How To Qualify For The Lowest Mortgage Rates

Finding the lowest mortgage rates online can be a daunting task, and somewhat misleading. There IS a better way.

I'm going to probably be the first person to tell you that; "Mortgage Rates Don't Matter"

I know you want the lowest home loans rates on your mortgage or refinance loan, but rates don't matter (as I said earlier) and I'm going to go into the details of why that is so - and put an end to your searching blindly for the best interest rate when in fact getting the lowest interest rate is a matter of skill.

I'll teach you that skill right here once and for all and show you how to determine the best home interest refinance rates. Stick with me, the education will be well worth it. Maybe even worth thousands of dollars.

Getting The Lowest Interest Rate Every Time Is Easy If You Know The Tricks

First, let's start with a little mindset talk.

I know you know this - but I have to say it over and over again to all of my mortgage clients each and every time they call me to refinance or purchase a new home. It goes like this;

"The lowest home loans rate is RELATIVE!!"

What I mean by that is; if you have an extremely high credit score, low debt to income ratio and lots of investments and retirement funds then you qualify for the best home loan mortgage refinance rate. Relative to the person who has a low credit score, maxed out debt to income ratio and no cash or retirement reserves who gets qualified for a higher morgage refinance rate.

I know you know that mortgage refinance rates are "Relative" but it's worth repeating over and over. Lest you fall into the trap of shopping all over tar nation looking for the "lowest mortgages rates".

It's a syndrome that's easy to fall into - it's about having a plan (a mortgage plan that is), in terms of seeing the big picture. The big picture being where are YOU personally/financially at?

Getting the lowest interest rate =

(1) your debt to income ratio (total monthly outlay divided by total monthly income)
(2) loan to value [LTV] which is a comparison between your homes appraisal value the total loan amount.
(3) your credit score (each lender has slightly different limits)
(4) available cash reserves (such as a 401K you could use in an emergency), preferably 6 months worth of mortgage payments in reserve.
(5) loan type requested such as 30 year fixed, and options such as interest only.

...all of the above factors/numbers get computed and THEN you're interest rate is quoted.

Your mortgage broker better be good at reading mortgage interest rate charts also because rarely does anyone fit directly into the lending criteria. Almost everyone except the most plain vanilla borrower has additional stipulations on their final interest rate. Lenders are fickle on creating lending guidelines that almost no one fits exactly into - so knowing this should prevent you from shopping the internet or reading the local news paper and believing for a minute that the quoted rates apply to anyone.

I still talk to clients each and every day that call and say, "if you can't give me that low refinance rate I saw quoted in the paper then I'm going to take my business elsewhere."

No amount of me wasting my time educating a client that just doesn't understand mortgage interest rates will ever suffice.

If you search for the lowest rate and refuse to do business until you get it, you'll just end up with the broker or lender that was willing to lie to get your business - and then deliver to you the interest rate you were going to qualify for anyway. They call that "bait and switch" and it's become a way of doing business ONLY because of the uneducated mortgage shopper.

If you understand that YOUR particular mortgage rate is based on items 1,2,3,4,5 above then you are 99% of the way toward getting the exact interest rate you "qualify" for - having nothing to do with what the lowest available rate really is.

Does this apply to getting the lowest rate home equity loans also?

Other than the fact that second mortgage rates are based on the current prime rate (which is several percentage points higher than first mortgages), yes the same things apply.

Beware!! the no cost refinancing ad that promise $0 closing costs. Refinancing costs are relative also. Relative to either how many points you pay up front in pre-paid interest OR how much the lender is willing to pay in relation to the rate you choose (yes you have a choice).

The best mortgage refinance rate is one where you know enough to drive the rate in the direction you want. You do that by either paying points, taking a higher rate to reduce closing costs (where the lender pay the broker a yield spread premium) or paying discount points if you plan on staying in the home for 5+ years.

And YES once again, a new home mortgage is no different than the bad credit loan mortgage, an adjustable loan (variable rate mortgages), the balloon loan or even loans with negative amortization. You still must qualify based on 1,2,3,4,5 above. So you can see if you understand how you get qualified, it doesn't matter which type of loan rate you get quoted on. Know the criteria and you'll be in much better control of the mortgage process.

Another thing to remember, rates will probably never be as high as they were in October 1981 when they hit 18.45%. Conversely not matter where rate are, the corresponding investment rate is very similar. In October 1981 you could also invest your home equity in a tax favored investment at around 18% also. Were things really all that bad? Again, it's relative.

Note: loan rates in the subprime market almost always have higher rates simply because of the higher risk to the lender. Subprime lending is for borrowers who have trouble proving steady income such as those who are self employed. Stating your income because you can prove a steady income flow will always increase your rate and have nothing to do with where the markets low rates are. Lender fees are usually higher in the subprime market also along with lower loan balance limits and you usually lose the ability to rate lock since the higher rates only change on a monthly basis and not daily like regular conforming loan limit rates.

When it comes to mortgage rates, you're better off NOT looking at the rate itself but instead looking at the finer details that drive the rate such as rate lock period, short term rates, prepayment risk and inflation outlook in terms of can you invest your home equity at an equal rate and take the tax advantaged savings.

If you're over the age of 62 and contemplating a reverse mortgage you'll be required to see a reverse mortgage counselor before making any commitments. The reverse mortgage interest rate is typically higher than the other loan rates you'll see, however qualifying is somewhat easier and the benefits are much better than a standard refinance or home purchase rate.

Other things that drive mortgage rates can be whether your loan limit is over 80% of the value of your home and then your required to pay private mortgage insurance. I hope you're beginning to see that mortgage loan rates have nothing to do with being the best lender

In conclusion, if you want the lowest mortgage rates and think that you can get the lowest mortgage loan rate by simply shopping around or using an online mortgage calculator - you'll need to get yourself educated on the mortgage lending process first.

It's not that complicated and if you spend anytime here at How Do Mortgages Work you'll find me repeating myself over and over again about the mortgage refinance rate concept. Focus on my articles about reading the Good Faith Estimate (GFE) and you'll be so far ahead of the average home owner they won't be able to catch up even if they read "Mortgages For Dummies."

How Do Mortgages Work?