Low Interest Rates Benefit the Prepared

Warning: Falling Rates

Last week interest rates dipped to near historic lows again, driven by global economic volatility and plummeting oil prices.

While I often describe interest rates as being on a roller coaster, the reality of 2016 is that rates have pretty much been trending down, with only slight ups and downs in between.

It never fails that when rates move this much, this quickly, that I will have conversations with folks that are angry that they were not able to get the interest rate that was available “yesterday” or “last week”.

A great example of this was last Thursday and Friday, February 11th and 12th.  On Thursday, the 11th, rates dropped to their lowest point in over 18 months for a short period of time.

On Friday, we lost all of those gains, and some.  For a more in depth look at why rates are so volatile, and what we can expect in the future, read Great Mortgage Rates (When Preparation Meets Opportunity)

Low Mortgage Rates Benefit the Prepared

Those homebuyers and homeowners that are prepared to lock in an interest rate have the best opportunity to lock in one of these low rates as soon as they can.  My rate lock policy is basically take what you can get, when you can get it.

One of the problems that many borrower have is they like to gamble that rates will continue to drop even further, which usually leaves you with the same winning percentage as you will find at any hotel or casino in Las Vegas.

Yes, you’ll win every once in a while, but in the end you kick yourself for not taking your winning when they were right there in your hand!  If you have a significant savings sitting right in front of you, take it while you can have no regrets.

While it is possible that rates will dip another .125% or so, MAYBE, there’s a better chance than not that you will not know what rates will do until after they’ve gone up.  More often than not, you get caught with a hole in your pocket, and your change trickles out for the next 30 years.

Homeowner Advantage

If you are a homeowner, you can move much more quickly to lock in one of these low rates.  With a little bit of information, you lender can pretty quickly secure your rate, but then the clock starts ticking for keeping it.

If you are keeping an eye on rates and think you have an opportunity either lower your payments, remove FHA mortgage insurance, or reduce your loan term resulting in tens of thousands of dollars in long term savings.

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Here is a short list of what you should be prepared to provide to your lender, and what needs to be done to prevent that rate lock from expiring.

Get these documents to your lender as soon as possible:

• Copy of your current mortgage statement
• Copy of your homeowner’s insurance policy
• Current 30 days pay stubs for all borrowers
• Last 2 years W2’s or tax returns if you itemize your deductions
• Copy of your social security card and drivers license
• Sign and return authorization forms for credit and tax transcripts

You will also need to order an appraisal for the home as soon as you possibly can.  The appraisal will many times determine what options are available, and what your final interest rate will be based on the loan to value.

Homebuyer Advantage

If you’ve been pre-approved for a home loan, and are out looking at homes for sale, and maybe even making offers, it’s a good idea to make sure your pre-approval is up to date.

If interest rates have dropped, you may find that you can increase your purchasing power and buy a home in a higher price range, with more space, in a better city or neighborhood, with better schools or parks, for the same payment as you were originally approved for.

Unfortunately, you are unable to lock in an interest rate until you have a property address in most cases.  While there are lenders that will allow you to lock in an interest rate early, these rates are higher than what is available if you have a property address, and a 30 day escrow to close on the purchase.

Here is a short list of what you should be prepared to provide to your lender, and what needs to be done to make sure you are making strong offers that can get closed quickly.  This is your best chance at locking in the lowest interest rates on a purchase.

Get these documents to your lender as soon as possible:

• Complete the loan application, including running your credit
• Current 30 days pay stubs for all borrowers
• Last 2 years W2’s or tax returns if you itemize your deductions
• Copy of your social security card and drivers license
• Sign and return authorization forms for credit and tax transcripts
• Have an automated underwriting approval from your lender in hand
• Work with an experienced agent that is working hard for you