Mortgage and refinance rates today, Feb. 27, and rate forecast for next week

Today’s mortgage and refinance rates 

Average mortgage rates fell a little or held steady yesterday (Friday). Unfortunately, it was the only glimmer of light in a gloomy week that saw rises — including a sharp one — on every other day.

Right now, there seems to be no end in sight to these rate increases. Of course, we’re almost bound to see an occasional fall, because that’s how markets work. But sustained downward movement appears unlikely, and I’m expecting that mortgage rates will keep rising next week. Read on for more details.

Find and lock a low rate (Feb 27th, 2021)

Program Mortgage Rate APR* Change
Conventional 30 year fixed 3.062% 3.065% -0.13%
Conventional 15 year fixed 2.587% 2.596% -0.11%
Conventional 20 year fixed 2.875% 2.882% -0.13%
Conventional 10 year fixed 2.474% 2.493% -0.13%
30 year fixed FHA 2.87% 3.549% -0.1%
15 year fixed FHA 2.539% 3.121% -0.16%
5 year ARM FHA 2.5% 3.213% -0.03%
30 year fixed VA 2.383% 2.555% -0.36%
15 year fixed VA 2.25% 2.571% Unchanged
5 year ARM VA 2.5% 2.392% Unchanged
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.

Find and lock a low rate (Feb 27th, 2021)


COVID-19 mortgage updates: Mortgage lenders are changing rates and rules due to COVID-19. To see the latest on how coronavirus could impact your home loan, click here.

Should you lock a mortgage rate today?

If I were still floating, I’d lock my rate right away. Of course, there’s always a possibility of rates falling back. But that currently looks a slim one. And the chances of continuing rises seem much stronger. Read on to discover why.

So my recommendations remain:

  • LOCK if closing in 7 days
  • LOCK if closing in 15 days
  • LOCK if closing in 30 days
  • LOCK if closing in 45 days
  • LOCK if closing in 60 days

However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So be guided by your gut and your personal tolerance for risk.

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What’s moving current mortgage rates

The forces that are driving rates higher are the same ones we reported last week. The vaccination program and dwindling COVID-19 infection rates are creating optimism that an economic recovery will be upon us sooner than many expected. Indeed, we’re already seeing some better economic data. And a better economy goes hand-in-hand with higher rates.

But what we last week listed as a secondary factor may have now turned into the primary one. And that’s the fear of future inflation.

Unfortunately, such fears also tend to push mortgage rates higher.

Fear of inflation

And you can see why. Imagine you’re an investor who buys a mortgage bond (a mortgage-backed security or MBS) with a fixed rate of 3% for 30 years. That means your yield (income) is fixed, too.

And now imagine how sick you’d feel if next year (or in 10 years’ time) serious inflation took hold, and you were suddenly seeing inflation and interest rates soaring up to 10% or even higher — while you were still getting 3%.

This isn’t impossible fiction. Between 1978 and 1990, the average rate for a 30-year, fixed-rate mortgage never dipped below 10%, measured annually. And, in October 1982, that rate peaked at 18.45%, according to Freddie Mac’s archives.

It’s not hard to imagine how petrified investors are of having their money tied up in fixed-rate securities if there’s any likelihood of future inflation.

Still a slim possibility of falls

Of course, nothing’s certain in markets. And some disastrous news could come out of nowhere and kill both optimism and its accompanying fear of inflation.

Indeed, earlier this week, The New York Times reported on a new variant of SARS-CoV-2 (the virus that causes COVID-19) that’s currently circulating in New York City. And some scientists worry that it might prove more resistant to current vaccines than existing strains are.

That research is yet to be peer-reviewed. And it may turn out to be nothing. But it’s an example of the sort of news that could turn markets and mortgage rates around. The trouble is, the chances of such an event arising before your closing date don’t seem high.

Economic reports next week

Next Friday brings the official, monthly, employment situation report. And that’s arguably the most important economic data of all at the moment. So markets may be moved by those figures

They’re less likely to be affected by the other reports this week. However, any data can have an impact if it varies significantly from expectations.

Here are next week’s main economic reports:

  • Monday — January construction spending. Also February auto sales. Plus the February manufacturing index from the Institute for Supply Management (ISM)
  • Wednesday — February ISM services index
  • Thursday — Weekly new claims for unemployment insurance.
  • Friday — February employment situation report, including nonfarm payrolls and the unemployment rate.

Watch out, too, for top Federal Reserve officers’ speaking engagements. The Fed’s walking a fine line at the moment between keeping the recovery on the road and not stoking inflation fears. So investors are paying close attention to their remarks.

Find and lock a low rate (Feb 27th, 2021)

Mortgage interest rates forecast for next week

Unfortunately, I can only predict rising rates this week. The pace of increases may slow and we might even see some small and occasional falls. But, overall, it’s hard to imagine the recent trend reversing.

Mortgage and refinance rates usually move in tandem. But note that refinance rates are currently a little higher than those for purchase mortgages. That gap’s likely to remain constant as they change.

How your mortgage interest rate is determined

Mortgage and refinance rates are generally determined by prices in a secondary market (similar to the stock or bond markets) where mortgage-backed securities are traded.

And that’s highly dependent on the economy. So mortgage rates tend to be high when things are going well and low when the economy’s in trouble.

Your part

But you play a big part in determining your own mortgage rate in five ways. You can affect it significantly by:

  1. Shopping around for your best mortgage rate — They vary widely from lender to lender
  2. Boosting your credit score — Even a small bump can make a big difference to your rate and payments
  3. Saving the biggest down payment you can — Lenders like you to have real skin in this game
  4. Keeping your other borrowing modest — The lower your other monthly commitments, the bigger the mortgage you can afford
  5. Choosing your mortgage carefully — Are you better off with a conventional, FHA, VA, USDA, jumbo or another loan?

Time spent getting these ducks in a row can see you winning lower rates.

Remember, it’s not just a mortgage rate

Be sure to count all your forthcoming homeownership costs when you’re working out how big a mortgage you can afford. So focus on your “PITI” That’s your Principal (pays down the amount you borrowed), Interest (the price of borrowing), (property) Taxes, and (homeowners) Insurance. Our mortgage calculator can help with these.

Depending on your type of mortgage and the size of your down payment, you may have to pay mortgage insurance, too. And that can easily run into three figures every month.

But there are other potential costs. So you’ll have to pay homeowners association dues if you choose to live somewhere with an HOA. And, wherever you live, you should expect repairs and maintenance costs. There’s no landlord to call when things go wrong!

Finally, you’ll find it hard to forget closing costs. You can see those reflected in the annual percentage rate (APR) you’ll be quoted. Because that effectively spreads them out over your loan’s term, making that higher than your straight mortgage rate.

But you may be able to get help with those closing costs and your down payment, especially if you’re a first-time buyer. Read:

Down payment assistance programs in every state for 2020

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Mortgage rate methodology

The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.

Source: themortgagereports.com

30-Year Mortgage Rates | See Today’s 30-Year Fixed Rates – The Mortgage Reports

What are today’s 30-year mortgage rates?

Today’s 30-year mortgage rates start at 2.875% (2.875% APR) according to The Mortgage Reports’ daily rate survey.

However, your own interest rate will likely be different. Actual rates are based on your credit score, down payment, loan type, and other personal factors. Be sure to shop around and find the best deal for you.

Check your 30-year mortgage rates (Feb 17th, 2021)

30-year fixed mortgage rates for February 17, 2021

Program Mortgage Rate APR* Change
Conventional 30 year fixed 2.987% 2.987% +0.12%
30 year fixed FHA 2.612% 3.591% +0.12%
30 year fixed VA 2.495% 2.668% Unchanged
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.

Are 30-year mortgage rates going up or down?

Mortgage rates are staying near historic lows. But they can tick up or down on a daily basis — some days more than others.

These movements can be hard to predict because they’re driven by the broader economy and investors’ interest in buying mortgages.

See how current mortgage interest rates are trending on the 30-year mortgage rates chart below.

Check your 30-year mortgage rates (Feb 17th, 2021)

How a 30-year fixed-rate mortgage works

As its name implies, a 30-year fixed-rate mortgage or ‘FRM’ is repaid over a period of 30 years.

This is the most popular mortgage loan product in the U.S., thanks to a few key benefits:

  • The interest rate and payment for a 30-year FRM are ‘fixed,’ meaning your rate and monthly payment will never change unless you decide to refinance the loan
  • A 30-year mortgage has lower monthly payments than a shorter-term loan (like a 15-year FRM) because your loan amount is repaid over a longer time
  • 30-year fixed-rate loans are available for all major loan types (conventional, FHA, and USDA), and from all mainstream lenders

Most home buyers can get a 30-year fixed home loan with a down payment of just 3% or 3.5%. And you don’t need a perfect credit score to qualify.

Thanks to these perks — and today’s low interest rates — 30-year mortgages are an affordable path to homeownership for many.

Check your eligibility for a 30-year mortgage (Feb 17th, 2021)

How do 30-year mortgage rates compare to other loan types?

Today’s 30-year mortgage rates — like all current rates — are lower than they’ve been in most of U.S. history.

Even so, 30-year mortgage rates often look higher than other rates you’ll see advertised.

You can generally find lower mortgage interest rates if you opt for:

  • A shorter-term loan– Shorter-term home loans (like 10-, 15-, and 20-year FRMs) have lower rates than 30-year FRMs because investors don’t hold the “risk” of carrying your debt for as long. However these loans have much higher payments, since you’re repaying the same amount of money over a shorter time period
  • An adjustable-rate mortgage – Adjustable-rate mortgages have a fixed interest rate for the first few years. Then, the rate can change with the market. These loans typically offer lower introductory rates (the ones you see advertised) than 30-year loans. But that rate could rise later on, so you lower mortgage payment is not guaranteed to continue

Despite their slightly higher rates, most borrowers opt for a 30-year fixed mortgage over a 15-year FRM or an adjustable-rate mortgage.

The stability and predictability that come with fixed rates and low payments are hard to beat.

Verify your 30-year mortgage eligibility (Feb 17th, 2021)

Compare today’s 30-year mortgage rates

Program Mortgage Rate APR* Change
Conventional 30 year fixed 2.987% 2.987% +0.12%
Conventional 15 year fixed 2.495% 2.495% +0.06%
Conventional 5 year ARM 3% 2.743% Unchanged
30 year fixed FHA 2.612% 3.591% +0.12%
15 year fixed FHA 2.5% 3.442% Unchanged
5 year ARM FHA 2.5% 3.207% Unchanged
30 year fixed VA 2.495% 2.668% Unchanged
15 year fixed VA 2.25% 2.571% -0.19%
5 year ARM VA 2.5% 2.386% Unchanged
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.

Interest rates and APR vary by loan type

30-year mortgage rates also vary by loan program.

If you look at interest rate alone, VA loans typically have the lowest rates, followed by USDA loans.

FHA mortgages also have below-market rates. But they charge expensive mortgage insurance premiums (MIP) which push up the overall cost of the loan.

Similarly, conventional loans with less than 20% down can have expensive private mortgage insurance (PMI). That’s especially true for borrowers with lower credit.

But for borrowers with great credit, PMI is less expensive and won’t have as big of an impact on monthly mortgage payments.

Look at APR as well as mortgage rates

It’s important to look at annual percentage rate (APR) as well as current mortgage rates.

APR estimates the total yearly cost of a home loan, including interest and added costs like mortgage insurance.

So while an FHA loan might appear to have lower rates than a conventional loan, for example, it could have a higher APR and therefore be more expensive overall.

“Jumbo” mortgages (those over Fannie Mae and Freddie Mac limits) are a bit of a special case. Jumbo loan rates can be near or even below conventional loans. But these mortgages are significantly tougher to qualify for.

Find your lowest rate (Feb 17th, 2021)

What about 30-year refinance rates?

Refinancing from one 30-year mortgage to a new one will often lower your monthly payment, provided rates are lower than when you first got your loan. That’s because in most cases you’re lowering the interest rate and spreading your loan repayment over a longer time period.  

However, you have to be careful when refinancing into a new 30-year home loan.

By restarting your mortgage with a new 30-year term, you increase the amount of time you’re paying interest.

If you’ve had the loan a long time — or your new interest rate is not low enough to negate the time difference — you could actually end up paying more in interest in the long run.

For homeowners with only 15 or 20 years left on their original loan, it might make sense to refinance into a shorter loan term. This could help you secure a lower interest rate and pay your home off on schedule (or at least, close to it).   

How your interest rate is determined

In large part, mortgage rates are determined by the economy and overall interest rate market.

Mortgage rates move up or down depending on how much investors will pay for mortgage bonds (“mortgage-backed securities”) in a secondary market. The economy is a big factor in that.

During scary economic times, interest rates tend to be low. But they go up when things are looking positive.

On top of that, lenders adjust your rate based on how “risky” you appear as a borrower.

Less risk to the lender means a lower interest rate for you. More risk, and your rates go up.

Mortgage lenders determine risk and set mortgage rates based on a wide range of factors, including your:

  1. Credit score and credit report
  2. Debt-to-income ratio (DTI)
  3. Down payment
  4. Loan-to-value ratio
  5. Total assets/cash reserves
  6. Employment history and continuing income

If you’re very secure financially, you could be a “top-tier borrower,” meaning you qualify for the very lowest 30-year mortgage rates. The further away you are from that happy situation, the higher interest rate you’re likely to pay.

Tips to get the lowest mortgage rate

To get the best rate possible, it helps to get your finances ship-shape before applying for a mortgage.

For example, managing debts well and keeping your credit score up can help you qualify for a lower interest rate. As can savings for a bigger down payment.

Don’t worry. Nobody’s expecting miracles. But small improvements can make a worthwhile difference in the mortgage rate you’re offered.

Here are some quick hits:

  1. Keep paying all your bills on time
  2. Pay down your card balances as much as possible. That helps your credit score and DTI
  3. Beef up your savings
  4. Don’t open or close credit accounts unnecessarily. That lowers your credit score
  5. Consider buying discount points on your mortgage. Discount points add to your upfront cost, but lower. Your interest rate and long-term cost

Few of us can afford to boost our savings and pay down our debts at the same time. So focus on areas where you think you can make the biggest difference. You’ll see the biggest improvement in your credit scores by paying down high-interest, revolving credit accounts such as credit cards.

The other big way to lower your interest rate is by shopping around.

Mortgage lenders have flexibility with the rates they offer. Some will offer you lower rates than others because they’re more favorable toward your particular situation.

By simply comparing rates from 3-5 lenders before you buy, you can save hundreds — maybe thousands — on your overall mortgage costs.

Find your lowest 30-year mortgage rate (Feb 17th, 2021)

Is a 30-year fixed-rate mortgage best for you?

There’s a reason 30-year loans are so popular for buying and refinancing real estate. They’re very good and typically are the best loans for most people. But who are the exceptions?

Home buyers with a lot of monthly income

If you have plenty of cash left over every month, you may be able to afford the higher payments that come with a shorter-term mortgage.  

Opting for a shorter term could save you a bundle, because it means you pay less interest.

Instead of borrowing over 30 years, you’d be borrowing for 20, 15, 10 or even fewer. And the less time you pay interest, the more you save.

The same benefits apply when refinancing to a 15-year term instead of a new 30-year term.  

Intrigued? Run your figures through The Mortgage Reports mortgage calculator.

You’ll notice the payments for a 15-year loan are much higher. But you may be shocked by how much interest you’d save.

Someone moving in less than 10 years

A 30-year term with a fixed rate buys you security and predictability over three decades. But suppose you don’t need all that time, because you know you’ll be moving on in ten years or fewer.

In this case, you might be better off with an adjustable-rate mortgage (ARM).

Adjustable-rate mortgages typically come in 3 forms: the 5/1, 7/1, and 10/1 ARM. All have 30-year terms, but the first number (5, 7, or 10) refers to the amount of time your interest rate is fixed.  

If you’re certain you’ll be moving before that fixed-rate period ends, you could opt for an ARM and enjoy the introductory rate it offers — which is usually significantly lower than 30-year mortgage rates.

Find the right type of mortgage for you (Feb 17th, 2021)

30-year mortgage rates FAQ 

What is the average 30-year fixed mortgage rate?      

Average 30-year mortgage rates change daily — sometimes more than once a day. For today’s average, see the tables above.

Historically, 30-year mortgage rates have averaged around 8%. But they’ve been well below that in recent years, with average 30-year rates in 2016, 2017, 2019, and 2020 all coming in below 4%.

What is the lowest 30-year mortgage rate ever?

At the time of writing, the lowest 30-year mortgage rate ever was 2.66% (according to Freddie Mac’s weekly rate survey). That number may have changed since. And remember the “lowest-ever” is an average rate. Top-tier borrowers with excellent credit and large down payments or who pay points get rates below even those.

How does a 30-year mortgage work?

A 30-year, fixed-rate mortgage lets you repay your home loan balance over three decades. During that time period, your interest rate and monthly payments are fixed — so they always stay the same (unless you refinance). Opting for a 30-year FRM does not mean you need to keep the home all 30 years. You’re generally free to sell the home or refinance into a different loan at any time.

Is it better to have a 20- or 30-year mortgage?

It’s generally best to have the shortest mortgage you can comfortably afford to maintain. That’s how you pay the least interest on your loan.

Some financial planners argue that you’re better off with a longer mortgage, providing you invest the money saved on monthly payments into something providing high returns. However, high returns invariably come with high risks. And you’ll likely decide based on your personal tolerance for risk rather than a fancy spreadsheet.

Are 30-year mortgage rates going up or down?

On a macro level, 30-year mortgage rates have generally been going down for the past 40 years, with some brief periods where they rose. In 2020, the coronavirus pandemic pushed rates to new record lows multiple times.

On a micro level, mortgage rates can change daily. When you’re shopping for a mortgage, you can keep an eye on the news and try to time your rate lock for a day when mortgage rates go down.

But overall your finances — credit, down payment, and debts — will have a much bigger impact on your rate than trying to time the market.  

What are 30-year mortgage rates tied to?

Mortgage rates are tied to the price of mortgage-backed securities or MBS. These are bundles of mortgages sold on a secondary market. Most lenders sell their mortgages there soon after closing to free up cash and be able to make more loans.

How much investors will pay for MBS depends largely on how the economy’s doing. When it’s strong, they can get a better return on the stock market and other higher-risk investments. That pushes MBS prices lower and mortgage rates higher.

When investors are worried about the economy, they want to buy safer investments to balance the risk in their investment portfolios. And US Treasuries and MBSs are favorites. That extra demand pushes up the price of MBSs and sends mortgage rates lower.

Which lender has the best 30-year mortgage rates?

Mortgage rates can vary a lot from one lender to the next. They all use different formulas to determine a borrower’s ‘risk’ and set rates accordingly. Lenders may also adjust rates depending on their current workload and desire for new loans.

This means there’s no single lender with the “lowest” rates. That can vary from day to day and from one borrower to the next.

To find the lender with the best rates for you, shop around. Compare rates and fees from at least 3-5 lenders, and choose the one with the lowest overall cost for you.

Verify your new rate (Feb 17th, 2021)

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Source: themortgagereports.com

Steps to Building a House

In this article:

If you can’t find your dream home on the market or if you want to create a home that’s uniquely yours, you might consider building a house. Buyers who decided to build new homes were more likely to say that selecting the floor plan, having everything in the home be brand-new and customizing their home features were among their top reasons.* Before deciding if new construction is for you, you’ll want to learn about the different types of new-home construction and familiarize yourself with the process, from the initial land search all the way to selecting finishing touches. 

Typically, when someone says they’re planning to build their own home, they are referring to a fully custom build where they have a say in almost everything (short of items restricted by local laws and zoning regulations). But, in the realm of new construction, there are three different approaches buyers can take: 

Spec homes. With a spec home (short for speculative home), a home builder designs and constructs a single-family home without having one individual buyer in mind. Instead, they plan on selling the house to a buyer once it’s finished. Depending on how early in the process you are able to go under contract, you may be able to select some of the home’s final touches, like flooring, kitchen appliances and paint color. Sometimes these homes are listed for sale as “pre-construction.” 

Tract homes. With a tract home, a developer purchases a parcel of land and divides it into individual lots. Then, a home builder constructs all of the homes in that planned community. Tract homes can be condominiums, townhomes or single-family homes. Most homes in the community will look similar, and shared amenities are common. Similar to spec homes, you may be able to select some finishes in advance, depending on the timeline. 

Fully custom homes. With a fully custom home, you typically find the land on your own then hire a builder to build your dream home. You have total control over the floor plan, layout and finishes, but the process requires a lot of decision-making, attention to detail and disciplined budgeting — custom homes can be expensive. 

Since custom homes are the most complex new construction option out there, we’ll spend most of this article explaining the process.

Check your financing options

Once you’ve decided that building a custom home is the right choice for you, the next step is figuring out how you’ll pay for it — and a traditional 30-year, fixed-rate mortgage isn’t an option for custom home construction, at least not at first. 

Unless you can pay for the entire build with cash, you’ll likely be looking for a construction loan, which is also sometimes called a self-build loan or a construction mortgage. Getting a construction loan is often more difficult than getting a traditional mortgage, as you’re borrowing money for a concept and not a physical house. You’ll need to provide your lender with a timetable, budget, floor plans, materials needed and extensive details to be considered. Other things to know about construction loans:

  • They have variable rates that are often higher than typical mortgage rates.
  • A 20%-25% down payment is usually required.
  • The loan can include the land you’re purchasing or it can cover only the construction costs if you already own the land. 
  • There’s an opportunity to refinance into a traditional fixed-rate mortgage once construction is complete.

Locate the right lot

If you don’t already own the land you plan to build on, you’ll need to shop around for the right lot. A real estate agent can help you identify lots for sale in your area. 

As you narrow down lots you like, you’ll want to loop in your architect and builder to make sure the lot you select fits the needs of your home’s floor plan and design. They should be able to help you check zoning laws and restrictions and identify any attributes of the lot that might make it more expensive to build on — for example, a steeply graded lot may require more engineering, or a lot in a remote area may necessitate a septic tank.

Plan and design the home

Figuring out the size, layout and style of your home is a big task, and it can happen before or after the lot is selected, depending on your individual plans. When you’re building a custom home, the sky’s the limit, although you will need to keep in mind your budget and any limitations of your lot. And, if you don’t plan on living in the home forever, consider how design decisions will affect the home’s future resale value. 

The professionals on your team will be able to help you home in on the right style and layout, but it doesn’t hurt to get a feel for what you might want in advance. Drive around your area and identify homes you like. Look for interior design inspiration online or research the latest smart home features to see if you think they’re worth the added cost. 

Here are a few important design decisions that need to be made early on:

Number of bedrooms and bathrooms. How many people will be living in the house? Is your family growing, or are you downsizing? What about houseguests?

Single story vs. two story or more. Are there mobility issues that should be accommodated? Would a one-story home be easier for those with limited mobility living there? 

Outdoor space. How important is outdoor space and how much should you have? The bigger the yard, the more maintenance involved. 

Open concept or individual rooms. How open you want your house to be depends on your taste and lifestyle. Individual rooms give a more classic feel, while open concept homes are more modern. 

Home style. What aesthetic do you want your house’s exterior to have? Tudor, Cape Cod, craftsman, colonial?

Interior design. Are you partial to modern design, a more traditional look or something in between? If you plan on using the same furnishings you have now, will they match the look of the new home? 

Additional features. Think through other features that need to be decided on early in the process, like smart home compatibility, eco-friendly materials or solar panels. 

Future resale value. If you think you’ll sell the home at some point in the future, consider the home’s possible resale value. For example, if you add a pool or an upscale kitchen, will your home be priced too high for the neighborhood?

Hire professionals

Building a home isn’t an easy task, and it’s rare to take on the entire project yourself. So, you’ll need to have several different professionals by your side to ensure your home is structurally sound, follows local code and suits your needs.

Home builder

Hiring the right builder can make or break your custom home experience. Choose someone who is not only a licensed general contractor but also has a portfolio of custom homes and success stories in recent years. 

To find your builder, you can ask for a referral from friends and family, search online, or ask your real estate agent for recommendations. A good builder will help with:

  • Budget
  • Zoning laws, including acquiring permits
  • Infrastructure needs, like utilities and sewer

Architect

In most places, in order to even apply for permits, you’ll need architectural plans. Discuss the following details with your architect before they create your blueprints:

  • Square footage
  • Stories
  • Number of bedrooms and bathrooms
  • Layout
  • Functionality

Interior designer

You may also want to hire an interior designer who can help with the finishes once the framing and structural elements are in place. From flooring to bath tiles to fixtures, there are many design choices that need to be made, and it can get overwhelming for the average home buyer. If you do plan on making all the interior design choices on your own, don’t wait until installation time. Start researching finishes and fixtures early so you can set your budget.

Other professionals

In addition to these key players, there are other professionals involved in the custom-home-building process. Many of these people are hired by your home builder or general contractor:

  • Land clearing crew
  • Surveyor
  • Structural engineer
  • Inspector (from the city)
  • Plumbers
  • Electricians

Understand the process of building a house

After the designs and blueprints have been finalized and your permits have been approved, that’s when construction starts and your home begins to take shape, generally following these steps: 

1. Land prep
The first step in the construction process is getting the land ready. This includes clearing the area, digging trenches and making sure utilities are installed. 

2. Footings and foundation
Your foundation will be made of poured concrete reinforced with steel rods. Depending on the part of the country you’re building in and the design of your home, you may have a slab foundation, crawl space or a full basement. No matter what kind of foundation is poured, it will be sprayed with a waterproofing material and inspected by the city before framing begins. 

3. Framing
In the framing step, the bones of the home start to take shape. Framing includes the floor joists, subfloors, studs that form the walls and roof trusses. During this step, the crew will wrap the house to protect it from moisture. If construction is taking place during a rainy time of year, your builder may also install windows, roof shingles and siding during this step. 

4. Plumbing, electrical and HVAC
Once the home is “dried in,” subcontractors will start installing the home’s major systems, including plumbing pipes, electrical wiring and heating and cooling ducts. Each of these steps requires signoff from a local inspector. 

5. Insulation
Your home’s insulation needs will vary by climate, but in general, insulation will be applied to exterior walls, basements, crawl spaces and attics. Fiberglass, cellulose and foam insulation are all options. 

6. Drywall
Drywall panels are hung with screws, taped and mudded, and a spray texture is applied. Then the new walls are primed with paint.  

7. Interior finishes
In this step, most of the home’s interior features will be added. This includes doors, baseboards, casings, window sills, stair balusters, kitchen counters and cabinets, bathtubs, vanities, and hard-surfaced flooring. Interior painting and hardwood installation are sometimes done during this step, but they may be done later if there is risk of damage due to continuing construction. 

8. Exterior finishes
Driveways, walkways, patios and final grading to direct water away from home will all be completed. Landscaping and exterior decorating happen during this step too. 

9. Fixture installation
With the house close to completion, toilets, faucets, light switches, heat register covers, the hot water heater, the electrical panel and the HVAC systems are all installed. Many of these items require another round of inspection. Another task that happens in this step is the installation of glass fixtures like mirrors and shower doors. 

10. Flooring installation
Carpet and hardwood flooring are added in this late stage. Make sure to check with your builder on the status of your hardwood finishing process so you don’t accidentally damage them. 

11. Final inspection
Once construction is complete, a final inspection will be conducted by a local building official. Upon passing, you’ll receive a certificate of occupancy, which gives you the green light to move in. 

12. Final walkthrough
Before you move in, you’ll want to do a final walkthrough with your builder to identify punch list items that need to be repaired for the job to be considered complete. Common punch list items include electrical defects like nonfunctioning outlets, damage to drywall and paint, or missing fixtures.

Skip construction and buy renovated

Building a custom home is a complicated process, and it can take well over a year depending on your location, lot complications, house size, laws and the permit-approval process. Another option is to buy a home that has already been renovated — you get a fresh and updated feel without having to do the work yourself.

Shop Zillow-owned homes

Buyers of Zillow-owned homes can be confident that the homes they buy have been professionally renovated by local contractors. With Zillow-owned homes, you can avoid the stress of a custom build and make yourself at home.

*Zillow New Construction Consumer Housing Trends Report 2019

Source: zillow.com

Should You Pay Down PMI or High-Interest Debt First?

Should homeowners eliminate their Private Mortgage Insurance (PMI) payment or focus on high-interest balances? Getting it right is essential to a healthy financial bottom line.

By

Laura Adams, MBA
February 26, 2020

buy a home or refinance an existing home loan, the last thing you want to hear is that you have to pay an additional charge, called private mortgage insurance or PMI. You might feel even worse when you find out that this insurance protects the lender, not you!

Borrowers have to shell out for PMI when they get a conventional mortgage but can’t put at least 20% down. The amount you borrow to buy a home is called the loan-to-value (LTV) ratio. For example, if you borrow $180,000 to buy a home valued at $200,000, you have a 90% LTV ($180,000 / $200,000 = 0.90)

Borrowers have to shell out for PMI when they get a conventional mortgage but can’t put at least 20% down.

When your LTV on a home mortgage is higher than 80%, lenders consider you to be a bigger risk than if you borrowed less. The lender mitigates that risk by requiring you to purchase PMI. The policy would cover a portion of their loss if you didn’t pay your mortgage and foreclosure proceeds don’t cover your outstanding loan balance.

However, there’s a bright side to paying PMI. It makes it possible for many borrowers who can’t afford to put 20% down to buy a home. And it can be eliminated at certain LTV thresholds, which we’ll cover.  

What’s the cost of PMI?

The cost of PMI varies depending on many factors. These include the type of mortgage you get, how much you put down, where the property is located, your credit, your loan term, and how lenders structure your PMI fee. In general, there are three ways lenders charge PMI:

  1. Monthly payments – which get added to your monthly mortgage payments. The premium could range from 0.2% to 1.5% of the balance on your loan each year. The annual cost is typically divided into 12 premiums and added to your monthly payments.
     
  2. Lump-sum payment – is a one-time premium that you pay upfront at closing. You may also pay both upfront and monthly premiums.
     
  3. Higher interest rate – a lender may charge a higher interest rate instead of itemizing separate PMI charges.

Monthly payments are the most common way that borrowers pay for PMI. Let’s say you get a 30-year, fixed-rate mortgage for $180,000 to buy a home valued at $200,000. With a 90% LTV and good credit, your PMI could cost about $100 per month.

Paying monthly PMI gives you the most transparency about the charge. It gets itemized on your mortgage statement, so you know exactly how much you’re paying. And more importantly, you can see when it finally gets eliminated, which we’ll cover next.

If your lender offers more than one way to pay PMI, ask for a detailed pricing comparison so you can weigh the pros and cons.

If you make a lump-sum PMI payment, it could turn out to cost more or less than the other options, depending on whether you choose to pay off your mortgage ahead of schedule. If you sell your home after just a few years or pay off your mortgage early, you don’t get a return of any PMI premium.

Since mortgage interest is tax-deductible, the option to pay a higher interest rate instead of separate PMI payments could cost less on an after-tax basis. Also, PMI is currently a tax-deductible expense, although there have been periods when it wasn’t. At the end of the year, lenders send out Form 1098, which lists how much PMI and mortgage interest you paid during the year so that you can claim it on your tax return.

However, you can only claim these deductions if you itemize them using Schedule A. When your total itemized deductions are less than the standard deduction for your tax filing status, you’ll save money claiming the standard deduction instead.

As you can see, knowing which option is best for paying PMI can be a bit complicated. If your lender offers more than one way to pay it, ask for a detailed pricing comparison so you can weigh the pros and cons and consider which option may cost less.

Rules for eliminating Private Mortgage Insurance

Now that you understand why and how lenders charge PMI, let’s review the rules for getting rid of it. That will help you know how high a priority it should be.

You should receive an annual notice from your mortgage lender that reminds you about your options to have PMI eliminated under certain conditions. Here are the ways you can get rid of monthly PMI payments.

When your mortgage balance reaches 78% of the original value of the property, PMI must automatically be canceled.

Request cancelation. After you pay down your mortgage balance to 80% of the original value of your home, you can ask for PMI to be canceled. Your original value can be either the price you paid for your home or its appraised value when you bought it (or refinanced it), whichever is less.

Your lender will require you to pay for a property appraisal to verify that your home’s value is the same or higher than when you purchased it. The appraisal fee could range from $300 to $1,000, depending on the size and location of your home.

Automatic termination. When your mortgage balance reaches 78% of the original value of the property, PMI must automatically be canceled. In this case, you don’t have to request it or pay for an appraisal.

Midpoint termination. When your mortgage balance reaches its midpoint, PMI must be automatically canceled. For example, if you have a 30-year mortgage, your lender must cancel your PMI after 15 years.

But keep an eye out for situations that might allow you to cancel PMI early, like when your home value appreciates due to market conditions. When your home value goes up, it lowers your LTV. Likewise, if you make additional mortgage payments that reduce your principal loan balance, it lowers your LTV. The faster you get to the 78% threshold, the sooner you can request a PMI cancellation.

Keep an eye out for situations that might allow you to cancel PMI early, like when your home value appreciates due to market conditions.

However, be aware that your lender can deny your request for PMI cancelation in certain situations, such as if you’ve made late payments. You must get current on any outstanding payments to have PMI canceled either as a request or automatically. Also, don’t forget that taking out a home equity loan or line of credit increases your LTV.

When should eliminating PMI be a financial priority?

Now that you understand when you must pay PMI and when you can eliminate it, let’s turn to Danielle’s question. She’s considering whether to send extra money to her mortgage and get closer to canceling PMI or if it’s better to pay off her student loan or car loan faster.

First, I’d recommend that Danielle zoom out and look at any other top financial priorities. She didn’t mention if she’s regularly contributing to a retirement account or has emergency savings. If she doesn’t have a healthy emergency fund, or she isn’t investing a minimum of 10% to 15% of her gross income for retirement, that’s where her extra money should go first.

We know that Danielle doesn’t have any dangerous debts, such as accounts in collections, credit cards with sky-high interest rates, or expensive payday loans. If she did, those would need attention before addressing any other type of debt. As she mentioned in her question, it’s generally best to pay off debt in order of highest to lowest interest rate.

So, assuming that Danielle’s finances are in good shape, how does paying PMI compare with a student loan and a small auto loan balance? While ongoing PMI payments aren’t an interest expense, you can pretend that they are as a technique for understanding their place in your financial life.

Let’s say you borrowed $180,000 for a $200,000 home, giving you a 90% LTV. As I previously mentioned, you need a 78% LTV to request PMI cancellation. So, you’d have to pay down your mortgage to $156,000 to get there. If you’re at the beginning of a loan term, you’d need to shell out $24,000 ($180,000 – $156,000 = $24,000).

If you were paying $100 a month or $1,200 a year for PMI, you could calculate it as a proxy for annual interest on a $24,000 loan. That comes out to an effective interest rate of 5% ($1,200 / $24,000 = 0.05). That’s an amount you’re paying on top of your mortgage interest rate. So, if your mortgage costs 4% in this example, you’d really be paying more like 9% during the years that you pay PMI.

The benefits of accelerating mortgage payments to get rid of PMI decrease if you’re able to deduct mortgage interest and PMI on your taxes.

However, this is an imperfect calculation because it’s doesn’t account for many factors. These include how much extra you pay toward your principal mortgage balance, how quickly equity builds as you prepay it, and any home appreciation.

Also, the benefits of accelerating mortgage payments to get rid of PMI decrease if you’re able to deduct mortgage interest and PMI on your taxes. A fixed-rate mortgage that costs 4% may only cost you 3% on an after-tax basis, depending on your effective income tax rate.

In general, prepaying a mortgage to eliminate PMI ahead of schedule may not help you as much as paying down other types of debt. Depending on where you live, factors such as real estate appreciation and general inflation are likely to work in your favor, making you eligible for PMI cancellation sooner than you may think.

A super simple way to evaluate the interest rate you’re paying for a mortgage with PMI is to tack on a percentage point or two. For instance, if your pre-tax mortgage rate is 4%, consider it actually costing you 5% to 6% tops. Or if you deduct interest and PMI, don’t factor in the tax implications and just consider the mortgage costing you the same as its stated interest rate, or 4% in my example.

If your other debts cost more than these very rough mortgage interest calculations, I’d be aggressive about getting rid of them first. Again, go in order of highest interest rate to lowest.

However, if you have a small outstanding balance that you just want to wipe out, there’s nothing wrong with that. Even if it costs you slightly less in interest, sometimes it just feels good to get rid of a small debt that’s been weighing you down.

What’s most important is that you understand how much you owe, the interest rates you’re paying, and that you have a plan for eliminating debt. Even if you don’t have extra money to pay off debt ahead of schedule, tacking them in the right order helps you save the most interest so you can eliminate debt as quickly as possible.