Last year mortgage rates hit an all-time low a whopping thirteen times! One could say that mortgages and mortgage refinances have been the one silver lining of the ambiguous political and economic climate last year.
While shopping around and finding the perfect fit for your clients, note that there are plenty of factors that are considered upon submitting an application. I’m sure you know that credit scores, loan terms, interest rate types, down payment, home location, and the loan size in general can all have an impact on your application.
Last year, Freddie Mac reported that buyers who got offers from five different lenders averaged 0.17 percentage points lower on their interest rate than those who didn’t get multiple quotes. If you want to find the best rate and term for a client’s loan, it makes sense to have them shop around first.
Other factors will affect how much they’ll pay each month too. Items such as their PMI, closing costs, loan term, taxes, HOA fees, insurance, and even the type of loan (i.e. fixed vs. ARM) can each play a large part in monthly payments.
Consider the type of mortgage loan your clients might need as well. Veterans and active-duty service members should take advantage of VA loans offered. Whereas first-time homebuyers should shop around and seek discounts.
First-time homebuyers can walk into a mortgage brokerage office or visit an online lender without knowing what kind of mortgage they need. But it’s always better to have an idea of what you’re shopping for, especially since you can’t control other factors such as home prices and current rates. Mortgage loan types include:
- Conventional Borrowing: Shoppers with higher credit scores and higher down payments can get a conventional mortgage with either a fixed or adjustable rate. Mortgage interest rates can be low for qualified buyers.
- Subsidized Borrowing: The Federal Housing Administration and the U.S. Department of Agriculture help first-time homebuyers and shoppers in low-income areas buy homes by subsidizing their mortgage loans. FHA and USDA loans allow shoppers with lower credit profiles (a FICO score of 580) to still get affordable home financing. Subsidized loan restrictions include borrowing maximums and safe housing inspections. These loans are for single-family homes in most cases.
- Veterans Affairs Loans: Veterans and active-duty service members can buy homes with no down payment and no PMI through the Department of Veterans Affairs’ lending program. Banks make loans that are guaranteed by the VA. VA loans require a funding fee that could range from 1.4% to 3.64% for first-time homebuyers.
- Jumbo Loans: Homes in high-value housing markets like San Francisco and New York City may not fit within a conventional or FHA loan. Jumbo loans can help because they exceed the conforming loan limits of Fannie Mae and Freddie Mac.
Ultimately, finding the best mortgage shouldn’t be seen as a one-size-fits-all approach. Getting mortgage pre-approval before deciding on a property can be crucial. It will save you time and make the mortgage process more manageable. Check our home affordability calculator to see how much you’ll be able to afford in monthly mortgage payments.
Before applying for a mortgage, make sure to check your credit score. It is also important to compare mortgage lenders.
Even though lenders will pull your credit — and it is considered a hard credit inquiry — your score will not be affected if all the inquiries are done within 30 days. Credit reporting agencies recognize this as shopping around for the best mortgage rate. Here are the documents you’ll need to apply for a mortgage.
Documents needed to apply for a mortgage:
- Copies of your two most recent pay stubs
- A copy of your most recent tax return
- W-2 and/or 1099 (although some lenders may require up to two years’ worth of these, depending on your employment history)
- A state-issued photo ID, such as your passport or driver’s license
- Statements of all your assets (IRAs, investment accounts, checking and savings accounts, etc.)
- Bankruptcy discharge documents (if applicable)
- A recent credit report (typically obtained by the lender)
- Records of any outstanding debts, such as credit card and student loan payments.
- In some cases, lenders may require additional documentation, like a history of alimony payments and gift letters, so make sure to ask before applying.
Lastly, check your debt-to-income ratio before applying. Lenders prefer borrowers with a debt-to-income ratio lower than 36%, and many lenders will not even consider borrowers with a ratio higher than 43%.
Ultimately, finding the best mortgage shouldn’t be seen as a one-size-fits-all approach. Getting mortgage pre-approval before deciding on a property can be crucial. It will save you time and make the mortgage process more manageable.