2% Mortgage Rates: Real or Marketing Trick?


Mortgage rates below 2.5% are real – for some

United Wholesale Mortgage (UWM) makes the headlines recently for offering mortgage and refinancing rates of 2.5%. Now he’s lowered the bar even further with a Loan rate of 2.25% VA.

And other lenders are following suit. At the time of this writing, at least one lender our network offered 30-year refinancing rates as low as 2.49% (2.644% APR). *

But how realistic are these rates? Is 2.5% the exception, or is it a real rate available to regular borrowers?

As always, it depends on what you qualify for.

Find and Lock a Low Rate (May 27, 2021)

* The rate estimate assumes a credit rating of 720 and an LTV ratio of 73%

Whether or not you qualify for 2.25%, the rates are ridiculously low

The truth is, the lowest advertised rates almost always go to senior borrowers; those with excellent credit scores and 20% down payments.

So a mortgage rate of 2.25% will be out of reach for many. But the good news is that rates are still insanely low across the board.

No matter how strong your demand, lenders are now offering better rates than they were a year, six months, or even a month ago.

How low is the level? Freddie Mac has been reporting average weekly mortgage rates since the 1970s. Consider where we’ve been.

The rates we see today are part of a long trend. A very long trend.

Since the early 1980s, mortgage rates have generally fallen. The 30-year rates fell from 16.63% in 1981 to just 3.13% in June 2020.

Period of time Average rate over 30 years Period of time Average rate over 30 years
nineteen eighty one 16.63% Jan 2020 3.62%
1990 10.13% Feb. 2020 3.47%
2000 8.05% March 2020 3.45%
2008 6.03% Apr 2020 3.31%
2012 3.66% May 2020 3.23%
2019 3.94% June 25, 2020 3.13%

Data: Freddie mac

Many would not have thought this was possible 20 years ago – or even a year ago – but rates in the order of 3% are now widely cited. And the rates in both are a reality for some.

Check your new rate (May 27, 2021)

Mortgage rates advertised versus the rate you get

You’ve probably heard the commercials for $ 1 million term life insurance for $ 26 a month. These policies exist, but not if you are a smoker or over 65.

Along the same lines, there are many attractive mortgage offers. Rates so low they sound like typos. But is such funding really available?

The answer is yes for some borrowers but no for others. To see who is eligible and who is not, you need to look at the entire offer.

The Truth About 2.25% VA Loan Rates

Consider advertising Mortgage rate of 2.25% VA by UWM for example. (Although this reasoning also applies to non-VA loans.)

All real estate financing comes with certain conditions and requirements.

In the case of the mortgage offer at 2.25% VA, UWM provides an example which assumes a “30 year fixed rate VA loan at 2.25% interest rate and 80% loan-to-value (LTV)”.

As you read the example and related documents, there are a few questions to ask.

  • Are you VA qualified?
  • What’s your credit rating? (A minimum of 640 is required)
  • Are you buying a house or refinancing yourself?
  • If you buy, are you ready to cut 20%?
  • If you refinance, will you keep at least 20% of the equity in the home?
  • What is the VA finance rate without a drop?

VA financing is available with 0% down payment to buyers, and current owners can refinance 100% of the reasonable value of the property using the VA rationalize (IRRRL).

But those who take advantage of zero-down or low deposit payment options probably won’t get the lowest possible rates.

There is always a trade-off between the strength of your demand and the low rate that lenders will offer you.

Check your new rate (May 27, 2021)

The best mortgage rate – it’s complicated

Mortgage lenders are in business to make money. The last thing they want is to turn down loans, turn down borrowers, or make the application process harder than necessary.

So why do borrowers have to meet such high standards to get the best mortgage rates?

The point is, there is a lot going on behind the scenes when a mortgage lender sets your rate.

Investors and the secondary mortgage market

Mortgages are regularly sold in the secondary market to buyers such as Fannie Mae, Freddie Mac, and investors around the world.

The secondary market is an electronic “place” where mortgages are bought and sold. By selling mortgages, lenders get the money they can use to make new loans.

But these investors have their standards.

Investors in the secondary market want to buy standardized products. They may require a loan to have a certain down payment, debt-to-income ratio, and credit rating.

Why? Because they want to be sure they are making a safe investment. These types of criteria help lenders and investors verify that borrowers will be able to repay their mortgages.

Loan program requirements

There are also different conditions to qualify for a mortgage – and a low rate – depending on type of loan you are applying.

You can buy with little or nothing with the support of the FHA, VA, USDA, and private mortgage insurance. These programs protect lenders if borrowers fail to make their payments.

But they also have certain requirements that borrowers must meet to be eligible for program support. If a home buyer cannot meet the standards of the program, the loan application will not be accepted.

Mortgage Company Requirements

Apart from other requirements, lenders may have additional standards – called “layers” – that borrowers must meet. These standards arise because lenders want to reduce risk.

For example, official guidelines say that you can get FHA financing with a credit score of only 500 and 10% lower. But these loans can be hard to find in reality. During the 2019 financial year, HUD Reports that only 1.04% of all FHA term loans had credit scores below 579. This is because many lenders just don’t want loans with lower credit scores.

Likewise, lenders decide what rates they will offer borrowers. And these rates change every day.

A lender may offer you a higher or lower rate depending on their current workload, the types of loans they prefer to take, the availability of investor money at the moment, etc.

How to find your lowest fare

Despite the complex factors that influence your mortgage rate, you don’t have to be a financial expert to find the best deal. You just have to be prepared to do a little bit of work.

You’ll get the best mortgage rate when you find the lender and loan program that best meets your needs.

Shop around and talk to a few lenders before you take out a mortgage. This way you can be sure to get the lowest tariff available for you.

Check your new rate (May 27, 2021)

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