Advertised Interest Rates

Whether you see them in the paper, on the internet, hear them on the radio, etc. I am amazed by how many people see the rate and then ask for it without any other due diligence.  Just like any advertisement there is the fine print or with radio the incredibly fast talking at the end.

The rates advertised are typically for lock periods of 15 days, loan to values at 80% or less (sometimes 60% or less to make their rates look better), paying points, and sometimes even hedging their bet that rates will drop and that rate will actually exist.  My favorite quote is from Winston Churchill, “If you don’t read the paper you are uninformed if you do read the paper you are misinformed.”

Rates change multiple times a day.  Here is a video that can help you understand this better http://www.youtube.com/watch?v=vj8bZGkMST0.  I follow mortgage-securities real-time everyday through Mortgage Market Guide which is mentioned in the video. 

Have you ever seen a car payment advertised and you went to buy the car and it was much more?   I know I have.  I remember a 5 Series BMW I wanted to buy and they advertised it at $449 per month so I went to the dealership and by the time all was said and done it was $856 per month.  Okay, okay, I did have it priced out with some “extra” items but to really get that low payment you have to qualify, put money down, and get the bare bones minimum.  Come to think of it if someone is quoting much lower than what is out there guess what?  You will get what you pay for or it might not even be a rate that exists yet.

Here is Freddie Mac’s link for their weekly survey http://www.freddiemac.com/pmms/release.html?week=28&year=2010.  Each Thursday they come out with AVERAGE rates for the week ENDING.  What no one seems to do is read the full article.  It is an average for the whole country and paying no points.

How To Get An Offer On A Home Accepted?

I am not pretending to be a real estate agent nor do I know everything involved in this process.  What I do know is that if you have a great and reputable team around you, you can increase your chances of getting it accepted. 

What I mean by that is if the real estate agent you are dealing with has a good reputation and your offer is the same as someone else’s who they don’t know or does not have a good reputation guess who’s offer they are going to accept?

The same can be said about your Mortgage Professional.  Real estate agents aren’t exactly fond of mortgage originators because there have been so many problems of late.  This can sometimes be even more important than who the real estate agent is on the deal because the financing can make or break the deal. 

The point of my story is that there is so much more to buying a home than an interest rate.

When Is A Good Time To Get Pre-Qualified?

Too many buyers wait until an hour, sometimes less, before they are going out with a real estate agent or after they have already gone out looking at homes with the agent.  I read a statistic recently that said consumers spend more time preparing to buy a car then they do a home.  That’s a problem.

This is going to be one of the largest, if not the largest, asset and liability you will ever have.  You need to prepare in advance.  There isn’t any magic number of days, weeks, months, etc. that you need to wait but you shouldn’t be out and looking with a real estate agent until you understand what is involved, the process, what it’s going to cost you, etc. 

I also feel it is best to get pre-qualified during the day then at night or on a weekend.  This is only my personal opinion.  I am not saying this because I want to work Monday to Friday from 9 to 5 nor does it mean those are the hours I work since it certainly isn’t.  But the reason I say this is because a Mortgage Professional has a lot more resources at their finger tips during normal business hours.  Examples of this are running scenarios by colleagues, asking an underwriter, calling an investor, contacting HUD, being able to look up if a condo is FHA approved, etc. 

Before you call you to get pre-qualified you should make sure to have 2 most recent years of your W-2s and tax returns (Form 1040 with all pages) and 2 most recent statements for any and all assets.  If you are able to scan and create a PDF to send to your Mortgage Professional that is even better because the more information you provide the more it increases your chances of closing on a home and not running into any problems.

When Should You Lock Your Mortgage Interest Rate In?

Take your crystal ball and….  Okay, I will be serious now.  It is hard to determine the best time to lock in an interest rate. Interest rates move based on what mortgage-backed securities do a.k.a mortgage bonds.  If mortgage bonds get better than interest rates get better and visa versa.  Sounds fairly simple right?

Mortgage bonds can change multiple times a day just like stocks do.  Normally stocks and bonds work inversely so if stocks are getting better bonds are getting worse.  When the economy is doing well bonds can suffer because investors are more willing to take on risk by coming out of bonds and going into stocks.

I follow mortgage-backed securities real time everyday and try to take the available information I have along with the advice from the service I use, http://www.mortgagemarketguide.com/, to advise my clients whether to lock or float the interest rate.  There are no guarantees and it will all depend on the amount of volatility you can handle.  My advice is if you are happy with your payment then lock the rate in.  Yes rates can get better but they can also get worse. 

The nice thing is that most banks will let your renegotiate to a lower rate if the market improves.  You need significant improvement and you won’t drop to market rates.  Here is an example to help you understand this better.  If you lock your rate at 5% and interest rates move to 4.5% you would probably be able to lower your rate to 4.75% without a cost.  That’s a pretty good deal in my opinion.  Don’t you wish this could be done with stocks too? 

Here is a great YouTube video all about interest rates from one of the contributing members of MortgageMarketGuide.com http://www.youtube.com/watch?v=vj8bZGkMST0.

Don’t Chase Rates – Find The Right Mortgage Too

I have been talking lately about how a loan is much more than an interest rate.  Here is an article from MSNBC that talks about getting the loan that is best for you.  I have included the link below and I highly recommend reading it along with my other recent posts about how important it is to deal with a Mortgage Professional. 

http://www.msnbc.msn.com/id/38227101/ns/business-real_estate/ 

Should You Get A Conventional or FHA Loan?

In the State of Florida Conventional loans require at least 5% down, it has to be a primary single family detached home, you have to have credit scores above 720 (preferably above 740), 2 months of reserves, and a maximum debt to income ratio of 41%, but if you do it might just be your best option. 

The reason I say that is because FHA has a one time upfront mortgage insurance premium charge of 2.25% of your loan amount.  It gets rolled into the loan amount but it is a charge nonetheless.  The factor for the monthly mortgage insurance is a little less with FHA on a loan with 5% down. 

You can find a very good example of what I am talking about at http://mgic.com/education/mi_better_option.html.  MGIC, who is one of the mortgage insurance companies that will insure loans above 80% loan to value, also has an “MI Options Calculator” that can be found here https://calculators.emagic.com/Calculators/servlet.  Hopefully your Mortgage Professional does this for you but just in case I wanted you to have the resources needed to do it.

How Do I Find The Lowest Interest Rate?

If that is what is most important to you then you are in trouble.  Rate should be the least of your worries.  You should be concerned with finding a Mortgage Professional.  You want someone who you know you can trust, that they will close your loan, gives your options, explains things to you, etc. 

How do you find this person?  That’s a tough question and one that there is probably no right answer.  Most people find me through a referral from either through a past client, a real estate agent, title company, etc.  That doesn’t always mean they are the best but it’s a place to start. 

You can never be too safe so I would take the name and phone number of that person and Google them to see what I can find out.  If they have a common name I would probably add “mortgages” to it and possibly the city and state. 

After finding information on the Mortgage Professional I would call them and introduce myself saying that I got there name from so and so and wanted to see where their interest rates were.  If all you get is an interest rate quote I would begin to look elsewhere for a loan. 

A loan is much more than just an interest rate.  This is something you are going to be stuck with for many years so you better make sure someone is looking out for your best interests.  I think we have lost sight of the saying “you get what you pay for.”  Do you want the cheapest surgeon or the best surgeon?  I once heard a saying “you shop for shoes, you shop for clothes, but when you shop for mortgages you end up with the biggest liar.”  Anyone can quote you any rate but it’s the rate that you get locked in at that counts.  No matter what you are buying, whether a product or a service, you can always find someone cheaper. 

There are too many things that can cause a deal to not close that you can’t have interest rates being your #1 concern.  You want a competitive rate but you need an expert.

Interest Rates at 50 Year Lows

You don’t need a tax credit with these rates.  I am just blown away.  Just as I think they can’t go lower they go lower.  All of this is without the Fed buying mortgage-backed securities.  Most thought rates would shoot up after the Fed stopped buying and not only did they not do that they went down. 

Let’s look at how much an interest rate can affect a mortgage payment.  On a loan amount of $200,000 the principle and interest payment for 30 years with a rate of 5.625% is $1151.31 and at 4.625% it is $1028.28 per month.  That is a savings of $123.03 multiple that by 60 months (5 years) and you get a savings of $7381.86.  There’s your tax credit.  Take that over 30 years (360 months) and it is a savings of $44,291.15. 

I don’t know but my thoughts are if you are looking to purchase or refinance now is the time.  But then again I have been saying this with rates in the 5%’s so who am I. 

http://www.cnbc.com//id/38037896