Getting the "Best" Mortgage Rate

I am constantly replying to borrowers who want the "best" rate, which is often something they read online. The NY Times had an article about that this weekend.

THE lowest interest rates in decades sound enticing enough, but they are often out of borrowers’ reach. Rest assured, however, that the new banking regulations have gone a long way to ensure that borrowers are offered competitive rates.
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Mortgage lenders adjust their rates based on perceptions of risk, so unless you can show you’re a low-risk borrower, you are unlikely to qualify for a rate that matches those seen in all the advertisements or headlines.

The rates quoted by Freddie Mac and others 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 these basic factors.

CREDIT SCORE: The ideal borrower has a FICO score of 740 or higher.

POINTS: The lowest rates usually are decreased by paying a fee called a point, or 1 percent of the loan amount. Points might make sense depending on your financial situation and how long you expect to stay in a home. So ask for a zero point quote, too, and compare.

PROPERTY TYPES: If you’re buying a duplex or a four-unit building, your rate will almost certainly be higher. Condominiums may also have a rate premium, especially if they are newer or your down payment is below 25 percent. Lenders charge more if you are not planning to live in the home (investor.)

DOWN PAYMENT: Borrowers who put down at least 25 percent are more likely to obtain “attractive pricing” at Chase. Lenders offer different breaks on rates if equity is higher, so you should ask what is available.

LOAN LENGTH A lot depends on how long you plan to live in a home. If you’re likely to move in a few years, an adjustable-rate loan with a low interest rate fixed for, say, three to five years, and adjusted afterward, might work best. Also, rates on 15-year fixed-rate loans are lower than those on the 30-year. Lenders typically agree not to change an offered interest rate for 60 days, but borrowers confident of a quick closing may be willing to accept a 45-day rate guarantee, or even a 30-day lock, in exchange for a small discount, because the transaction’s speed helps the lender reduce its risk.

Borrowers must make sure, too, that they consider the entire cost of a home, looking carefully at monthly payment calculations. Lenders also look at maintenance, property taxes and insurance.

The result of the new regulations is that all these factors contribute to the rate that the borrower is offered. No longer will they be the whim of the lender.