Mortgage

2% Mortgage Curiosity: Actual Or Advertising and marketing Gimmick?

Mortgage rates below 2.5% are real – for some

United Wholesale Mortgage (UWM) recently made headlines for offering 2.5% mortgage and refinancing rates. Now the bar has been lowered even further with a VA loan interest rate of 2.25%.

And other lenders follow suit. At the time of writing, at least one lender in our network was offering 30-year refinancing rates of only 2.49% (2.644% APR). *

But how realistic are these prices? Is 2.5% the exception or is it a real interest rate that is available to regular borrowers?

As always, it depends on what you qualify for.

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* The interest rate estimate is based on a credit score of 720 and an LTV rate of 73%

Regardless of whether you qualify for 2.25% or not, the rates are ridiculously low

The truth is that the lowest advertised interest rates almost always go to prime borrowers. those with excellent credit scores and 20% down payments.

A mortgage rate of 2.25% could therefore be unattainable for some. But the good news is that prices across the board are still incredibly low.

Regardless of how strong your application is, lenders are now offering better interest rates than a year, six months, or even a month ago.

How low is low? Freddie Mac has reported average weekly mortgage rates since the 1970s. Think about where we were.

The prices we see today are part of a long trend. A very long trend.

Mortgage rates have been falling generally since the early 1980s. The 30-year rates rose from 16.63% in 1981 to only 3.13% in June 2020.

Period
Average 30 year rate
Period
Average 30 year rate

1981
16.63%
Jan. 2020
3.62%
1990
10.13%
February 2020
3.47%
2000
8.05%
March 2020
3.45%
2008
6.03%
April 2020
3.31%
2012
3.66%
May 2020
3.23%
2019
3.94%
June 25, 2020
3.13%

Data: Freddie Mac

Many would not have thought it possible 20 years ago – or even a year ago – but interest rates in the low 3% range are now often quoted. And prices in the 2s are a reality for some.

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Advertised mortgage rates compared to the rate you receive

You've probably heard the advertisements for a million dollar life insurance for $ 26 a month. These guidelines exist – but not if you are a smoker or 65 years of age.

In a similar sense, there are many seductive mortgage offers. Prices so low that they look like typos. But is such funding really available?

The answer is yes for some borrowers, but no for others. To see who qualifies and who doesn't, you need to see the full range.

The truth about 2.25% VA loan interest

Consider the advertised 2.25% VA mortgage rate from UWM as an an example. (However, this reasoning also applies to loans without a VA.)

Every real estate financing comes with conditions and requirements.

In the case of the 2.25% VA mortgage offer, UWM provides an example that assumes a “30-year VA loan with a fixed interest rate at an interest rate of 2.25% and a mortgage lending value of 80% (LTV)”.

When reading the example and related materials, some questions need to be asked.

Are you VA qualified?
What is your credit rating? (At least 640 are required)
Are you buying a house or refinancing?
When you buy, are you ready to cut 20%?
If you refinance, do you keep at least 20% equity in your home?
What is the rate for VA financing where nothing has dropped?

VA financing is available to buyers with a 0% decrease, and current homeowners can refinance 100% of the fair value of the property using the VA Streamline (IRRRL).

But those who use zero-down or low-down payment options are unlikely to get the lowest possible prices.

There is always a compromise between the strength of your application and the low interest rate that lenders offer you.

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The best mortgage rate – it's complicated

Mortgage providers are in business to make money. The last thing they want is to refuse loans, reject borrowers, or make the application process more difficult than necessary.

Why do borrowers have to meet such high standards to get the best mortgage rates?

The thing is, there is a lot going on behind the scenes when a mortgage lender determines your interest rate.

Investors and the secondary mortgage market

Mortgages are routinely sold to buyers like Fannie Mae, Freddie Mac and investors worldwide on the secondary market.

The secondary market is an electronic "place" where mortgages are bought and sold. Selling mortgages gives lenders the money they need to take out new loans.

But such investors have their standards.

Secondary market investors want to buy standardized products. You can request that a loan have a certain down payment, a certain debt-to-income ratio, and a certain credit rating.

Why? Because they want to be sure that they are making a safe investment. These criteria help lenders and investors check whether borrowers can repay their mortgages.

Loan program requirements

There are also different requirements to qualify for a mortgage – and a low interest rate – depending on the type of loan you are applying for.

You can buy with little or nothing with the support of the FHA, VA, USDA, and private mortgage insurance. These programs protect lenders when borrowers fail to make their payments.

However, they also have certain requirements that borrowers must meet in order to qualify for program support. If a home buyer cannot meet the program standards, the loan application will not be processed.

Mortgage Bank Requirements

Regardless of other requirements, lenders can have additional standards – so-called "layering" – that borrowers must meet. These standards arise because lenders want to reduce risk.

For example, the official guidelines say that you can get FHA funding with a credit score of only 500 and 10% less. But in reality these loans can be hard to find. In fiscal 2019, HUD reported that only 1.04% of all forward FHA loans had credit scores below 579. This is because many lenders simply don't want loans with lower credit scores.

Lenders can also decide what interest rates they offer to borrowers. And these prices change every day.

Depending on the current workload, the type of loan taken out, currently available investor money, etc., a lender may offer you a higher or lower interest rate.

How to find your lowest rate

Despite the complicated factors that affect your mortgage rate, you don't have to be a financial professional to find the best deal. You just have to be willing to work a little.

You get the best mortgage rate when you find the lender and loan program that best suits your needs.

Browse around and talk to some lenders before taking out a mortgage. This way you can be sure that you will get the lowest value Price available to you.

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