Yes, you read that right: 1.875% mortgage interest
Mortgage rates have fallen across the country since the coronavirus pandemic.
But even in times of low interest rates, United Wholesale Mortgage (UWM) stands out from the rest.
UWM delighted borrowers for the first time in May with an interest rate of 2.5%. Then it was VA rates of only 2.25%.
United Wholesale is now offering the almost unthinkable:
1.875% rates fixed for 15 years Mortgages and 1.999% for 30 years – of course, to select borrowers.
Who actually qualifies for a rate below 2%? And how is UWM further lowering the bar on mortgage rates?
Find and Lock a Low Rate (Aug 12, 2020)
How sub-2% rates are possible
If you think a 1s mortgage rate sounds too good to be true, you are partly right and partly wrong.
There are record rates right now, but you need to be a very strong borrower to qualify for one. (More on this below.)
Perhaps most importantly, you understand the terms that are associated with an extremely low rate. It's all in the fine print.
The big catch is that borrowers usually have to pay for such low interest rates.
Mortgage lenders offer you the option to buy "points" at a lower interest rate. This means that you pay an upfront fee to reduce the amount of interest you will pay over time.
Most of the record lows advertised today are only possible if the borrower decides to buy points.
Each point costs 1% of your mortgage loan and typically lowers your interest rate by 0.25%.
Whether or not this option is affordable for you depends on the size of the loan you are taking out. For example:
If your mortgage is $ 150,000, you'll pay $ 1,500 per point. This can be worthwhile due to the interest rate offeredIf your mortgage is $ 400,000, each discount point is $ 4,000. In this scenario, you may be less inclined to lower your rate
While points are more expensive for larger mortgage balances, you will also save more each year by lowering your interest rate. To see if points are worth it, check how long it will take for those costs to be amortized through lower interest rates.
Points are a bit of a double-edged sword.
On the one hand, they can make the advertised prices a bit misleading. However, if you have extra cash, you may be able to negotiate points with your lender even if they are already offering a relatively low interest rate.
This can save you a ton of money in the long run.
When a company offers extremely low mortgage rates, it is also important to consider the annual percentage (APR).
The APR refers to the total annual cost of your mortgage, including the interest rate, borrowing fees, points, and other lender fees.
While it's tempting to just look for extremely low interest rates, APR gives you a better idea of what you're actually paying for the loan.
If a lender charges significant fees or you need to pay points to get a low interest rate, you may be better off with a lender who offers a higher interest rate but lower overall fees.
Read your loan estimates carefully to fully understand the cost of any loan you are considering – including interest rates and fees.
UWM is a wholesale lender which means it does not advertise its loans directly to consumers. Instead, it works with mortgage brokers who promote their loan products to borrowers who may be a good fit for them.
By not having to market and negotiate with consumers directly, wholesalers may have more flexibility in the tariffs they can offer.
If you are interested in finding a wholesale lender or you are not sure if you can find the lowest interest rate yourself, working with a broker is a great option.
Should you be working with a mortgage broker instead of buying direct?
When it comes to applying for a mortgage, many people apply directly to banks and lenders and do all the work themselves.
Or, you can hire a mortgage broker to look for loans and file applications for you.
However, working with a broker does not always guarantee you the best deal.
Benefits of Working with a Mortgage Broker
The big advantage of working with a mortgage broker is that they can obtain a variety of loan options from a wide variety of lenders based on your financial profile and the type of property you want to buy.
Basically, they do the job of shopping so you don't have to.
Brokers offer expertise and in-depth knowledge of what is available in the market and it can really help to have someone negotiate on your behalf.
You can also save a lot of time through a broker as you don't have to spend hours looking for different lenders.
Cons of working with a broker
The big disadvantage, however, is that brokers are a limited number of lenders.
When you choose to work with a broker, you can be sure that you will get the best deal from the companies they represent. However, you may be missing out on an even cheaper price than what they don't represent.
You'll also want to find out how the broker is paid before choosing one. Some mortgage brokers receive a commission from lenders, while others are paid by the borrowers they represent.
If you end up paying, you want to know exactly how much they charge before you sign any agreements.
Who can actually get a 1.875% mortgage rate?
Just because a company offers mortgage rates below 2% does not mean that all borrowers will qualify for it.
Lenders always offer their most competitive interest rates to first class borrowers with great credit profiles.
You are looking for:
Strong Credit Score: The best interest rates go to borrowers with excellent credit scores. typically 720 or higher. A good score indicates that you are a reliable borrower with a track record of good money management
Good credit: Lenders do a "hard" credit check when they run your application. You want to see that you paid your debt on time and that you are not in default on any account. You may still qualify for a mortgage with some credit default, but you are less likely to get extremely low interest rates
Low Debt-Income Ratio (DTI): Most lenders require your DTI to be 43% or lessalthough some allow higher ratios. The lower your monthly debt, the lower your mortgage rate is likely to be
Deposit: The higher your down payment, the less debt you take on (and the less debt the lender takes on). Hence, a large down payment can help you secure a low mortgage rate
Not all borrowers are eligible for interest rates below 2%. In fact, very few are likely to do so.
However, many will qualify for rates in their lower to middle sophomore year. That would have been unthinkable a year ago.
Check with some lenders, compare prices, and find out what you qualify for. It might be lower than you think.
Find out which plan you qualify for. Start Here (August 12, 2020)
Do your due diligence
There are so many decisions when buying or refinancing a home – not least of all, choosing a lender. And there are no easy answers.
It is a personal process where what really matters is what is right for you.
The key is to always look at your options before making a decision.
Even if you feel that you need to select a lender quickly in order to get the lowest mortgage rates today, it is important to research your various companies and carefully compare their offers.
Don't be swayed by shockingly low rates or an offer that seems too good to be true.
Always make sure that you see the full picture before contacting a lender or home owner.
Check your new plan (August 12, 2020)