Mastering the Mortgage Market When Rates are Changing

Mortgage rates have become volatile in recent days, adding another element of uncertainty for buyers already in battle with rising home prices and tightas-a-drum inventories of available homes. No one

— not even Nobel Prizewinning economists — can know for certain the future trajectory of rates. But most wannabe homeowners have no intention of retreat.

“The small increase in mortgage rates has had zero impact on buyers so far. Rates are still historically low, and they’re still keeping buyers in the market,” says Ben Stanfield, a real estate agent for Redfin.

To date, would-be buyers have been much more focused on the severe scarcity of available property in popular neighborhoods than on mortgage rate ups and downs.

“It’s true that rates have come off the pandemic period lows they hit this winter, when they were absolutely rock bottom. Since then, rates did firm up a little bit. But the change has been nothing spectacular,” says Keith Gumbinger, a mortgage industry analyst for HSH Associates since 1984.

A recent pickup in rates caused many planning to refinance their mortgages to back off. But those in the millennial age group -- born between 1981 and 1996 -- remain highly motivated.

Granted, higher home financing costs mean that purchasers must raise more money to cover down payment and closing costs. But, so far, that’s affected relatively few buyers.

“It’s only people close to the margin who must go back to the drawing board when mortgage rates rise slightly. Most purchasers are not that close to the line,” Gumbinger says.

As a consumer advocate for homebuyers, he urges them to shop carefully for the type of mortgage that most closely fits their future housing plans.

“The vast majority of buyers will jump in and grab a 30-year fixed-rate mortgage. But if you’re absolutely sure your tenure in the house will be only a few years, you might consider one of the new adjustable mortgages that guarantee low rates for five years or longer before they adjust,” Gumbinger says.

Here are a few other pointers for buyers:

Seek a lender willing to get you started with tutorials.

Gerri Detweiler, a consumer credit expert and author of “The Ultimate Credit Handbook” and several other books on debt issues, encourages first-time buyers to seek out a mortgage lender who will instruct them on the intricacies of home loans.

“A good lender won’t think it unreasonable to spend a couple of hours teaching you the basics and helping you deal with potential flaws on your credit reports,” says Detweiler, who offers free credit pointers on her website: gerridetweiler.com.

But how do you find a sympathetic lender willing to tutor you through your first or second attempt at home finance?

Gumbinger says real estate agents are usually a good bet for sound advice on finding a qualified lender. But he says you should look well beyond the suggestions of agents.

“For referrals, I recommend you use what I call the ‘Satisfied Customer Index,’ also known as friends and family,” he says.

Arrive at your lender’s office fully prepared.

To maximize the use of your time and that of the lender you’ve chosen for your preliminary tutorials, there’s no substitute for gathering key documents in advance of your meeting. Ideally, these should include recent pay stubs, your latest W-2, a couple of years’ worth of federal tax returns, and bank account statements.

“Anything germane to your financial situation can help the lender help you,” according to Gumbinger.

By providing these documents at the front end of the process, your lender should be able to quickly calculate your top borrowing limit and also assess your eligibility for various lending programs.

“Well before you’re ready to apply for a loan, you can bring the whole mortgage picture into much clearer focus by supplying basic documents related to your financial life,” Gumbinger says.

Research your credit standing to ensure you get the best possible rate.

Under federal law, you’re entitled to one free credit report each year from the three largest credit bureaus: Equifax, Experian and Transunion. You can easily request these online, at annualcreditreport.com.

Besides your credit reports, you’ll want to access your “credit scores.” Such scores, which draw on data from the credit bureaus, seek to provide lenders with a quantitative measure of a person’s credit risk. Most lenders still use FICO scores, pioneered by the Fair Isaac Corp.

In most cases, you’ll need to pay a fee to obtain your credit scores. One way to get them is through the Fair Isaac website: myfico.com. You can also receive credit scores through the three large credit bureaus. FICO scores range from 300 to 850, and the higher the score, the more likely you are to get the best available rate on your mortgage.

Once you’ve chosen a property you want to buy, it’s time to get serious about making your mortgage application. And with your credit scores in hand, you can readily begin the process of comparison shopping on rates.

You may wish to start the rate-shopping process with the lender who tutored you in the basics of home finance. But Gumbinger strongly suggests you extend your rate hunt well beyond the first lender you consulted. And he recommends you include community banks and credit unions in your search.

“It sounds like overkill. But it’s smart to take the time to make enough extra phone calls to collect at least a dozen rate quotes before going forward with a formal mortgage application,” he says.