes. Last year alone there was approximately $70 billion dollars worth of federal tax deductions that were given out based on the deduction.

It is the largest person tax deduction that an individual or a family can take out. Currently, homes up to $1 million dollars can be used for the deduction. A new proposal lead by Representative Dave Camp (R-Mich) would reduce that amount to $5000,000. As part of the proposal currently held mortgages up to $1 million would be grandfathered in, but the legislation would take effect on new mortgages.

While $500,000 does seem like a lot of money, keep in mind that this would affect certain parts of the country more than others. Traditionally high priced real estate markets on the East Coast and West Coast would feel the greatest impact. California, for example, has an abundance of cities where the median price for a home far exceeds $500,000.

Why Some Oppose the Mortgage Interest Deduction

Those who oppose the mortgage interest deduction say that it mainly benefits those with higher incomes. This is framework in which the compromise legislation from Dave Camp exists in. Data from the congressional budget office reveals that roughly 75% of the 70 billion dollars from the deduction last year go to those who make more than $160,000 dollars each year.

Democrats have argued that that this has done nothing to spur homeownership because those who make $160,000 or more each year are statistically less likely to need money in order to purchase a house. Another criticism is that the deduction does nothing to help the millions of Americans who cannot afford to own a home and are forced to rent.

Much of the debate centers around just what constitutes being wealthy and how much help do the wealthy really need. Does living in a 1 million dollar home make you wealthy? It depends on who you ask, and the way that a person answers will largely depend on their political affiliation. It’s worth keeping in mind though that $1 million doesn’t buy much of home in places like Manhattan and San Francisco. The cost of living in these two cities is exceptionally high.

In addition to these concerns, there is also there is also the fact that the United States remains in a budget deficit. It’s been over a decade since there was budget surplus. What seems likely at this point is that some compromise will be reached that keeps the mortgage interest deduction in place but does significantly lower the amount of money that can be deduced. If a bill similar to David Camp’s proposal gets passed, this will have no effect on current homeowners. But it will certainly be something to keep in mind for those who will be purchasing a house in the future.

Housing Market Recovery Set to Continue But at a Slower Pace

A number of positive indicators have shown that housing recovery is moving along steadily, though the pace at which the recovery takes place is set to slow down.

Home sales were strong in the first half of 2013, but the second half of the year was much weaker than the first. Moreover, home prices only reflect where the state of the housing market has been and do not necessarily reflect where we’re headed. It takes around six months for new information on home sales to work its way into the official data.

This is why some economists have predicted that 2014 will mark a noteworthy slowdown in home value appreciation. With less buyers looking to get a home, there will be less demand for new houses. And with shrinking demand, a slowdown in home value appreciation is what would necessarily follow.

Home Values In 2014

Another factor that will have a direct impact on home values is interest rates. The Fed has kept interest rates low for years through its bond buying program, but it has already begun to scale back its efforts on that front. If rates on 30-year mortgages do rise, that could significantly hamper the number of people willing to get a home or refinance. This is exactly what happened last summer when rates were on the rise and many Americans held of purchasing a home or refinancing an existing mortgage.

So, higher rates would likely lead to lower demand which would eventually mean lower home prices. This could be great news depending on what you’re trying to do. It’s not good news if you want to sell your house. Homes are often the biggest financial asset most Americans have and falling home prices are akin to becoming poorer. On the other hand, it may be good news if you’re an investor or a prospective homeowner looking for a good deal. The biggest winners in all of this would likely be all cash buyers who can get the low price they’re after without paying a dime in interest.

Housing Recovery Strength Depends on Location

Even as the housing market continues to recover, some locations are expected to bounce back faster than others over the next five years. According to a new study released by the Demand Institute, by 2018 median home prices will reach their same peeks that were seen in 2006. But the recovery is not expected to be dispersed evenly.

In the 50 largest metropolitan areas in the country, the top 5 locations will see home values appreciate by an average of 32%. This stands in contrast to the bottom 5 which will only see prices appreciate by 11%. But this is only half of the story.

What the data reveals is a striking wealth gap that’s being created in the housing market. For example, the top 10% of cities now control 52% of all of the housing wealth. Many of these cities are located on either the East Coast or the West Coast. Some cities, by contrast, still remain underwater nearly 5 years after the recession officially ended.