Is The Lowest Rate The Best Rate?
Disclaimer: I am not a mortgage professional but I do enjoy learning about the industry and surrounding myself with very knowledgable and experienced professionals in the home loan arena in order to enhance my knowledge and skills for my Real Estate clients.
So now back to the question.. is the lowest (interest) rate the best rate?
The easy short answer is: Not necessarily! If you were just looking for the answer to the title, then there you go. If you’re interested in understanding WHY the lowest rate is not always the best option then continue reading.
Loans are not a ‘one size fits all’ or even close to a ‘one size fits MOST’. Each persons loan scenario is going to be very different based on income (how much you’re making, how often you get paid, where the money is coming from, etc.), debt (how much you’re paying out), credit score, availability of down payment funds, how long you plan to stay in the home, and essentially your overall goal in purchasing the home.
When a great lender evaluates THE WHOLE PICTURE of your financial situation and your home purchase goals, they are able to determine the appropriate loan program and what the interest rate would be for that particular program… meaning it may not be the LOWEST available rate but it will be the BEST rate for your scenario.
FHA loans are typically going to have a lower interest rate than conventional loans BUT FHA loans have lifetime mortgage insurance AND are harder to get accepted in our extreme sellers market. With this one, does it make sense to have lifetime mortgage insurance or not? It depends on the particular buyer.
Taking that first bullet a step further.. what if you want that first home to become an investment property when you purchase your second home? In this scenario, you definitely wouldn’t want the FHA loan (with the lower rate) because your lifetime mortgage insurance would continue even after you move out and would cause you to make less money per month on your investment.
Down Payment Assistance loans are typically going to have a higher interest rate BUT it provides an opportunity to get into the market, start gaining appreciation and equity of their own (versus paying your landlords mortgage), and gain wealth through real estate NOW versus waiting another year or two years when home prices have increased and rates are potentially higher.
Ultimately, if you just want the lowest interest rate, you can certainly throw a lot of money at it to buy down the rate as low as possible but is that the best use of your money? Possible but most likely not. The best use of your money is to have a fantastic lender evaluate your entire financial situation and determine which loan program and loan strategy is going to make the most sense for your desired home goals.
If you have any questions on this information or want recommendations for excellent lenders, please reach out to me by phone or email, as I’m ALWAYS happy to help!! Kylie