The New York Times
Mortgage rates are near historic lows, but they are rising, leading some borrowers to consider locking in their rate. When borrowers lock in their interest rate, it freezes the terms of the loan while it is being processed, potentially saving borrowers thousands of dollars over the life of the mortgage.
Making sense of the story
- Locking in a rate may be especially important for those who are refinancing, where even a quarter of a percentage point could skew a borrower’s calculations and make a refinancing less financially desirable.
- Rate locks can provide buyers with some peace of mind, not to mention one less thing to think about in an otherwise onerous application process.
- Lenders typically will give loan rate guarantee agreements when a borrower has a purchase agreement, but a few will provide them to those who are preapproved for a mortgage.
- The cost of reserving an interest rate depends both on the duration of the lock and the amount of the loan. The longer the lock, the more costly it is. Most locks are for 30, 45, or 60 days, but some lenders will go as long as six months.
- Most lenders offer some version of a free lock, though it may be only for 30 days. Others charge points – or fractions thereof – based on the loan size, which could amount to several hundred dollars. One point is equal to 1 percent of the loan amount. Sometimes these charges are refundable at closing.
- Borrowers may want to skip a rate lock, or delay taking one, if they are unsure when their home purchase will close.
- Knowing how long to lock in a rate requires a clear picture of the mortgage process, and a good estimate from the lender on how long it will take to approve the loan and complete all the paperwork and other requirements. For some lenders handling refinancing, this can be 15 or 20 days; others take longer.
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http://www.nytimes.com/2012/04/08/realestate/mortgages-locking-in-peace-of-mind.html?_r=1&ref=realestate
- Some borrowers who have sold their homes through short sales may be eager to buy another home while interest rates are still low. However, these borrowers should be aware of the downside of trying to purchase a home right away.
- While banks are starting to lend again to those who have worked to polish their tarnished credit, and once-wary investors are starting to show renewed interest in sub-prime mortgage bonds, buyers who simply can’t wait will have to pay high interest rates and likely a down payment of at least 30 percent.
- Working with a private lender is one option, but borrowers should first check to make sure that the lender is licensed to provide mortgages by searching the Nationwide Mortgage Licensing System & Registry.
Borrowers who kept their mortgage payments current until the closing of the short sale also may be able to get a Federal Housing Administration loan. If the mortgage was in default though, an FHA loan is not possible for three years.
The New York Times
Interest rates are the lowest in decades, enticing many borrowers to shop for a loan. Mortgage lenders adjust their rates based on perceptions of risk, so unless the borrower can show they’re a low-risk individual, the borrower is unlikely to qualify for a rate that matches those seen in recent advertisements and headlines.
Making sense of the story
- The rates quoted are averages drawn from a variety of financial institutions, and lenders use varied approaches to set them. Consumers who want to try for the lowest rates available need to consider basic factors, such as credit score, points, property type, down payment, and length of the loan.
- Credit score: The ideal borrower has a FICO score of 740 or higher, which puts the individual in the best place for pricing.
- Points: The lowest rates usually are decreased by paying a fee called a point, or 1 percent of the loan amount. Borrowers may buy points in order to get the best rates at many banks. Points might make sense depending on the borrower’s financial situation and how long they expect to stay in the home.
- Property type: Borrowers planning to buy a duplex or a four-unit build likely will have a higher interest rate. Condominiums also may have a rate premium rate, especially if they are newer or the down payment is less than 25 percent. Lenders also may charge more if the borrower is not planning to live in the home.
- Down payment: Borrowers who put down at least 25 percent are more likely to obtain the best interest rates. Lenders offer different breaks on rates if equity in the property is higher, so borrowers should ask what is available.
- Length of loan: Borrowers who are likely to move in a few years may want to look into an adjustable-rate loan with a low interest rate fixed for a few years, and adjusted afterword.
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http://www.nytimes.com/2012/01/15/realestate/mortgages-shopping-for-the-best-rates.html?_r=1&ref=realestate
