One of the newest and most important developments in real estate lending is that now almost everyone can get financing, from the most- to the least-qualified buyers.
In the past, in order to get a mortgage you had to be a premium buyer—high salary, few other debts, cash in the bank, and sterling credit. Not so anymore. Lenders are taking less-qualified buyers and offering them financing with slightly higher interest rates to make up for the added risk. In other words, if you’ve been shy of applying for a mortgage because of some credit problems, give it a try. You could be surprised at the positive results. Of course, if you’re that prime buyer, you’ll get the lowest interest rates and the best terms.
The Lowest-Interest-Rate Hunt
For most people, the first consideration with regard to a mortgage is the interest rate. Higher interest rates translate into higher payments; lower rates, lower payments. Consequently, most people want the lowest interest rates possible.
TIP—SHOP LENDERS, NOT MORTGAGES
If you have a credit blemish or have trouble otherwise qualifying, shop for a lender, not an interest rate. Some lenders specialize in borrowers with problems; others won’t touch them.
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TRAP—BE CAREFUL WHEN COMPARING MORTGAGES
The best way to compare interest rates is to do it for like-kind mortgages. You don’t want to compare apples and oranges. Today there are two major kinds of conventional (nongovernment insured or guaranteed) mortgages available: a fixed-rate mortgage, where the interest rate does not change for the life of the loan; and a variable-rate mortgage, where the interest rate can change. When you compare mortgages, be sure you compare fixed-rate to fixed-rate and variable to variable. (There are so many different varieties of variable-rate mortgages that comparing them is really very difficult.) Of course, atsome point, you’ll also want to compare variable with fixed, but that’s a much more complex calculation, as we’ll see shortly.
How to Compare New Fixed-Rate Mortgages
Each lender who offers fixed-rate mortgages posts its current interest rate. These rates are often printed weekly in local papers. They also can change daily. In many areas a newsletter or online service gathers them all up and sends them off to agents.
TRAP—WHEN INTEREST RATES ARE LOW, LOCK THEM IN
Variable interest rate mortgages always offer lower rates. But the variable rate will rise when the interest rate market goes up. It’s usually better to lock in a fixed-rate mortgage when the interest rate market is low, rather than to try for an extra point or so by getting a variable rate.
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There are also numerous online lenders such as eloan.com and mortgage.com that post their current interest rates. These are very easy to check simply by going to their Web site. Major online services such as MSN.com and AOL.com will also lead you to mortgage rate postings.
But best of all, if you check with a mortgage broker who handles dozens of lenders, he or she can quickly tell you the best rate in town for the specific amount and type of loan you’re hunting for.
There are also points and fees. What’s that all about?
What Are Points?
A point is a single percentage of a mortgage. Thus two points on a $100,000 loan equals $2000; four points equals $4000, and so forth.
Points are a trade-off the lender is making. If you want a lower-interest-rate loan (lower than the market), you can get it, if you’re willing to pay points. The more points you pay, the lower the interest rate will be.
On the other hand, since points are cash out of your pocket, you may be willing to accept a higher interest rate. The higher the rate, the fewer the points. Normally, at zero points, you’re paying the market rate.
Note: The interest rate is very important since it will help determine your monthly payment. The higher the interest rate, the higher your payment. The lower the interest rate, the lower your payment.
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