Madison is the capital of Wisconsin and is known for a variety of things including its college football team, its delectable cheeses, and beautiful lakes. Add “hot housing market” to that list.
Not only is Madison’s home market is rated as a “very hot” sellers’ market, but the city also has home values above the national average, which affects local mortgage and refinancing rates. The median home value in Madison is $252,000, having grown 5.5 percent between 2017 and 2018, with 4.9 percent of growth anticipated by 2020.
Comparably, the Zillow Home Value Index (ZHVI) for the average U.S. residence is $223,900.
The Madison area has seen considerable growth in recent years. The ZHVI was $199,000 in January 2016, then went up to $221,000 by January 2017, and then $252,000 by end of 2018. The high level of activity has fed a tight sellers’ market, with median listings outpacing the national medians ($289,500 to $275,000, respectively).
Additionally, homes for sale in Madison stay on the market nine days fewer than the U.S. average.
The capital’s housing market is a competitive environment, which can impact mortgage and refinancing rates, as well as the loan types that best meet borrowers. On average, 10 percent of U.S. homes sell at a price below listing while just 7 percent were reduced in Madison.
However, it’s important to not forget the role of national factors in determining what interest rate you’re offered. For instance, while national mortgage rates are falling at the beginning of 2019, according to Freddie Mac, greater economic uncertainty abounds given Federal Reserve rate policy and trade stand-offs.
Getting the best rate and loan for you means understanding how these considerations affect your experience with lenders.
Current Mortgage Rates in Madison
Mortgage Rate Factors in Madison
There are numerous forces that dictate what interest rate you receive on your mortgage or refinance loan. Some of these variables are related to your personal finances, others to the specific details of the loan itself and yet others like the national economy.
Becoming familiar with these determining factors could prove to be the difference between saving thousands over the lifetime of your loan and paying extra because of a rushed process. Here are four critical elements to be aware of when seeking a mortgage or refinance:
Generally, a large down payment can secure a lower interest rate because a large sum of money is paid upfront reducing the risk to the lender. In doing so, the borrower demonstrates they are serious and have the means to make payments.
The benefit to the buyer is that a large down payment usually means avoiding paying for private mortgage insurance and some closing costs. However, the industry standard for down payments is often set at 20 percent of the value of the home.
Not all potential homebuyers can afford to put down that amount But 20 percent isn’t required, with some loan options such as Federal Housing Administration (FHA) loans and United States Department of Agriculture (USDA) loans, which come with a low no down payment requirement.
This particular ratio captures the value of the loan you’re seeking compared to the appraised cost of the property. Lenders use LTV as another measure for determining risk. A high ratio means the homeowner could be at greater risk of default, although it is not always a disqualifier for loan approval.
A loan priced at or near the appraisal value means little margin to build up homeowner equity, which can be a problem for lenders or owners of the mortgage down the line. Most lenders prefer an LTV ratio of 80 percent, and borrowers may pay higher interest rates if they fall above that threshold.
The easiest ways to bring down LTV is with a large down payment and negotiating the sale price.
Prevailing Interest Rates
While you can do everything within your control to get a low rate, there’s a limit to what you may be offered given the overall trend of market rates. Mortgage and refinancing rates in Madison, like rates for car loans and credit cards, are influenced in part by actions taken by the Federal Reserve to cut or raise its benchmark rate.
The federal funds rate is the target rate for overnight bank-to-bank lending for means of meeting capital reserve requirements, but it is the prevailing rate to which all other markets are tied to. When the federal funds rate increases, mortgage rates may go up as well.
Borrowers interested in obtaining an adjustable-rate mortgage, in particular, should consider this and understand the rate terms before selecting a mortgage
Your credit score is one of the most important factors taken into consideration by mortgage lenders. The link between a high credit score and better terms for a mortgage or a refinancing rate is clear, but what is less known to many borrowers is how their credit score is calculated.
The three major credit reporting bureaus (Experian, Equifax, TransUnion) each have proprietary equations they use to determine a score. Looking at the makeup of a FICO score can help consumers to boost their scores. The breakdown is as follows:
- 35 percent of the score is tied to payment history
- 30 percent of the number of credit accounts owned
- 15 percent to length of credit history
- 10 percent to credit mix, i.e. having both revolving and installment credit accounts
- 10 percent to new credit
How to Get the Best Mortgage Rates in Madison
There is one simple step to potentially saving thousands over the duration of your mortgage: comparative shopping. Many homebuyers do any research or comparison when seeking a mortgage and often go with the first-rate they’re offered.
This is why the Consumer Financial Protection Bureau (CFPB)urges consumers to shop around for the best mortgage or refinancing rate.
CFPB research shows that the difference between the actual loan rate and lowest possible rate for the average borrower was equal to $300 a year, or $9,000 over the lifetime of a 30-year fixed-rate mortgage.
Despite the wealth of potential savings, only about half of all prospective homebuyers actively pursue multiple lender quotes. So what can you do to shop for the lowest rate?
- Compare loan options: do a cost-benefit analysis between fixed-rate and adjustable-rate mortgages to find the best option for you. Also, look at other conventional and government-backed loans to find the ideal interest rate and loan terms that you want.
- Negotiate: this can be hard for some borrowers, but if you have a lower quote from one lender, bringing it to your preferred lender could net you savings on closing costs or interest rates. It’s always worth asking for the best deal.
- Look online: Technology has completely changed our ability to shop and compare mortgages rates, making such rate quotes accessible with the click of a finger. Many of America’s biggest and most reputable lenders are now entirely online or have a large online presence. The ease with which consumers can gather multiple quotes with little hassle makes it easier for them to make the right choice in lenders and loans.
- Get preapproved: preapproval shows both a lender and a home seller that you’re committed as a borrower and qualified as well. Being preapproved can lead to better terms or a sale price.
Recommended Mortgage Lenders in Madison
Consider working with one of these companies to find the best mortgage or refinancing rate in Madison:
- Ally Bank: a wide selection of loans and competitive rates make online lender Ally Bank an option for any prospective homeowner. The company’s online homebuyer resources and calculators also come in handy.
- New American Funding: New American Funding is another online national lender that provides numerous loans with favorable terms and interest rates for first-time buyers or those with lower credit scores.
- Quicken Loans: the No. 1 FHA lender and one of the nation’s biggest mortgage companies, Madison homebuyers can get a rate quote online quickly with this mortgage provider.
- Better Mortgage: this online lender gives borrowers the option to apply points or credits toward their loans to reduce costs.