News & Info

Everyone who is looking for a mortgage always wants the lowest interest rate, course they do. The lower the interest rate, the more home you can buy due to the loan amount you can qualify for and the manageable the monthly debt you can handle.

There are several vital pieces of information that go into a mortgage to see if you can get the lowest rate on your mortgage. Here are the starting 5.

Income, Assets, Credit, Monthly Debt payments, and Property.

Let’s look at each of these 5 and see how you stack up.

Income

Your income will determine the total home payment you can handle according to the lender and your total debt the lender feels you can sustain. Generally speaking, the total monthly home payment should not exceed 32% of your gross income while your total debt which would also include your new mortgage payment and other debts (ie, car loan, credit cards, consumer loans, etc) should not to exceed 42% of your gross income.

Assets

Assets are what you will be using for your down payment and a reserve account.  You should have at least 5% for your down payment on the most liberal mortgages. Ideally you have 20-25% down for the best rate. Having sufficient funds for closing costs allows your to also take a lower rate. Closing costs are generally are about 2% of the loan amount. You should also have in savings 2 months mortgage payments which are abbreviated as PITI (Principle, Interest, Property Taxes and Home Insurance). This is generally the minimum standard.

The more assets you have, the better.

Credit

The lending industry has gone to a credit score to determine credit worthiness. There are 3 credit bureaus, Trans Union, Equifax and Experian. Each provide their own score on each borrower. Lenders will use the middle of 3 scores or the lower of 2.

Credit scores above 780 generally get the best rate. Scores below  620 will need an exception.  Credit scores tell the lender what type of credit risk you are.

Monthly Debt payments

Any monthly debts you retain after your new mortgage will go into a calculation to see what your total monthly debt ratio will be. 42% is ideal, but can go higher with other compensation factors regarding your assets, and credit. Your monthly debt ratio is calculated by adding up all your monthly debt payments and dividing it by your gross monthly income.

Property

The properties that receive the best interest rate are Owner Occupied Properties.

The next property would be 2nd homes.  3rd would be investment properties.

Stacking Up

When you call into a bank, credit union, or lender and ask them “what is their rate?”, you are assuming you are going to get the lowest rate but the lending institution is only quoting you their best rate. You still need to fit the profile in their program and guidelines. Do you fit in their round hole or do you have some corners that might need to be sanded down?

So let’s see how you stack up,

Income, is your new house payment 32% of your gross income? Yes, best rate candidate.  Assets, do you have at least your down payment, closing costs and 2 months PITI in the bank?  Yes, best rate candidate. Credit Score, Is your middle credit score 780 +? Yes, best rate candidate. Monthly debt, is all of your debt including your new house payment at 42% of your gross income, Yes, best rate candidate, Property, Is the home you are buying a home you will live in? Yes, best rate candidate.

Hit all these 5 and Bingo, you get the lowest rate for your mortgage no question.

Can you still get the lowest rate if you fall outside of these guidelines, yes BUT that is where the lender you are working with comes in. Generally speaking, we all know the difference between wholesale and retail. Retail cost more (Banks , CU’s). they have strict government banking guidelines that don’t change or have exceptions.

When dealing with a wholesale lender, you are 1) getting the mortgage on a lower interest rate. And 2) wholesale lenders have more lenient guidelines to get you the best rate. So, if you have a 720 credit score, that may be fine to get you the best rate.

My 2 cents (more like $2000)

You want to deal with a Broker
You want to deal with a Big Broker
You want to deal with a Big Broker who has access to 100’s of wholesale lenders to get your loan done with the lowest rate possible.
C2 Hawaii is that company.

Dave Ige

Sr Loan officer

808-753-1204

dave@c2hawaii.com