Current mortgage rates are the lowest they've been in more than a year. Many lenders now quote rates in the 3s.
But, did you know there are ways to get your rates even lower?
No matter what type of mortgage for which you apply -- an FHA mortgage, a VA mortgage, or a conventional one via Fannie Mae or Freddie Mac -- you can get your bank to quote lower rates. The trick is to know how lenders choose your price.
Organized by loan type, here are simple ways to get your bank to give you access to lower mortgage interest rates.
FHA mortgages are loans which are insured by the Federal Housing Administration (FHA). The FHA offers its insurance to lenders whose loans meet the FHA's published mortgage guidelines.
Mortgage guidelines are a series of rules by which all loans must abide.
For example, the FHA requires that all borrowers with a credit score have a credit score of at least 500. Mortgage applicants whose credit scores fall below this minimum standard are ineligible for FHA insurance, which means they cannot get approved for an FHA loan.
The FHA guidelines have two parts, however. The first part is geared at consumers. In addition to listing minimum credit score standards, it states that borrowers must make a down payment of at least 3.5 percent; and, meet certain citizenship requirements, as examples.
The other part of the FHA guidelines is geared toward the lenders which make FHA loans; the FHA prescribes standards for the banks in the transaction, too.
Banks are watched for the performance of their loans.
Similar to how a driver could be dropped from his auto-insurance policy for too many accidents, a lender can have its FHA privileges revoked for making too many "bad loans". Because of this, lenders will often raise mortgage rates for borrowers whose credit scores fall below certain minimums.
As an illustration, a borrower whose credit score is 680 may get access to FHA mortgage rates which are 1/2 percentage point lower than a borrower whose credit score is one hundred points lower at 580.
During the first five years of a loan, this half-point differential adds $2,500 in cost per $100,000 borrowed.
Meanwhile, according to the Federal Trade Commission, 1-in-4 credit reports contain errors which lower a consumer's credit score, and which can negatively affect their quoted mortgage rates. Millions of borrowers may be paying higher mortgage rates wastefully and unnecessarily.
To get access to lower FHA loan rates, then, mortgage applicants should obtain a copy of their credit reports as soon as possible in their mortgage application timeline. The report should be examined for discrepancies carefully and, when appropriate, errors should be disputed.
Correcting a credit report mistake can raise your score by 100 points or more, giving access to the low mortgage interest rates which you rightfully deserve.
Many lenders will provide you with a free copy of your credit report as part of their rate quoting process.
Conventional loans via Fannie Mae and Freddie Mac are priced differently from a FHA loan. With a conventional loan, differences in mortgage interest rates are mandatory as opposed to optional, as they are with the FHA.
Mortgage rates for conventional loans change according to a mortgage-price model known as the Loan Level Pricing Adjustments (LLPA) model.
"Loan-level pricing adjustment" is a fancy way to say "risk-based".
Falling back to the auto insurance example, loan-level pricing adjustments are the equivalent of a person paying a higher rate of insurance because of particular risky attributes such as a miles driven per year; and ZIP code of the car's typical parking space.
Loan-level pricing adjustments are wide-reaching. They can enacted based on your credit score; on your loan-to-value; or your property type; and, on your loan's purpose, among other traits.
As one example, loan-level pricing adjustments affect multi-unit homes heavily. The adjustment can be as high as 100 basis points to price, which increase the long-term cost of homeownership.
LLPAs on multi-unit homes is one reason why buyers of multi-unit homes are encouraged to compare FHA mortgage rates against conventional ones. Depending on your loan traits, FHA mortgage rates can be less expensive and easier for which to get approved.
Buyers of condos are also affected by LLPAs.
Buyers of condominiums making a 20% downpayment, for example, are subject to an increase to price of 25 basis points. The increase is nullified, however, with an extra five percent down.
This is why condo buyers are encouraged to make a 25% downpayment on their homes -- the extra five percent gets them access to lower quoted mortgage rates.
For military borrowers and other eligible households, the VA loan offers very low mortgage rates but the fewest avenues to squeeze more from your savings.
VA loan rates don't change with high or low credit scores; with high or low LTVs; or, with respect to property type. Military borrowers with low credit scores and an underwater mortgage on a 4-unit home get access to the same VA loan rates as a homeowner with prime credit in a single-family home.
Even better is that the VA doesn't charge extra for its no-verification refinance loan, known as the VA Streamline Refinance.
Via the VA Streamline Refinance, the VA waives the typical refinance documentation including pay stubs, W-2s and bank statements; and the need for a home appraisal.
The Department of Veterans Affairs only requires that the loan has a tangible benefit, which the VA defines as getting access to a lower mortgage payment; as converting an adjustable-rate mortgage into a fixed-one one; as getting cash out for energy-efficiency improvements; or for reducing a loan's length in years.
It's this last benefit by which today's VA homeowners can get access to lower rates from a lender. Today's mortgage rates on a 15-year VA loan are between one-half and one full percentage point lower than a comparable 30-year fixed rate loan.
On a $250,000 mortgage, some VA borrowers will save $100,000 in mortgage interest paid over time; money which can be used to fill a college fund; to pay for home improvements; or to fund a retirement.
Today's mortgage rates are the lowest they've been in more than a year. You can do even better, though, by knowing how mortgage rates work. Whether you choose an FHA loan, a conventional loan, or a VA loan, you can make sure you're getting the absolute lowest rate available.
Compare today's live mortgage rates now. Free quotes are available online with no social security number required to get started and with no obligation to proceed.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)