As an economics major, I love the Pew Research Center. They come up with the most interesting financial information by race. Instead of treating everybody as equals, they go the government route by categorizing everybody into different buckets to see if something can be gleaned.
Here’s a good example of an interesting chart about mortgage rates by race. Instead of labeling the chart with a neutral title such as, “Mortgage Rates By Race,” like I did with this article, the Pew Research Center decided to focus on the negatives and entitled it, “Blacks, Hispanics More Likely To Pay Higher Mortgage Rates.” Depressing!
Why didn’t they entitle the chart with something more positive such as, “Being Asian Can Get You A Lower Mortgage Rate,” or “Although Asians Need Higher Grades And Test Scores To Have The Same Chance To Get Into University, At Least Asians Get To Pay Lower Mortgage Rates,” or “Despite Some Disadvantages Of Being A Minority, You Can Still Get The Best Mortgage Rate Possible,” or “Being A Minority May Make It Easier To Get A Better Rate.” Great titles such as these focus on the positives of the data, rather than only the negatives.
As an online media entrepreneur, my suspicion for why Pew Research Center and the like focus on the negatives is due to the desire for attention. A negative title creates controversy by bringing up the suspicion of discrimination. But if there is discrimination among Blacks and Hispanics, why would there not also be discrimination against Asians? We’re all minorities, after all.
Given I’m an Asian person who recently refinanced my 5/1 adjustable rate mortgage to 2.35% after four long months, I thought I could shed some light again on how all races can get a lower mortgage rate. We all want the same thing, so let’s stop segregating ourselves, shall we?
Lower Mortgage Interest Rates For All
1) Stop buying things you do not deserve. The main reason why borrowers pay higher interest rates or get rejected from a mortgage application is because their debt-to-income ratio is too high or their credit score is too low. If you buy zero things you don’t need, you will have zero debt. If you have zero debt, or at least debt that can be paid off on time, you won’t have a poor credit score.
Thanks to the new Qualified Mortgage rule, most mortgages have a maximum back-end debt-to-income ratio of 43%. In other words, if you have a monthly gross income of $10,000, the most debt you can have across all liabilities is $4,300 before being rejecting. Know this fact!
A front-end debt-to-income ratio calculates only your monthly housing payment. In other words, if out of your $4,300 in liabilities, $2,000 is from housing, then your front-end DTI is 20% ($2,000/$10,000). Banks will look at both, but emphasize the back end the most. Hence, work to eviscerate your debt because no matter how Asian you are, once you get beyond these DTI limits, you’re done.
The average credit score for approved mortgage applicants is over 720 (excellent). Therefore, if your credit score is under 720, good luck getting approved or getting the most favorable rate. Banks aren’t going to take more risk (approve a lower credit score) for the same reward (charge the same interest) when they have an endless supply of borrowers with excellent credit. They will obviously charge a higher interest rate for higher risk borrowers. Here are some tips for improving your credit score to 800 or higher.
It’s important to be CONGRUENT with your work effort and expectations. If you were getting C’s in school, then it’s important you don’t spend as if you got straight A’s. The straight A student is the one who is getting courted with scholarships and higher pay packages. The C student isn’t.
2) Make a lot more money. If you are having trouble going the easy route of being frugal, then your only other alternative is to make a lot more money to get your debt-to-income ratio down. I got rejected from my mortgage refinance in 2015 because I wasn’t making enough from my freelance work. As a result, I turned up the hustle meter and landed several more freelance clients so I could finally get approved for a refinance in 2016. Taking the attitude that the bank owes you anything is the wrong attitude. Nobody owes you anything!
The easiest way to make more money is to work more hours. There are actually people out there who work 40 hours a week or less and complain they can’t get ahead compared to their peers who work 60 hours or more a week. Nuts! There’s nothing complicated about working more hours to get paid more money. The opportunities to earn extra income from the gig economy are endless. Further, nobody should be too proud to work a minimum wage job to get ahead.
If you don’t want to work more hours for whatever reason, then you’ve got to work smarter by utilizing leverage. Taking advantage of the internet is the most obvious way to leverage your brand to make more money given the billions of people online. Another lever is allowing for investment returns to compound over time to the point where your money makes more money than what you can make yourself. Finally, produce something that only you can produce instead of only consuming.
3) Create competition for your business. You’re always going to get the best deal if you have at least one other lender competing for your business. Because I saw a man and a woman sitting in the living room for a house I wanted to buy in 2004, I decided to offer $23,000 more simply due to anxiety! Things have worked out 13 years later, but at the time, I knew I shouldn’t have paid so much. As soon as another lender comes into the arena, your chances of getting a lower mortgage rate improve.
In 2016, I inquired with Chase about a potential refinance. They told me over e-mail they could do 2.5% with 0 points and no closing costs if everything checked out. Because Chase was the bank that rejected me in 2015, I had no qualms about then going to Citibank, where my existing mortgage was, and showing my banker the offer Chase provided. Not wanting to lose my business, they beat Chase’s offer by 0.125% with similar terms.
The easiest way to get real competing offers for your business is to check online through a mortgage marketplace like LendingTree or Quicken Loans. They’ll annoyingly call you about their offers, and all you’ve got to do is tell them to send you their offer over e-mail. You can either go with one of them if their offer is good, or you can use their written offer to make your existing bank compete. As the saying goes, when banks compete, you win.
4) Promise more business. Banks want to do business with long-term customers they like. Every single banker’s mantra is to cross-sell you as many products as possible, e.g. checking account, savings account, CD account, brokerage account, mortgage, HELOC, unsecured loan, etc. The more products they can get you in, the more they will make, and the more likely you will stay with them.
Your goal is to be a thoughtful borrower with a bright future. You should discuss your education, career path, aspirations, and so forth so the bank believes in your future. Also, work on developing emotional intelligence. The more they like you, the better service you will get.
5) Buy less house. If you can’t qualify for a mortgage or face paying a much higher than market rate interest rate, you’ve got to accept the reality that you can’t comfortably afford your home. Homeownership, contrary to what you may believe, is not a right. You’ve got to work at being able to afford the classic American dream to get neutral inflation.
The reason why there was a housing crisis was because too many people got into too much debt. Their incomes suddenly went away and they couldn’t afford to float their mortgage from savings long enough until their income returned. I recommend everybody have at least a 20% downpayment plus a 10% buffer in the form of cash or liquid securities.
Put Yourself In The Lender’s Shoes
Banks are in business to make money. Their interest rate offer corresponds to the amount of risk they see in you. The more you can look good to them on paper and in person, the better terms you will get. Race has nothing to do with whether your debt-to-income ratio or credit score are too high. It’s your financial health and financial future that matters the most. Do not adopt a victim mentality just because you are a certain race, you cannot get ahead that way.
If you want the lowest interest rate possible you’re simply going to have to work for it. That should be music to most people’s ears. Or, you can believe that being Asian gives you the greatest advantage of getting the lowest mortgage interest rate possible according to the data. But if you weren’t born Asian, you’re just going to have to follow my advice!
Recommendation: Check out LendingTree for some of the lowest free mortgage rate quotes online for purchase or refinance. They’ve got one of the largest banking networks today. When banks compete, you win.