When this subject comes up, I have to mention the car sales business. I know the two businesses seem very opposite, but they are oh so similar.
Have you ever seen the ads for new cars where you supposedly can get ZERO percent interest? Yep, we all have. Have you ever read the fine print? How many people do you think actually qualified for that pie-in-the-sky rate? Not many at all. I’ve heard it’s less than 10%. So for every 100 people that apply, only 10 qualify for zero percent. Now that ain’t so great. Nothing to brag about.
But it’s great marketing. Gets folks to pick up the phone or visit the dealership. And even though they may not qualify for the ZERO percent that brought them in the door, they still might buy something. Alert! This was the sole goal of the ad. To get people to buy a car. They never wanted anyone to buy at ZERO percent because it isn’t as profitable. No news there. What I admire about auto sales is that I do NOT hear stories of people saying they were duped into believing they could qualify for the “advertised low rate” – only to find out (near the end of the deal) that oops, you can’t cut it.
Now, here goes the story for mortgage rate advertising – whether you get rates from CNN, the newspaper, or directly from the mouth of a mortgage lender.
When mortgage interest rates are advertised, it is flat out impossible to do anything but give a rate that is based on THE BEST qualified borrower. And these days, best means “near perfect.” Even where rates are in writing in an ad, all the add-ons and exclusions still can’t be addressed. Not enough time. Not enough space.
Your particular interest rate will be based on YOUR individual risk to the lender. Our phones ring daily with borrowers asking the question, “What are your rates today?” But without specific information from the caller, we can’t give a “legitimate” answer. Just like the car business, most people do not qualify for the low “advertised” rate. Somewhere borrowers were told or learned that the way to get a mortgage was to call a bunch of mortgage offices asking about rates. This is an accident waiting to happen. Keep in mind the mortgage business is a complicated business, especially now. Seek out an educated, experienced professional, not a price-quoter who might quickly give you a bad price – intentional or not.
Lenders have a long list of situations where the applicant cannot qualify for the advertised lowest rates. Most borrowers have no idea about this, so they keep moving from lender to lender thinking the next phone call will uncover someone who will say, “Yes, you can get the advertised 4.00% .” And for now, let’s just nix the fact that 4.00% never existed for anyone.
Here are some of the scenarios that will cause your interest rate to be higher for a conventional mortgage:
- Credit scores under 740
- Less than 20% equity in the property
- Or sometimes, less than 30% equity in the property
- Financing a residence where you don’t live
- Condo financing
- Loan over the Fannie Mae limit – (over $417,000)
- Taxes/insurance NOT escrowed
- Receiving cash back
- Having/keeping a 2nd mortgage on the property
- A home with more than 1 unit
- Loans with mortgage insurance
- 40 year fixed rate
Borrowers who find themselves on this hit list too many times might fare better with FHA. Let me know if you want me to see what benefits you.
Can’t stress enough the importance of working with someone who can review all your options.
It could be a jungle out there. Proceed with caution.
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