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90% of Borrowers Do Not Qualify for Best Mortgage Rates

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Talk about a double-edged sword!  The good news: mortgage rates are hovering around 4% at the moment (slightly more for rental property but you get the point).  The bad news: there’s a 90% chance that you won’t qualify.

As evidence of this, according to CNN, the average rate for a 30-year fixed mortgage hit an unbelievable 3.94% in early October, yet the average rate offered to LendingTree customers during the same month has been approximately 4.3%.  In fact, less than 9% of LendingTree customers received a sub-4% rate during this time, with about 30% of borrowers receiving rates between 4.5% and 5%.

Although the discrepancy doesn’t sound that bad on its surface, it definitely adds up.  A 0.5% difference in the rate will add nearly $700 to your mortgage costs every year on a $200K loan.  All of this begs the question; why is it so damn hard to get the best rate?

One reason is that the average numbers reflected in the surveys (typically Freddie Mac surveys) are skewed, because they generally encompass only people with near perfect credit who also have enough cash on hand to provide a 20% down payment.  Obviously, most people in the US simply do not fit into this upper echelon category.  Conversely, entities such as LendingTree quote actual numbers from a broader category of people.

The second, perhaps larger reason is the flood of people looking to refinance.  An incredible 80% of loan apps right now are for refinancing!  With so many refi apps flooding the market, mortgage issuers simply can’t keep up.  So, they will often increase rates in order to slow things down while they catch up.  And lenders are more easily overwhelmed right now in general, as the housing crash caused a lot of people to leave the industry, resulting in understaffing and inexperienced workers trying to fill the void.

The bottom line is that whether you’re a landlord or a primary homeowner, it is still important to look into refinancing right now because a lower rate could really help your overall cash flow.  Just make sure you temper your expectations.  But heck, whether you get 4.5% or 5.5%, it’s still likely to be substantially less than your current rate.  So, why not check into it?

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