Getting a new mortgage loan will save you bundle in these tough economic times, but be advised lenders are going to make you jump through hoops or sign over your first born in order to qualify. The average rate on a 30 year fixed mortgage fell to below 5% in March. That represents a 20 year, all time low. Couple that low rate with the Fed’s announcement that it is going to buy back $300 billion in government back T-bills and that will probably keep loan rates very low for several more months. So now is a good time to refinance or to look for a loan.
Battling the Obstacles
Lenders have cut back on loan options and increased credit requirements making securing a loan very difficult these days. To land a loan you will need a credit score of about 740 with 20% equity in your home. Banks are looking for reasons not to lend money, so if your credit score is lower and you don’t have the equity, you may be doomed from the get go.
Obama’s Loan Packages
Thanks to President Obama’s homeowner’s package, owners who owe up to 105% on current loans can qualify for a government backed loan. However, before you can close on the new loan, you get your current lender who holds the primary note, to go along with the secondary loan.
Shop Around
No matter how good your credit, you do yourself a disservice and could cost yourself some money if you take the first loan that you come across rather than doing some comparison shopping. Take some time and do a little research in the market place. This is because every bank has different standards and uses different criteria and underwriting qualifications. What may seem risky to one bank, may not be considered risky by the bank across the street. Remember, the best rates usually come from small local banks and credit unions.
Pay a Point Up-front
If you can do it, be prepared to pay a point up-front in order to save 1% on your mortgage amount. Lenders sometimes ask for the up-front pay as a way of discouraging serial refinancers. Plan on staying put for five years or be prepared to add an eighth of a point to your percentage rate in order to lock in your rate for 45 days. These days it takes a lot longer to close than it used to.
You’re definitely right about small local banks and credit unions having the best rates – although I’m not looking for a mortgage loan, I recently got a car loan at my credit union for 4.5% for 5 year auto loan. If I pay it in 3 years I’m literally not paying any interest since I got the $1500 car rebate.