Every homebuyer wants the best and most affordable mortgage rate possible. As a result, when rates drop, lenders typically see an increase in home loan applications. Many borrowers, however, are surprised to hear that they don’t actually qualify for the advertised rate. Here’s why there’s a common misunderstanding.
Although the best mortgage rates are typically the ones quoted by government-sponsored enterprises Fannie Mae and Freddie Mac, they are not the rates most commonly given to borrowers. Instead, the mortgage lender assesses a borrower’s credit score, income, loan-to-value ratio, and type of property they would like to buy. With this information, your local lender will determine the mortgage rate for which you qualify.
So who qualifies for the advertised rates? According to industry experts, it’s the borrower prepared to put 20% down and present an excellent credit score. This does NOT, however, mean that a borrower without a perfect credit score (aka most homebuyers) are unable to get an affordable rate - and if your quoted rate is simply not as good as you hoped, there are several ways to fix this:
- Focus on building your credit score. As you pay off credit cards and student loans, this will not only help raise your score, but also lower your debt-to-income ratio.
- Consider the type of property you are buying. If you are hoping to purchase an investment property, for example, the rate will usually be higher than any advertised rate because this type of loan is “riskier” for the lender.
- Continue saving to put more money down. The ability to make a greater down payment can, in some cases, significantly alter your mortgage rate.
Of course, each borrower’s mortgage situation is unique, so it’s important to discuss your loan options and mortgage rate qualifications with an experienced lender. For more information about how advertised mortgage rates mislead the average homebuyer, or to learn more about home financing in general, contact one of our mortgage specialists today.