Friday, September 16, 2022 / by Laura Larson
1. Lenders rely on your credit score.
Logic would dictate that if you and another borrower are applying for a mortgage jointly, the lender would take your combined credit score with the highest score. However, lenders utilize the lowest score between each borrower's "middle scores" and the middle three credit scores (from Equifax, TransUnion, and Experian).
Since interest rates are based on credit scores, in this case, your rate would be determined on your 660 credit score, which would significantly increase your rate or maybe disqualify you from receiving the loan.
This "lowest-case-credit-score rule" is not absolute. Most significantly, some lenders will permit your better credit score to be on the file if you have a higher credit score and are also the higher earner. However, this is typically only the case for jumbo loans over $417,000. If there is a difference in credit scores between your co-borrowers, talk to your lender about possible exceptions. However, keep in mind that these are uncommon.
2. The interest rate quoted is the one you'll pay.
The quoted interest rate may change unless you lock it in at the time it is given. The majority of lenders' rates fluctuate during the day since they are dependent on the daily trading of mortgage bonds. When a rate is quoted, refinancers can frequently lock it in as long as they have provided their lender with sufficient information and supporting documentation to assess whether they are eligible for the rate.
A quote is normally given when you start the pre-approval procedure, but a rate lock is tied to a borrower and a specific property. Therefore, you cannot lock your rate until you have found a home to purchase. Additionally, rates will change every day while you hunt for a property, so you'll need new quotations from your lender at each step of the way.
Annual percentage rates (APR), a federally mandated disclosure that indicates what your rate would be if all loan expenses were included in it, are also included in rate quotes. Your loan payment will always be based on your locked rate, not the APR, which is only a disclosure to help you understand. This may lead you to believe that the APR represents the rate you'll receive.
3. Mortgages with fixed rates are always preferable to those with adjustable rates.
Following the financial crisis of 2008, many borrowers began to favor 30-year fixed loans. And for good reason: A 30-year fixed loan's rate and payment are unchangeable. However, the rate will increase the longer it stays fixed. Therefore, before choosing a 30-year fixed, consider how long you intend to own the property or keep the loan on it.
Let's say the response is five years. Your rate would be about .875 percent lower if you choose a five-year ARM over a 30-year fixed-rate mortgage. By choosing the five-year ARM on a $200,000 loan, you might save $146 in interest per month. The monthly interest cost savings on a $600,000 loan is $438
4. Which lender you use doesn't matter to real estate brokers
The Real Estate Settlement Procedures Act (RESPA), a federal regulation passed in 1974, forbids lenders and real estate brokers from compensating one another for referring clients to one another. You can therefore always employ any lender of your choice if you're shopping for a mortgage. However, real estate agents who would act as your buyer's agent are interested in the lender you choose. They'll frequently advise you to work with a local lender who is familiar with the particularities of your region, such as local tax laws, settlement practices, and appraisal methodology. Each of these steps in the loan procedure can cause delays or even the collapse of deals if a non-local lender is ill-equipped to handle them.
The quality of loan approvals is another factor that real estate agents who represent sellers of homes you're interested in frequently consider when ranking purchase offers. Your purchase offers have more credibility when they come from local lenders that listing agents are familiar with and appreciate.
5. If you put less than 20% down, mortgage insurance is usually necessary.
When less than 20% of the purchase price is put down on a house loan, mortgage insurance is often required as a lender-risk premium. Simply said, it indicates that your monthly housing costs are higher overall. But it is possible to avoid mortgage insurance by making a lower-than-20% down payment on a house.
The most popular method of doing this is through a combination of the first and second mortgages, sometimes known as a "piggyback," where the first mortgage is limited to a maximum of 80% of the home's value and the second mortgage covers the remaining amount.