How can homebuyers feel more confident when choosing a mortgage lender?
As with any large-ticket item purchase, the more information you have to make a decision the more confident you are with your choice. Due to the size of the mortgage industry in the U.S. there are many lending platforms and mortgage information sites on the internet. I searched for “mortgage rates” and ended up with 674 million results. For comparison purposes, searching for “NFL” brought up 496 million results. Granted, this could result in decision paralysis with this much information. I would recommend starting with your current bank/credit union, and include other lenders from [review] sites. It is likely the lender you choose will end up selling your loan through the mortgage-backed securitization process. So focus on lower rates and fees. Customer service is less under your control.
How do changing interest rates affect mortgages in different communities?
The loan decision is standardized in the mortgage market due to the participation of Fannie Mae and Freddie Mac (two government-sponsored enterprises that buy and sell about half of U.S. mortgages). FICO score, current income, and availability of money for a down payment are the most important factors. The efficiency of the mortgage market works against underserved communities where the ability to build a prime FICO score (above 720) can be more difficult. If you do not have the opportunity to build a credit history then it is more difficult to obtain an affordable mortgage. Therefore, the issue for underserved communities is the opportunity to create a solid credit history.
What’s one tip you would give to members of underserved communities looking to get the best mortgage rate possible?
Building a credit history is the key. This starts with on-time payment of bills (utilities, cable, cellphone) and then moves on to other opportunities like credit cards. Utilizing a credit card as a debit card, for only small-ticket purchases that can be paid off in full every month, also helps build credit. There are also programs through the U.S. Department of Housing and Urban Development’s FHA program targeted directly at helping underserved communities become homeowners.
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Pamplin School of Business Associate Graduate Dean, Finance Professor