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Low mortgage interest rates are for people who have a fifth of the home’s cost in cash and a great credit score

By DEREK HARPER Staff Writer press of Atlantic City

Homeowners or people looking to buy a house have the chance to take advantage of some of the lowest mortgage rates in history.

But because of the different factors that banks and other lending institutions take into consideration, these rates may be out of reach to many people.

 

The mortgage giant Freddie Mac said Thursday the average rate on the typical 30-year fixed-rate mortgage was 3.98 percent, down from 4.74 percent a year ago.

 

Fifteen-year fixed rate mortgages averaged 3.24 percent, down from 4.05 percent the previous year.

 

The rates may be having an effect on the overall housing market. The National Association of Realtors said that sales of existing homes have grown for three months, rising 5 percent to an annual rate of 4.6 million.

 

The total housing inventory dropped more than 9 percent to 2.4 million homes for sale, which the association estimated was a 6.2-month supply, down from a 7.2-month supply in November.

 

But not everyone can qualify for these rates.

 

Lenders look at a variety of factors before agreeing to the mortgage, said Marge Swanson, a mortgage professional with more than three decades in the industry. “Right now the pricing is such that the prices are low and the interest rates are low,” she said.“To find those two occurring at the same time is a celebration.”

Kathie Steiger, the senior vice president for residential loans with Cape Bank, said that a good first step for people looking to buy is to gather pay stubs, collect bank statements and get a copy of his or her credit report.

AnnualCreditReport.com is a site created by the major credit reporting companies to provide the free annual reports required by federal law.

 

Steiger said it is crucial to review the credit report and make sure there is nothing on there that is incorrect. If there is incorrect information, then a person has the chance to remove or correct it.

 

Among the factors in determining the interest rate on a mortgage loan is:

 

n Down payment: A person able to pay more up front is typically able to get a lower rate, and therefore pays less over the life of the loan, Steiger said. “If someone is able to put 20 percent down, they will be able to get a better rate than someone with a 95 percent loan to value.”

 

n Credit score: A person’s credit score affects the rates that a bank offers them. According to myFICO.com, top-end borrowers in New Jersey with credit scores between 760 and 850 could qualify for an annual percentage rate of 3.72 on a $250,000, 30-year fixed-rate loan, while lower-end borrowers with credit scores between 620 and 639 could qualify for 5.34 percent.

 

The different rates translate to $86,562 over the life of such a loan.

 

n Type of property: A person seeking to buy a condominium property would typically have to put down 25 percent to get the same rate as a person who puts down 20 percent for a single family home, Swanson said.

Similarly, Steiger said, primary and secondary (vacation) residences typically receive better rates than investment properties.

 

n Length of loan: “The length of the loan is a big contributing factor,” Swanson said. Many people refinance to a shorter-term loan. These people pay more monthly, but because the interest is lower, the overall cost is less.

That 30-year, 3.88-percent fixed-rate mortgage drops to 3.17 percent for a 15-year fixed-rate mortgage, according to Freddie Mac figures. For a $200,000 house, that saves $87,215 over the length of the loan — more than 25 percent of the overall price.

 

“If you are a borrower and you want to refinance to a shorter term, you are going to see a pretty good rate for that,” Steiger said.

 

Ultimately, Swanson said, people interested in owning a home should contact a mortgage professional. That individual can help a person evaluate his or her financial situation and strategize when it is best to make a purchase.

 

The mortgage professional could also help a person get prequalified for a loan, which could give them a leg up in the purchase process.

 

Most real estate agents are looking for a person who is prequalified, Steiger said.

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