Now might be the time to capitalize on low mortgage rates. Rates are still historically low, but they could start to rise.
Lender Robert Paredes says a lot has changed since the mortgage meltdown.
“Nowadays, you do have to prove everything,” Paredes said. “If you say you make ‘x’ amount of dollars, you’re going to have to have the tax returns or pay stubs to prove that as well.”
The mortgage crisis led to new laws, all of which are aimed at protecting consumers. Some of the new protections include no bait and switch tactics at closing. The lender fees on your settlement statement cannot be one penny higher than your good faith estimate. If there’s a discrepancy, the lender has to eat the difference.
When it comes to nailing down a mortgage loan, getting the best rate is all about your credit. Paredes said the higher the rating, the better.
“Anything above a 720 credit score is pretty decent to get you the best rate that’s possible out there. Some lenders may be 740,” Paredes said.
Right now, the best rates are around 4.375%. Add three to four points if your credit score is lower, like 600. (A point is fee equal to 1 percent of the loan amount.)
Your credit score is one of the most important factors in determining what your interest rate will be on a loan. Keep in mind, 30 to 40 percent of your credit score is based on your credit card debt. If you have credit challenges, FHA loans can help. But, consider those a last resort.
“The problem is this nasty PMI, property mortgage insurance, which is typically 2 or 3 times more expensive than going conventional,” Paredes said.
If you already have a mortgage and are in the market to refinancing, there’s a good rule of thumb to abide by.
“A good starting point is you want to take a look at refinancing your home if the interest rate is at least a point or a 1½ points lower that what you have right now,” Paredes said.
Consumers who refinance will want to aim to save at least $100 a month and be in the home for several more years to make it worthwhile.