Six ways to get a mortgage rate under 4 percent

Low mortgage rates: everyone wants them, but not everyone can have them. And with rates dropping to record-setting lows, it's no wonder why they're such a hot commodity.

Mortgage rates hit record-setting lows at well under the 4-percent mark in the first week of October 2012. That's when Freddie Mac, the government-sponsored home financing corporation, reported the average 30-year fixed-rate mortgage (FRM) average dipped to 3.36 percent.

Unfortunately, not everyone will be able to take advantage of these low interest rates.
Why not? According to Brownie Stanisch, a senior loan consultant from Sherman Oaks, Calif., the qualifying guidelines for loan approval are tougher than ever due, in part, to the rising amounts of home foreclosures.

"Every time a property is foreclosed, lenders look at what caused the foreclosure," Stanisch says. "If they look at 10 property foreclosures and eight of them were homes (purchased by borrowers) with low credit scores or a low down payment, lenders feel they have got to be more stringent."

Want to find out if you could score a 4 percent mortgage rate or less? Consider these six key factors that mortgage experts say could help you get a low rate.

Factor #1 - Good Credit

Nothing moves the needle in terms of an interest rate more than a borrower's credit rating, mortgage experts say.
"Good credit is mandatory," says Laura Hertz, a loan officer based in Sherman Oaks, Calif. "People think no credit is good credit, but no credit is no credit."

A primary form of determining one's credit "rating" in the eyes of lenders is a borrower's FICO score, a numerical calibration of one's credit risk (invented in the 1960s by a company called Fair Isaac).

According to myFICO, the consumer division of Fair Isaac, lenders use your credit score to determine how much money you can borrow and at what interest rate. FICO scores range from 300 (on the bad end) to 850 (on the great end).

"It's important to maintain good credit," Hertz says. "A score of 640 is an OK credit score, but 740 and above will get you the best rates."

To review your credit report, the Federal Reserve System, which oversees national monetary policy and the banks, suggests ordering a copy from www.annualcreditreport.com.

Factor #2 - Good Down Payment

Getting an interest rate under 4 percent truly is a game of percentages. The mortgage rate you receive is likely to be inversely proportional to your down payment - that is, the more you put down, the lower your interest rate tends to be, according to Hertz.

"To get the very best rate, you have to have a 30 percent down payment," Hertz says. "A 20 percent down payment is good, and that can be worked with for a better rate."

But is a 20 percent down payment the starting point for interest rates under 4 percent? Not necessarily.

Hertz says down payments of 10, 5, or even 3.5 percent are good amounts, too, but borrowers might have to pay additional fees or purchase private mortgage insurance (PMI) to offset risk issues such as poor credit.

The Mortgage Insurance Companies of America defines PMI as a measure lenders use "for protection in case the homeowner fails to make his or her (mortgage) payments." 

Borrowers with a low down payment, according to Hertz, might have to include PMI with their loan package in order to get an interest rate under 4 percent.

"If you do 20 percent down, you don't end up with high PMI," Hertz says.

Factor #3 - The Right Lender

Getting a loan with an interest rate below 4 percent depends heavily on finding a lender or broker who has your best interest at heart. But how can you find the right lender?
For starters, you need to shop around and consider recommendations from people you trust, Hertz says.

"Listen to your realtor," Hertz says. "Get different business cards and different references. Almost every one of my clients is a referral from somewhere else."

You also must be prepared to ask lenders questions about their track record and performance levels, Hertz says. Among the questions you might consider asking include:

• How quickly do your loans close?
• Do you have references from people in the area I can call?
• Does your company have a good rating?
• How much experience do you have?
• Are you in communication with the underwriter (the person who approves or rejects loan requests)?

The answers to these questions will hopefully help you find a lender that can improve your chances of getting an interest rate below 4 percent.

"You have to find a lender who has the time and patience to deal with any issues you might have," Stanisch says. "They need to be able to advise you on whether you can do anything to improve your pricing conditions, so don't wait until you find a house to start the process."

Factor #4 - Stable Job History

How is your employment history? If you have been off and on the job for an extended period of time, that could affect whether your interest rate will find itself near the record-setting low marks, mortgage experts say.

Even with a good income, you'll still need to prove that your job history bodes well for your future employment, thus enabling you to borrow at a lower interest rate. The key word here: documentation.

"Lenders will definitely decline loans if you can't provide documentation or back up what you are telling them," Hertz says. "They don't take things at people's word unless they can be backed up."

Hertz says you can expect lenders to ask you to sign a Form 4506 from the Internal Revenue Service to request a transcript of your tax return. You'll likely also be asked to provide pay stubs and bank statements to verify your income and assets.

People who are self-employed, receive other types of taxable income, or earn substantial commissions or bonuses have to be diligent in keeping track of their salary history, according to Hertz. Lenders tend to scrutinize job history the way Sherlock Holmes works a case, leaving no stone unturned.

Hertz recommends having the following documentation in good order to show lenders:

• Two years of tax documentation
• Any bonus check stubs from the previous year
• The most recent month of pay stubs
• Two forms of legal identification
• Two months of bank statements

"If your work hours are not guaranteed, that's a big problem," Hertz says. "If you're somebody who has a big part of their income that's a bonus or a sales rep whose income is decreasing, they might not qualify for the loan. You have to show your income is increasing or staying the same."

Factor #5 - Few Liabilities

The amount of debt you owe can play a significant role in whether you get an interest rate near the record-setting lows. If your financial liabilities or debts are too much in comparison to how much income you make, lenders might balk at giving you a rate below 4 percent.

The Federal Housing Administration (FHA), the government-sponsored mortgage financing entity, describes these debt ratios as loan requirements based on whether potential borrowers are "in a financial position that would allow them to meet the demands that are often included in owning a home."

A debt ratio is an indicator that measures the proportion of debt an individual has compared to their assets.

For people with a lot of credit card debt, for example, Stanisch says you want to pay off balances or get them as low as possible before you attempt get a home loan with an interest rate under 4 percent.

Here are some other ways Stanisch and Hertz say you can improve your debt-to-income ratios:

• Lower your liabilities or debts, such as paying off a car
• Increase your income, perhaps by getting a second job
• Some combination of both lowering debt and improving income

Factor #6 - Loan Type

Choosing a loan type could spell the difference between getting an interest rate that's well below 4 percent and one that hovers high above it. So which way do you go - a conventional loan or one that's financed by a government-sponsored program?

Depending on your situation and the loan terms, Hertz says you might get a better rate with a government-backed loan.

"The FHA's actual rate can be a bit lower than a conventional loan," Hertz says, "but the mortgage insurance is often higher than a conventional loan."

Hertz says it's important for borrowers to be aware that getting an FHA loan can require an upfront insurance premium and another monthly premium based on the loan amount. But if having an interest rate under 4 percent is important to you, paying the additional premiums might be worth it.

"The upfront mortgage insurance and monthly (premiums) are aversions, but most Fannie and Freddie loans are under 4 percent," Hertz says.

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Any information provided does not constitute an offer or a solicitation to lend. Providing information to purchase does not guarantee a loan approval. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.

First Capital Mortgage is a subsidiary of PHH Home Loans LLC, a direct lender, Dept. of Corporations file #413-0713 NMLS#4256

Visit FirstCapital Online or call: 310-458-0010

Mortgage Rates Headed for the Bottom?

Mortgage rates have continued their descent that has lasted for a year and a half from what were already historic lows.  The combination of Federal Reserve purchases of mortgage-backed securities and economic uncertainties in the US and around the world have created the perfect storm pushing rates lower and lower.  But like everything it seems that is related to the economy—our historic run of low rates is cyclical and may be nearing an end.

The US Federal Reserve’s program of buying MBS was intended to accomplish two things: lower rates and buy time.  It has certainly accomplished the first goal which in turn has enabled millions of Americans to refinance mortgage loans and save money on monthly mortgage payments.  The goal of buying time was intended to provide stimulus to the economy while giving Congress and the President time to put together a long term fiscal plan to reduce spending, grow revenue and put entitlement programs on a more firm foundation for the future. Moreover, the Federal Reserve’s quantitative easing program also sought to provide stimulus to the economy while Europe sorted through their own long-running fiscal crisis.

Despite the outward appearance that we are no closer to a deal in Washington over the fiscal cliff, I believe we are actually going to see a compromise that reduces spending meaningfully and increases revenues modestly.  This will then provide a foundation for the real tasks at hand: long term tax reform and most importantly entitlement reform.

In Europe what appears to be a weakening economy may actually be the beginning of the final solution to their current problems.  Just today we learned that the European Commission approved the release of close to 40 billion euros to recapitalize Spanish banks.  Additionally, the recent decision to make new funding available to Greece to forestall insolvency takes that country’s struggles off of the front pages for a while.  While Europe is not about to turn the corner on their fiscal troubles, it is apparent their version of “buying time” is also working to avoid a deepening crisis.

With the US poised to address long term problems and Europe continuing to treat its wounds to avoid infection, the days of ever-lower mortgage rates may be coming to an end.

If you are in a position to take advantage of these all-time low mortgage rates for a purchase or a refinance—then now is the time to act.
By David Coster on November 28, 2012

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Any information provided does not constitute an offer or a solicitation to lend. Providing information to purchase does not guarantee a loan approval. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.

First Capital Mortgage is a subsidiary of PHH Home Loans LLC, a direct lender, Dept. of Corporations file #413-0713 NMLS#4256

Visit FirstCapital Online or call: 310-458-0010

Home sales rise - builder confidence at 6-year high

WASHINGTON - U.S. sales of previously occupied homes rose solidly in October, helped by improvement in the job market and record-low mortgage rates.

The increase along with a jump in homebuilder confidence this month suggests the housing market continues to recover.

The National Association of Realtors said Monday that sales rose 2.1 per cent to a seasonally adjusted annual rate of 4.79 million. That's up from 4.69 million in September, which was revised lower.

The sales pace is roughly 11 per cent higher than a year ago. But it remains below the more than 5.5 million that economists consider consistent with a healthy market.

As the economy slowly recovers, more people have started looking to buy homes. Prices are steadily climbing, while mortgage rates have been low all year. At the same time, rents are rising, making the purchase of a single-family home or condominium more attractive.

"Altogether, the report is encouraging," said Michael Gapen, an economist at Barclays Capital. "Our view is that housing is in a recovery phase," he added, though it will be restrained by limited credit and modest job gains.

A separate report Monday showed confidence among homebuilders rose this month to its highest level in six and a half years. The increase was driven by strong demand for newly built homes and growing optimism about conditions next year.

The National Association of Home Builders/Wells Fargo builder sentiment index increased to 46, up from 41 in October. Readings below 50 suggest negative sentiment about the housing market. The index last reached that level in April 2006. Still, the index has been trending higher since October 2011, when it stood at 17.

The Realtors' group said Superstorm Sandy delayed some sales of previously occupied homes in the Northeast. Sales fell 1.7 per cent there, the only region to show a decline. Those sales will likely be completed in future months, the group said.

The median price for previously occupied homes increased 11.1 per cent from a year ago to $178,600, the Realtors' said.

 

A decline in the number of homes available for sale is helping push prices higher. There were only 2.14 million homes available for sale at the end of the month, the lowest supply in 10 years. It would take only 5.4 months to exhaust that supply at the current sales pace. That's the lowest sales-to-inventory ratio since February 2006.

Prices are also benefiting from the mix of homes being sold. Sales of homes priced at $500,000 and above have jumped more than 40 per cent in the past year. Sales of homes and condominiums that cost less than $100,000 fell 0.6 per cent.

There have been other positive signals from the housing market. Applications for mortgage loans to buy homes jumped 11 per cent in the week ended Nov. 9, compared with a week earlier, the Mortgage Bankers' Association said last week. Purchase applications are up 22 per cent in the past year.

Foreclosures are slowing. The number of properties that began the foreclosure process in the first 10 months of the year fell 8 per cent compared with the same period last year, RealtyTrac said last week.

And builders broke ground on new homes and apartments at the fastest pace in more than four years in September. The jump could help boost the economy and hiring.

Still, the market has a long way back to full health. Many potential home buyers cannot meet stricter lending standards or produce larger down payments required by banks.

That can be a particular problem for first-time homebuyers. They accounted for 31 per cent of sales in October, down slightly from September and below the 40 per cent that is common in a healthy market.

Federal Reserve Chairman Ben Bernanke said Thursday that banks' overly tight lending standards may be preventing sales and holding back the U.S. economy. By Alex Veiga,Christopher S. Rugaber, The Associated Press  | November 19, 2012

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Any information provided does not constitute an offer or a solicitation to lend. Providing information to purchase does not guarantee a loan approval. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.

First Capital Mortgage is a subsidiary of PHH Home Loans LLC, a direct lender, Dept. of Corporations file #413-0713 NMLS#4256

Visit FirstCapital Online or call: 310-458-0010