Best Mortgage Rates for September 2020

Buying a home is typically a long term investment and mortgage loans have a standard 30-year repayment term. That’s a long time — if you’re buying a family home with young kids, they’ll probably have grandchildren by the time you’ve paid off your mortgage. That’s why choosing a mortgage from the best home loans on the market is one of the most important decisions you could make. Finding the best home mortgage interest rates could save you tens of thousands of dollars or more on your interest payments over the life of the loan. We’ve used our SimpleScore methodology to access the nation’s largest lenders on current rates, customer service, product variety, fees, and credit impact.

The best mortgage lenders of 2020

Why trust The Simple Dollar?

Research Methodology

The SimpleScore is our proprietary scoring metric to compare products and services at The Simple Dollar in a transparent, evidence-based way. Our editorial team identifies five quantifiable aspects to compare for every brand, determines the rating criteria for each aspect score, then averages the five aspect scores to produce a single SimpleScore. For mortgage lenders, we compared perks, credit impact, customer satisfaction, product variety and fees. Our ratings are meant to be a directional tool to help you in the process of choosing a mortgage lender. Be sure to continue your research and shop around for the best mortgage that fits your specific needs.

In this article

Covid-19 and the impact on mortgage rates

Mortgage rates have been on a steady decline since the beginning of the pandemic, making it the perfect time to refinance or purchase your home and reap the savings benefits. If you want to take advantage of these rates, though, be aware that you should move quickly, as rates are on the rise again and may continue to fluctuate with demand.

For example, the 30-year fixed-rate mortgage was 2.99% toward the end of August, which was an increase from the week prior, according to recent data from Freddie Mac. The 15-year fixed-rate mortgage rate also increased to 2.46% during that time, which is up slightly from the week prior. These rates are still lower than they’ve been in decades, though — even with the slight increase.

Despite these fluctuations, most experts predict that rates will stay low for the rest of 2020, making the buyer’s market more competitive. Fannie Mac is predicting declining rates into 2021, and other experts have echoed this prediction. If the rates follow this predicted course, buyers will get some of the best deals on interest rates, but will have increased demand and tighter lending parameters to contend with. Lenders are expecting steady income and high credit scores for approval during this time, so you’ll need to talk to your preferred lender to see how you can get the heftiest savings possible.


COVID-19 Update: We're keeping track of how the coronavirus pandemic is affecting mortgage rates. Read more.

Current mortgage rates overview

Lender APR Interest rate Term length
Rocket Mortgage by Quicken Loans 2.75%–3.75% 3.402%–4.798% 10-, 15- and 30-year fixed-rate loans
Guild Mortgage 3.335%–3.816% 2.90%–3.51% 10- to 30-year fixed-rate mortgages

3-, 5-, 7- and 10-year ARM

Navy Federal Credit Union 2.338%–4.149% 2.750%–3.875% 10- to 30-year fixed and adjustable-rate home loans
Chase 2.611%–2.933% 2.490%–2.875% 15- to 30-year fixed-rate mortgages

5- and 7-year ARM

USAA Mortgage 3.717%–4.850% 3.500%–4.625% 10- to 30-year fixed-rate mortgages

5-year ARM

SunTrust Mortgage 2.4858%–2.9303% 2.700%–2.800% 15- to 30-year fixed-rate mortgages

5-year ARM

New American Funding 2.610%–2.940% 2.250%–2.750% 15- to 30-year fixed-rate mortgages

3-, 5- and 7-year ARM>

Compare: Top mortgage lenders in 2020

Best user experience – Rocket Mortgage by Quicken Loans

Rocket Mortgage by Quicken Loans

Customers comfortable with mobile apps and online banking will enjoy the seamless process offered by Rocket Mortgage.

30Y APR
2.75%–3.75%
J.D. Power
5/5
Fees
1
SimpleScore
3.4 / 5.0
close
SimpleScore
Rocket Mortgage by Quicken Loans
3.4
  • Perks
    4
  • Credit Impact
    4
  • Customer Satisfaction
    5
  • Product Variety
    3
  • Fees
    1
Rocket Loans is the nation’s largest mortgage provider despite this lender having no physical locations — everything's online. And their phone call and online chat service is good enough to have earned the company the top spot in J.D. Power’s Customer Satisfaction Study for 10 years.

The website is easy to navigate, with a user-friendly interface to complete your application process. You’ll find a variety of mortgage loan options, including conventional loans, government-backed loans and refinancing options. Rocket Loans works quickly — borrowers can prequalify for a mortgage in just a few minutes. The company is also willing to loan to people with credit scores as low as 580.

Full review

Our Two Cents — Rocket Loans has blasted the competition with its modern interface and process. Puns aside, it’s one of our all-around favorites.

Best for first-time buyers – Guild Mortgage

Guild Mortgage

New buyers and borrowers that qualify for home programs will get plenty of help securing a loan from Guild Mortgage.

30Y APR
3.035%–3.510%
J.D. Power
4/5
Fees
1
SimpleScore
3.6 / 5.0
close
SimpleScore
Guild Mortgage
3.6
  • Perks
    4
  • Credit Impact
    4
  • Customer Satisfaction
    4
  • Product Variety
    5
  • Fees
    2
This lender really shines when it comes to helping people fund their first home purchase. Many of its mortgage offerings allow a lower down payment requirement (as little as 3%) than the standard 20% required. To sweeten the deal, Guild partners with Home Depot for its 3-2-1 home loan program where it rewards new buyers with a $2,000 gift card for the home improvement store. Most first-time owners are cash-strapped after buying a home. The gift card can help them get a jump start on customizing their home.

Unfortunately, Guild Mortgage doesn’t make it easy to compare lenders. You won’t find its mortgage rates on its site, and the lender is reluctant to give you a ballpark unless you go through the application process, which requires a hard inquiry on your credit.

Full review

Our Two Cents — Guild Mortgage is the influencer of mortgage loans — it has some enticing #sponsored content. New homeowners will benefit from a partnership with Home Depot that could grant them a $2,000 gift card.

Best VA loans – Navy Federal Credit Union

Navy Federal Credit Union

Flexible loan features can help save money for active or retired military and their families.

30Y APR
2.338%–4.149%
J.D. Power
5/5
Fees
6
SimpleScore
3.4 / 5.0
close
SimpleScore
Navy Federal Credit Union
3.4
  • Perks
    4
  • Credit Impact
    4
  • Customer Satisfaction
    5
  • Product Variety
    3
  • Fees
    1
Navy Federal provides mortgage loans for military members (active and retired) and their families. The credit union has a no-down-payment loan option for members who cannot save the recommended 20% down payment. Plus, government-backed VA mortgage loan options don’t require private mortgage insurance, which can save borrowers money on their monthly payment and total loan cost. You can use its online calculator to get an idea of the mortgage rates you may be quoted for your particular purchase.

Another feature unique to Navy Federal is the “Freedom Lock Option,” which guarantees that if interest rates drop within 60 days after you’ve locked in your rate, you can relock to the lowest one at no extra cost. With fluctuating interest rates, this feature can ensure you’ll have one of the best home mortgage interest rates possible.

Full review

Our Two Cents — Five-star service for the people who have served our country. Navy Federal has a wide variety of generous loan options.

Best traditional lender – Chase

Chase

As more lenders turn to online-only mortgage services, Chase stands apart with physical offices and in-person customer service.

30Y APR
2.611%–2.933%
J.D. Power
3/5
Fees
2
SimpleScore
3.8 / 5.0
close
SimpleScore
Chase
3.8
  • Perks
    4
  • Credit Impact
    4
  • Customer Satisfaction
    3
  • Product Variety
    5
  • Fees
    3
Chase is one of the largest banks in the country and provides a wide range of mortgages, including conventional, government-backed and jumbo loans. If you’re a bit old school or are new to mortgage loans, you may prefer in-person assistance. Chase is one of the few lenders who focuses its services on local branch representatives.

The bank doesn’t have industry-leading interest rates, but if you already bank with Chase, you may be able to get a discount on your home loan. Chase Private Clients with deposit or investment balances of $250,000 or more may receive a 0.0125% discount on their mortgage or refinance.

Full review

Our Two Cents — Try Chase if you're looking for a friendly face. The lender defaults to IRL communication and discounts current customers.

Best for fast qualification and closing – USAA mortgage

USAA Mortgage

USAA aims to simplify the mortgage lending process into just four steps.

30Y APR
3.717%–4.850%
J.D. Power
3/5
Fees
2
SimpleScore
3.8 / 5.0
close
SimpleScore
USAA Mortgage
3.8
  • Perks
    4
  • Credit Impact
    3
  • Customer Satisfaction
    5
  • Product Variety
    4
  • Fees
    3
USAA is another financial institution for military members and their families. If you qualify, USAA simplifies the process. The company has broken it down into four steps — get online pre-approval, find your home, work with a USAA loan officer to submit the application, receive status updates from your officer and then close. USAA claims all you need is a photo ID and a cashier’s check (or wire transfer) to pay the closing fees and down payment to get your keys.

Apparently, the process pays off, since J.D. Power awarded it a 5/5 in its customer satisfaction study. You can estimate your loan amount and rates with the online calculator. USAA has traditional VA loans, jumbo loans and ARMs.

Full review

Our Two Cents — Simple service for those who’ve served in the military. USAA has a quick process and streamlined approval.

Best for product variety – SunTrust (now Truist)

SunTrust (now Truist) Mortgage

SunTrust provides plenty of loan options and a robust online mortgage experience.

30Y APR
2.4858%–2.9303%
J.D. Power
4/5
Fees
Late fee
SimpleScore
4 / 5.0
close
SimpleScore
SunTrust (now Truist) Mortgage
4
  • Perks
    4
  • Credit Impact
    3
  • Customer Satisfaction
    4
  • Product Variety
    5
  • Fees
    4
SunTrust, now known as Truist after a merger with BB&T, offers several different mortgage loan products for a wide range of borrowers. New and existing homeowners can learn more about the lending process by accessing SunTrust’s vast library of learning resources — which includes helpful videos and personalized educational resources for different kinds of homeownership (like first-time buyer, renovating, realtor builder, etc.)

We found Suntrust had an extensive variety of mortgage types. You can choose a fixed-rate mortgage, ARM, FHA, VA, affordable financing options, USDA loans, jumbo loans or premier loans for professionals and entrepreneurs. The application and pre-approval process can be completed online and easy to follow. You will have to set up an account and start an application to get customized interest rates. A SunTrust mortgage advisor will then walk you through the more complicated parts.

Full review

Our Two Cents — The Baskin Robins of mortgage loans. While SunTrust doesn’t quite have 31 kinds of loans, it does have more than other lenders.

Best alternative lender – New American Funding

New American Funding

New American Funding is ideal for non-traditional homebuyers who need a lender that will take into account their overall financial picture.

30Y APR
2.610%–2.940%
J.D. Power
Not Rated
Fees
4
SimpleScore
4 / 5.0
close
SimpleScore
New American Funding
4
  • Perks
    4
  • Credit Impact
    4
  • Customer Satisfaction
    N/A
  • Product Variety
    5
  • Fees
    3
New American Funding is a California-based, family-owned business that services loans nationwide and is the only home lender on our list to have a 100% underwriting process.

The manual underwriting process may seem intimidating, but what this means is that your loan application will be reviewed by a human and not lending software, so other factors about your financial history — aside from just your credit score — may be considered during the process. Borrowers who will benefit the most from a manual underwriting process are those who have a few blips on their credit history or are self-employed. Underwriters will be able to take into account factors that aren’t weighed as part of automated underwriting procedures.

Full review

Our Two Cents — An actual human will be reviewing your loan application, which leaves room for reading the nuances of a less-than-perfect application.

Will rates go down?

There are conflicting assumptions that mortgage rates will go down or skyrocket due to the COVID-19 pandemic and the recent market changes. Some experts expect rates to rise due to an increase in yields and the recent rush for mortgage-backed securities (MBS) — which are mortgages sold on a secondary market that are bought from banks and sold as investments.

On the flip side, we’ve seen that lower interest rates during the pandemic have given homeowners a chance to refinance. In 2020, there has been an 84% rise in refinances compared to 2019.

Furthermore, lenders are becoming stricter on borrower qualifications, which can lead to lower rates due to less borrower demand. Mortgage rates will also continue to drop as concern over economic stability continues.

If you can qualify for a loan, the combination of refinancing, forbearance, unemployment and the hope that investors will see a return on their assets make it the perfect time for prospective borrowers to buy.

What is a mortgage?

A mortgage is the type of loan you use to purchase a house. Unless you have the cash to pay for a house upfront, you’ll need a mortgage. Even if you do have the cash to pay in full, it can be a good idea to use a mortgage loan instead for building good credit and freeing up the cash for other investments.

How does a mortgage work?

A mortgage is a secured loan, where the house you purchase with it is used as collateral. If you stop making payments, your home will go into foreclosure (when the lender claims that collateral.)

Once you’ve chosen a lender, they’ll give you the amount of money agreed upon to purchase the home. You’ll then pay back the loan, with interest, in ongoing monthly payments. The exact amount you borrow will be determined by the fair market value of your home (calculated by an appraisal.)

The full process for getting and using a mortgage loan can be broken down into eight steps:

  1. Submit an application. Apply for a loan with the lender you’ve chosen, either online or via phone. You’ll need to provide documentation about your income, assets and any debt.
  2. Get preapproval.The lender will give you an estimate of the amount of money you can borrow based on the information you provided
  3. Shop for a home and make an offer. Now that you have a budget, you can shop for your home and choose the one you’d like to buy.
  4. Order a home inspection.Once your offer is accepted, you’ll schedule a home inspection. The results of the inspection may allow you to negotiate the price, repairs or other contract details before closing.
  5. Purchase homeowners insurance. Lenders will require proof of homeowners insurance before the mortgage loan can reach final approval.
  6. Appraise the home. Your lender will then have your home appraised to ensure that the purchase price is aligned with the home value.
  7. Finalize your loan. You’ll finalize the amount, rate and terms of your mortgage loan.
  8. Close on the sale.You’ll pay your down payment, receive the loan money and finalize your home purchase. There will also be a lot of paperwork.

Interest rate vs. APR

Interest rate is the percentage of interest charged on the borrowed money — the rate can be fixed or variable.

APR is that same interest cost, but it also includes fees and other charges associated with the loan — origination fees, mortgage insurance, closing costs, discounts and broker fees. These fees are usually a percentage of your loan amount rather than a fixed number, so the APR is also expressed as a percentage.

The APR is a better estimate of the total amount it will cost you to borrow money but the interest rate is what your monthly payment is based on (along with the principal balance.)

[Related: APR vs. Interest Rates]

Calculating mortgage rates

Interest rates on a mortgage are determined by the current market, your financial profile and your down payment. Basically, the less of a financial risk the lender deems you, the lower your interest rate — specifically, your credit report and debt-to-income ratio. If you put more of a down payment on your house, that improves your debt-to-income ratio and can get you a better interest rate.

There are two types of mortgage interest rates — fixed and adjustable. With a fixed-rate mortgage, the interest percentage stay the same for the entire time you repay the loan. For an adjustable-rate mortgage, the interest percentage will change based on the market. For most adjustable-rate mortgages, the first 5-10 years will have a fixed rate and then adjust based on the market once a year.

Choosing loan terms

A loan term is the length of time you have to repay the loan. Most lenders will give you a few options for your mortgage loan terms, usually ranging between 10-40 years. Longer loan terms will mean lower monthly payments, but also higher interest rates and thus more interest paid overall. A shorter-term loan will have a much higher monthly payment, but a lower interest rate and less interest paid in the lifetime of the loan. You may save more in the long run with a shorter term, but the monthly payments on a longer loan term are often more affordable.

A 30-year loan term is the most popular. If you put down a higher down payment, that can improve interest rates and make a shorter term’s monthly payments more affordable. You should choose your loan terms based on what you can afford and how you’d like to spend your money.

Types of mortgages

There are a few different kinds of mortgage loans you can choose from that have slightly different structures and come from different kinds of lenders.

1. Conventional mortgages

A conventional mortgage is the most common type of mortgage loan. It basically means the loan isn’t back or issued through a government agency.

  • Fixed-rate loans: The interest rate stays the same throughout the loan term. If you plan on staying in your home for a long time and don’t want to risk interest rate fluctuations or changes to your monthly mortgage payment, a conventional fixed-rate loan may be best.
  • Adjustable-rate mortgages (ARM): Type of loan with a period of fixed low interest initially followed by years of fluctuating interest rates that can fall or rise depending on certain economic changes. ARM loans are best for buyers who are either a.) only planning to stay in their homes for a short period of time, or b.) don’t mind taking a risk on fluctuating interest rates.

2. Government mortgages

There are some mortgage loan options issued by the government. They will typically have specific eligibility requirements.

  • FHA: Federal Housing Association (FHA) loans are designed to help lower-income borrowers buy with a lower down payment (as low as 3.5% in some cases) or a credit score as low as 500.
  • VA: Department of Veterans Affairs (VA) loans are available to veterans and may not require a down payment or private mortgage insurance depending on the lender.
  • USDA: U.S. Department of Agriculture loans (USDA) Provide no down payment loans to qualified homebuyers in designated rural areas.

3. Nonconforming mortgages

A nonconforming mortgage loan does not conform to the Federal National Mortgage Associated and Federal Home Loan Mortgage Corporation purchasing guidlines. These loans will have higher interest rates. A mortgage may become noncomforming if it exceeds conforming loan limits or based on the borrower’s down payment, DTI, credit score and documentation requirements. For example, if a borrower has a DTI above 42% it may be considered a nonconforming loan.

  • Jumbo mortgage: This loan is beneficial when you need to finance a home that is more expensive than a conventional loan will allow for. For most of the country, a jumbo loan is needed for loans of $510,400 or higher, although more expensive areas have a higher baseline of $765,600.

[Read: The Best Jumbo Loan Mortgages]

What percentage should I give as a down payment?

Typically, the minimum down payment recommended is 20%. Some lenders will require you to purchase private mortgage insurance (PMI) if you put down less than that.

The more money you put down, the lower your interest rate will be and the more money you’ll save in the long run. It’s best to save up a significant amount of money for a down payment before you begin the process of buying a house. On the other hand, you can get a house with as low as 5% down payment, you’ll just face larger interest rates and potentially a higher monthly payment.


[Read: Why Do You Need a Down Payment, Anyway?]

What are closing costs

Closing costs are any additional fees you pay for your home loan aside from the loan principal and interest. These one-time costs are usually a small percentage of the home’s price, and, on average, cost between 2%-5% of the total loan.

For example, if you’re interested in a $350,000 home, the closing costs would range from $7,000 – $17,500. The fees cover professionals and services needed to finalize your home buying process.

These closing costs cover a few fees, including the home appraisal to assess the value of your new home and in some cases, a credit reporting fee to cover the cost of reviewing your credit. A home inspection fee is also required to check the condition of your home before close.

Oftentimes, experts highly recommend negotiating lender service costs including application fees or any costs you don’t recognize. You can also ask about including some closing costs into your loan, but this choice may mean a higher interest rate.

You won’t be able to negotiate some of the closing cost fees, including taxes or title insurance required by the lender, but there are a few fees you can lower or ask the buyer to cover. For example, the buyer and seller can split the attorney or escrow fees for the attorney to handle the funds and closing process, or one party may offer to cover it.

Current mortgage rates by term

Term APR Interest Rate
10-Year Fixed Rate 3.01% 2.85%
15-Year Fixed Rate 3.07% 2.79%
20-Year Fixed Rate 3.50% 3.27%
30-Year Fixed Rate 3.52% 3.27%



[Read: 15-Year or 30-Year Fixed Mortgage: Which Is Right for You?]

Survey: 30% of Americans think 2020 is an ideal time to buy a home

To say the economy has been tough in 2020 would be an understatement. The coronavirus pandemic has caused significant damage to the job market, which has led to a record-breaking number of unemployment claims filed in recent months. And, as the months roll on, the hits from the COVID-19 pandemic just keep coming.

Still, despite this year’s economic turmoil, a surprising number of Americans think that 2020 is an ideal time to make a property purchase. According to a recent survey by TheSimpleDollar, about 30% of the participants agreed that this is an ideal time to buy a home or property — and nearly 7 in 10 of those in agreement think that 2020 is the best time for them to purchase a house or property due to low mortgage interest rates (68%).

So, if you want to ensure a smooth home purchase during this time, you should:

  • Clean up your finances. If you want to get approved for a loan right now, you’ll need to make sure your finances reflect that you can afford to pay it back. This means socking away some money into savings, paying off other loan or credit card balances and avoiding large or significant purchases in the time leading up to the loan application.
  • Pay close attention to your credit. You should pull copies of all three credit reports to go over before you apply for your mortgage. These reports are usually free to pull once a year at Annualcreditreport.com, but all three reports have been made available for free each week through April 2021 due to the coronavirus pandemic.
  • Get preapproved. The best way to get an idea of your rates is to go through the preapproval process with a lender. This will give you an idea of where you, as a buyer, fall on the borrowing spectrum. You’ll need to have financial information on hand, but in many cases, you can complete the process fully online and receive an answer in 1-3 days or less.
  • Consider ways to be flexible. The reality of the current housing market is that in some markets — especially in larger metro areas — there are fewer houses for sale than the demand calls for. If you’re shopping in those areas, you’ll have to find ways to make concessions — and you may end up paying the full asking price or more than list price for the home if there’s a ton of competition. As more people aim to take advantage of the record-breaking interest rates, the more demand you’ll have for the homes on the market.

Tips for finding the best lender

Consider these tips from mortgage professionals for finding the best lender:

  • Choose a local lender.“Local companies are rooted in the community and have a reputation to uphold. They know the local market and you have a much better chance to ensure the deal goes smoothly,” Dave Cook, a loan officer for Cherry Creek Mortgage Company in Denver, Colorado, said.
  • Choose a lender that understands you. You may need a company that specializes in military and VA loans, or you may work best with a first-time homebuyer specialist or lender that understands the needs of lower-credit applicants. “Understanding your borrower profile, and how that corresponds into options in the mortgage market, is key,” Joe Thweatt, branch manager at Axia Home Loans, said.
  • Interview your lender. Some lenders may be too busy to handle your application in a timely manner, and other lenders may not fit your needs. Ask questions about how they can be reached if you have questions and monitor how long it takes them to call you back. Philip Georgiades, Chairman of VAHomeLoanCenters.org said you should be proactive and “ask your mortgage broker how their service is at the moment.”

Mortgage FAQ

How can I save on mortgage interest rates?

  1. Work on your credit score: The better the score, the lower risk you will be to a lender, which will give you access to better interest rates.
  2. Take out a mortgage with your existing bank: While your bank may not offer the lowest interest rates, you may get lucky and be offered a special rate for being an existing customer.
  3. Shop for competitive rates; Work with a lender or broker who can watch interest rates on your behalf and let you know when they’re lower.

When should you refinance your mortgage?

Refinancing is when you replace your mortgage loan with a new one. This is often done after you’ve built up a better credit score and can qualify for lower interest rates or have a higher income and shorten your loan with higher monthly payments. By replacing the older loan, you can lower your monthly payments and the total cost you pay to borrow the money. When you’re ready to get to work you should use a mortgage calculator to help you understand closing costs based on your financial situation.

When refinancing, you can also reduce the length of your loan and remove private mortgage interest. You may also want to refinance to change your loan from an adjustable-rate mortgage to a fixed-rate mortgage depending on the interest rate you’re currently paying.

How do you compare different types of mortgage lenders

While you’re looking for the best possible mortgage rate and mortgage type, take into consideration the different types of mortgage lenders on the marketplace today. While you shouldn’t find anything drastically different between lenders, the details are still important. We’ve narrowed mortgage lenders into three categories:

Banks

This category includes mortgage bankers that work for the major banking institutions (Bank of America, Wells Fargo, etc.). Mortgage bankers can provide direct links between lenders and the organizations that provide the capital for their mortgage.

There’s more security in using a mortgage banker, and if you already have a good history with the bank, you might be able to obtain a lower interest rate than on the marketplace.

Brokers

Mortgage brokers are essentially middlemen between borrowers and lenders. Using a broker means that you’ll have more access to competitive repayment terms and interest rates outside of specific financial institutions.

Credit Unions

Credit unions can be an appealing choice for anyone looking to find a mortgage with average to bad credit. They tend to operate as nonprofits and tend to keep loans in-house as opposed to utilizing third parties.

Non-bank Lenders

Non-bank lenders, such as Quicken Loans, specialize in mortgages and don’t offer other traditional consumer banking services. They represent a fast-growing segment of the mortgage market.\

Ask the Experts

Chane Steiner, CEO, Crediful.com

What’s your advice to people who have lower credit and are applying for a mortgage?

If people have lower credit and are applying for a mortgage, my advice would be to take your time shopping around. With a lower credit score, it might seem like there are no low-interest or affordable options for you. This isn’t really the case, however, you might have to look a bit harder, you can find a lender that works for you and your financial situation.

What would be your advice to folks who have no credit history and are applying for a mortgage?

If you’re applying for a mortgage without any credit history, I would advise looking towards some non-traditional credit history options, such as rent and student loan payments. Even without a formal credit history, you can still use these payments to show lenders you have a good history and you’re capable of paying them on time consistently.

What do you think people’s biggest pain point is when getting a mortgage? What tips would you offer those people?

I would say people’s biggest pain point when getting a mortgage is feeling overwhelmed. When shopping for a mortgage, it can be incredibly difficult to pick a lender when there’s so many options, and there’s so much you have to think about and consider.

My advice to these people would be to take your time. There’s no harm in taking this decision-making process slowly, and carefully weighing your options. One great strategy is to do a side-by-side comparison between multiple different lenders and mortgage plans, so you can easily see which one will work best for you.

Dennis Shirshikov, Writer, Fit Small Business

What’s your advice to people who have lower credit and are applying for a mortgage?

Now more than ever, working to improve your credit score is a great investment. With rates at all time lows, it might make sense to consolidate card debt with a personal loan will increase your credit score.

What would be your advice to folks who have no credit history and are applying for a mortgage?

If you don’t have a credit history, it might be more difficult to qualify for credit. It will likely require a larger down payment, or you can start building your credit with credit cards in the meantime. You can also show utility statements and any other payments to demonstrate timeliness and creditworthiness.

Should people get pre-approved for a mortgage? Why or Why not?

Definitely get pre-approved for a mortgage since it will help you avoid shopping outside your budget. If the pre-approval is higher than you expected, remember that you don’t have to use all of it. It’s much better to spend a little less and decrease the debt burden.

Eric Jeanette, Owner, Dream Home Financing & FHA Lenders

What is your advice to folks who have no credit history and are applying for a mortgage

Fortunately, there are some lenders who will still provide mortgages for individuals who have no credit at all. Even FHA guidelines permit a manual underwriting process for borrowers with no credit history. They will instead review your payment history on your utility and phone bills for example.

What do you think people’s biggest pain point is when getting a mortgage? What tips would you offer those people?

The biggest pain point from my perspective would be how overwhelmed people get with the entire process, collecting the documents, and worrying about whether they are getting the best rate possible.

The best tip would be to do everything possible to improve the credit scores and to save for the largest down payment. That will go a long way in making the borrower eligible for more loan programs and at the lowest rate.

What are the most common things people don’t understand about mortgages?

The most common misunderstanding is how mortgage interest rates are determined. We often get calls from people who first ask “what is your rate”. That is like walking into a car dealer asking “what is the price of a car”. There are so many different kinds and with many different options. It is the same when it comes to mortgage rates. There are so many different factors that will determine what your particular rate will be for your specific loan scenario.

Andrina Valdes, Executive Sales Leader & COO, Cornerstone Home Lending

What’s your advice to people who have lower credit and are applying for a mortgage?

Look into an FHA loan, it’s one of the friendliest to anyone with low credit and especially first-time buyers. This kind of loan is known for its flexible credit requirements — potentially as low as 580, though it can depend on the borrower. FHA loans are also known for their low down payment, as low as 3.5-percent minimum.

Should people get preapproved for a mortgage? Why or why not?

Definitely. Getting prequalified is absolutely the most important step you can take when buying a house, even before you start house-hunting. Getting prequalified takes a few minutes and will tell you how much house you can afford to buy. You’ll avoid shopping in the wrong bracket, outside of your price range.

Also, prequalification, or taking even more steps to a full loan approval, shows a seller you’re motivated. If there’s a bidding war, they might choose your offer just because some of your loan paperwork has been done, and you’re pre qualified.

What are the most common things people don’t understand about mortgages?

One of the biggest misconceptions we see surrounds closing times. The industry average is over 40 days, but lenders that specialize in speedy closings can close on a mortgage in as few as 10. So, buying a house and getting a mortgage shouldn’t be a long, drawn-out process; it can be done from start to finish in a little over a week.

It’s also helpful to eliminate the 20-percent down payment myth that a big portion of buyers believe is required to get a mortgage. Up to 13 percent of buyers think 20-percent down is needed, and 40 percent have no idea how much it takes to get a mortgage. Point being, the minimum required down payment is normally a lot more reasonable than potential homebuyers are thinking.

Helen Chen-Tournay, “Mama Bear Finance”

What do you think people’s biggest pain point is when getting a mortgage?

I think the biggest pain point for those who are trying to obtain a mortgage is to have an established history of good credit combined with a healthy income. Since lenders care a lot about creditworthiness, your credit history and credit score will be a good guide for understanding your repayment pattern. Your income is an important criteria to get pre-approved.

How does getting a mortgage differ from your first house to your second house?

Getting a mortgage for your second house may be easier than your first if you have paid your mortgage payments on time. This means that you have had the chance to prove to the lenders that you’re reliable to pay your mortgage. Meanwhile, buying your first house means that you don’t have any proof of your creditworthiness, therefore it may be harder to get pre-approved as a new homeowner.

What are the most common things people don’t understand about mortgages?

The most common thing people don’t understand about mortgages is that it is an amortization loan. This means that a large portion of the mortgage payment goes toward the interest in the beginning with a small portion going towards the principal. As time passes by, the amount of interest you pay will decline. Knowing how much you pay in interest will give you a better understanding of the true cost of homeownership.

Scott Lindner, National Sales Director for Mortgage Lending, TD Bank

What’s your advice to people who have lower credit and are applying for a mortgage?

It’s important to understand your credit standing before starting the mortgage process.

When reviewing your credit report, make sure that all accounts listed under your name belong to you and that the account balances are accurate. It can take several months to have an error removed from your credit report, so the earlier you look, the more time you’ll have to fix any issues. If you have any outstanding collections or payments that are past due on your credit report, be prepared to discuss these with your lender.

How does getting a mortgage differ from your first house to your second house?

Homeowners are often surprised to learn that the requirements for securing a mortgage on a second home are often stricter than those for their primary residence. Requirements can also vary by what you plan to do with your second home. For example, if it is a vacation home, many lenders require a secondary residence to be at least 50 miles away from your primary home. Otherwise, it would be classified as an investment property and have different tax considerations.

While primary homes may have more flexibility in the down payment, second homes may require an upfront payment of 10 to 20 percent and have more stringent credit standards.

What are the most common things people don’t understand about mortgages?

It’s important to remember that a mortgage is just a portion of the overall cost of homeownership. When considering how much to put down and how to establish a manageable monthly payment, consider additional expenses like homeowner’s association fees, furnishing your new home and having an emergency fund for things like a broken water heater.

John Bush, Financial Planner, Garrett Investment Advisors

What would be your advice to folks who have no credit history and are applying for a mortgage?

If you have no credit history, there are some mortgage brokers that will accept alternative information when obtaining a mortgage. They will likely review things such as assets (savings and retirement accounts) and payment consistency for utility and insurance payments. Your interest rate will likely be higher than advertised rates, but once you build your credit, you can consider refinancing in a few years, assuming interest rates are similar in the future.

Should people get preapproved for a mortgage? Why or Why not?

In many cases, getting preapproved for a mortgage is required by real estate agents before they will show you a house. It is important to remember that just because you are preapproved for a certain amount does not mean that you should spend that much on a house. Through research, or an appointment with a financial planner, you should be able to determine how much house you can comfortably afford.

What are the most common things people don’t understand about mortgages?

People often don’t understand that an amortization schedule is used to determine how much principal and how much interest one is paying. At the beginning of a traditional mortgage, most of the payment is interest. If you make extra principal payments at the beginning of the mortgage, you can greatly reduce the amount of interest paid over the life of the mortgage.

Too long, didn’t read?

Getting a mortgage loan doesn’t have to be as complicated as it sounds. Assemble your financial profile, home budget and down payment. We recommend you research a few different lenders and comparing rates before committing. Look for low rates and a loan type to fit your purchase. Our list of lenders have been ranked based on current rates, customer satisfaction, fees, credit impact and product variety.

Methodology

The SimpleScore makes it easy to compare products and services featured here on The Simple Dollar in a transparent, open and honest way. We rate these products and services using five factors and average them to come up with a single SimpleScore™. For home loans, we compare:

  • Perks
  • Credit impact to check rates
  • Customer satisfaction
  • Product variety
  • Fees

While you shop for your next mortgage loan, use our ratings and comparisons to help you choose the best mortgage lender that fits your specific needs.

Keep reading

We welcome your feedback on this article and would love to hear about your experience with the mortgage lenders we recommend. Contact us at inquiries@thesimpledollar.com with comments or questions.

COVID mask

The impact of COVID-19 on mortgage rates.

The real estate market is changing. To stimulate the economy, the Federal Reserve made two mortgage rate cuts in March and another one in February, setting a federal fund rate to a range of 0% to 0.25%. 

Today rates on fixed-rate mortgages are at a record low. People shopping for new homes should consider that although lower rates boost mortgage financing, the supply is limited and hard to lock down. Those who can reach a deal and lock in the current interest rate can look into lender’s options for seven-day locks, which can reduce borrowing costs. 

Lenders and banks like Bank of America and Navy Federal Credit Union are also offering hardship forbearance to borrowers facing financial troubles due to COVID-19. And although forbearance isn’t forgiveness, the temporary basis has helped close to 4 million American borrowers as of May. 

More resources

Danika Miller
Danika Miller
Personal Finance Reporter

Danika Miller is a writer at The Simple Dollar. Her work can be found on Reviews.com, Freshome.com, Her Campus, and Jeopardy Magazine. She holds a bachelor’s degree in creative and technical writing from Western Washington University.

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  • Andrea Perez
    Andrea Perez
    Personal Finance Editor

    Andrea Perez is an editor at The Simple Dollar specializing in personal finance. Prior to that she specialized in digital marketing content for online learning websites. She holds a master’s degree in journalism and media studies from the University of South Florida.