Mortgage rates have never looked this good.
The New York Times reports that they are at about 3.81 percent for a second week, a record low. But who gets that rate? What does it actually take to secure a mortgage rate that begins with that sought-after number 3?
Javier Arau, a musician living in Queens, and his wife, Kelley, a teacher, will see their monthly payment drop $600 to $1200 after refinancing their 6.25-percent-interest mortgage at 3.5 percent. That extra cash will obviously be a big help, but the process required some patience, despite the couple being in their mid-thirties with very little debt outside of their mortgage; they had wanted to refinance a few years ago, but a mortgage broker told them that they would have been turned down because their income was not yet reliable enough.
Lending standards are tighter nowadays, but some of the rules remain lenient, e.g., the amount of debt you’re allowed to have. The real issue potential borrowers now face is accurately documenting any and all income. “What’s tougher today is the level of scrutiny and documentation and analysis and re-verification around assets, income, employment and appraisals,” said Bob Walters, chief economist at Quicken Loans.
It's all in the rate.
The more conservative standards also apply when determining a borrower’s interest rate, with the two most important factors being your credit score and how much equity you have in your home. To secure the absolutely lowest rates, you generally need to have a credit score of 740 or better and to make a down payment of 25 percent or more (or have that much in home equity if you’re refinancing).
Even if you do qualify for the best rates, be prepared to deal with all sorts of rules that will require some work. One borrower, Mr. Maimon, recalls a bank that required proof of where a $25 bank deposit came from. In cases with other requests on the source of deposits, he asked the lender to simply disregard that money and qualify the applicant on their other assets. But this lender wouldn’t do it.
“There is no common sense or reason left in underwriting,” Mr. Maimon said. “As an applicant, you have to roll with the punches and give the banks what they ask for. When you try to dodge it, then they just ask for more."
It can be a lot of work to get approved for one of these extremely-low-interest loans in this conservative lending climate, but the thousands of dollars you will likely save will be worth it in the end.
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