Now is the best time to secure a mortgage, study finds

Home buyers should move quickly if they want to lock in the best possible terms on their mortgage, as the winter months typically see lenders providing much better deals on their loans.

A new study by home finance startup Haus found that lenders typically offer discounts of up to 20 basis points in January compared to the period from June to October, when rates are at their highest. The study looked at seasonality, loan sizes, credit scores and other factors used to determine mortgage rates, analyzing loan data from Freddie Mac for more than 8.5 million mortgages that originated between 2018 and 2021.

After January, December and February are the next cheapest months to obtain a mortgage, the study found.

“While we can’t say for exact certainty why rates are lower in January than in the summer months, we can speculate that competition for customers matters,” Ralph McLaughlin, chief economist at Haus, told Market Watch. “Since home buying and refinancing is seasonal, there is less mortgage origination in winter months, so it could be that lenders must lower their rates to stay competitive and attract business.”

That said, the housing market is different this year as sales have been booming throughout winter. That’s partly because mortgage rates have been hovering at an all-time low for months now. In addition, some economists say that rates could increase in the coming months, though it depends on the overall trajectory of the economy.

The problem for many buyers is they don’t have a lot of control over the timing of their loans. The study notes the importance of having a good credit rating to obtain the best possible deal. Borrowers with a credit score of 800+ tend to get mortgages with rates of 42 basis points less than those borrowers whose credit scores are below 650.

Buyers can make savings by shopping around too. The study found a discrepancy of 75 basis points between the most and least expensive large mortgage lenders in the U.S.

“This means that, all else equal, the same borrower would get a 5% rate with the most expensive lender and a 4.25% rate with the least expensive lender,” McLaughlin said.

Source: realtybiznews.com

Understanding the seasonal patterns of mortgage rates – HousingWire

Much like the changing of the calendar, buying and selling homes follows a seasonality that those in mortgage and real estate have grown accustomed to. But a recent study from tech startup Haus found that mortgage rates can also be seasonal, and borrowers can benefit from understanding that rhythm.

Analyzing over 8.5 million mortgage originations between 2012 and 2018 from Freddie Mac’s Single-Family Loan-Level dataset, Haus found that the sweet spot for rates is typically in January, when mortgage originations also typically slump.

Ralph McLaughlin, chief economist at Haus, explained the correlation. “So, what do lenders have to do to be competitive? They lower their rates. But let’s look at when Treasury rates were dropping like crazy early in 2020. What that usually means is that mortgage rates would also drop like crazy. But at first, mortgage rates didn’t drop. And it’s because there was such a flood of people looking to refinance that lenders couldn’t keep up.

“They couldn’t keep up with demand and so if they couldn’t keep up with demand that allows them to keep their prices relatively high,” McLaughlin said.

2020 was an outlier, with mortgage rates dropping to record lows on 16 different occasions. However, many economists expect as the economy begins its post-pandemic recovery, rates will also begin to stabilize to a more predictable pattern.


Leveraging eClosings to effectively manage increased loan volumes

With record-low rates and the increased loan volume, lenders must streamline workflows and accelerate time to close. Evolving to full eClosings can help lenders process more loans at a faster pace without overwhelming their resources.

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“We forecast rates to remain relatively low this year as the Federal Reserve keeps interest rates anchored near zero for a longer period of time, if needed until the economy rebounds,” said Sam Khater, Freddie Mac’s chief economist.

If rates stay low, the Haus study estimates that borrowers buying houses between $400,000 and $500,000 are going to reap the greatest reward – averaging a discount of 23 basis points compared to cheaper loans. That’s because it costs the same to originate a loan that is half a million dollars as it does $200,000, but the latter doesn’t involve as much return.

“You’re not making as much as you would on that more expensive mortgage, obviously, in order to cover some of those fixed costs, so lenders actually increase rates on the lower end of mortgage originations.” McLaughlin said.

An updated market outlook from Zillow expects seasonally adjusted home values to increase by 3.7% from December 2020 to March 2021, and by 10.5% through December 2021.

But even if lenders do inflate prices on a lower mortgage, borrowers can gain an advantage by playing the field. Across the largest lenders in the country (the 100 largest by volume of originations), Haus found on average a 75-basis point spread between the most expensive and least expensive lender. Taking into account size of down payment, existing debt and credit score, the study found that for the same borrower, a potential mortgage rate could, for example, average anywhere from 3.25% to 4%.

So how do lenders retain a potential borrower if they can’t match the price? McLaughlin said they are speculating that the convenience and experience borrowers play may be a leading factor. Those lenders who invest in digital technology and digital documentation are going to have the upper hand.

“It’s like, how much are you willing to pay for a hotel? I don’t think there’s a Ritz Carlton of mortgages or a Motel 6 of mortgages, but nonetheless there is variation and even if a rate is cheaper, a lot borrowers are thinking about quality,” McLaughlin said.

Surprisingly, a borrower who lowers their debt to income ratio doesn’t move the needle much on rates. According to the study, borrowers with a DTI below 36% (considered a “good” DTI), on average have mortgage rates that are just 3-6 basis points lower than borrowers with a DTI above 43% (considered “high”).

That said, recent changes implemented by the Consumer Finance Protection Bureau have removed DTI requirements from qualified mortgages. Haus estimates the ongoing impact that DTI will have on mortgage pricing is also likely to fall.

Source: housingwire.com

This Is the Best Time of Year to Get a Mortgage

If you’re playing the waiting game with mortgage rates, you may not want to wait much longer.

A new study from Haus, the home-finance startup created by Uber co-founder Garrett Camp, examined what role seasonality, loan size, credit scores and other factors play in the mortgage rates that lenders offer borrowers.

The study found that much like the housing market itself the mortgage market ebbs and flows with the seasons. And January, as it turns out, is the best time of year to get a new home loan on average.

In January, lenders offer a discount of nearly 20 basis points compared to the time period between June and October when rates are typically the highest for the year. The cooler weather, in general, brings out lower mortgage rates, with December and February being the next-cheapest months based on the Haus study.

“While we can’t say for exact certainty why rates are lower in January than in the summer months, we can speculate that competition for customers matter,” Ralph McLaughlin, chief economist and senior vice president of analytics at Haus, said in the report.

“Since home buying and refinancing is seasonal, there is less mortgage origination in winter months, so it could be that lenders must lower their rates to stay competitive and attract business,” he added.

To produce the report, Haus analyzed loan data from Freddie Mac for more than 8.5 million mortgages originated between 2012 and 2018. When examining for seasonality in mortgage rates, the company controlled for other characteristics, including the borrowers, size of the loan and the property.

Nowadays, scoring the lowest rate possible can be akin to finding a needle in a haystack, McLaughlin noted. Although mortgage rates have risen from the record low set right before the New Year, they remain extremely low by historical standards. However, economists have warned that as the year goes on rates could rise, depending on the trajectory of the pandemic and the related economic recovery.

But the timing of when a prospective borrower applies for a new mortgage is just one factor that can save them money. The size of the loan is another consideration. Loans with balances between $350,000 and $450,000 typically fetch a 23-basis-point discount on the mortgage rate compared to mortgages under $100,000, Haus found.

The savings is actually a reflection of the cost for the lender to originate a loan. “The cost of paying someone to originate a loan is the same for a $500,000 mortgage as it is for a $100,000 mortgage, but the latter provides less of a return to the mortgage originator than the former,” McLaughlin said. “In order to help cover this fixed cost, lenders likely increase their rates for lower balance mortgages to compensate.”

Of course, borrowers can only control so much when it comes to the timing of when they apply for a loan or how large the loan is — especially if they are using it to buy a new home. As the study stresses, other factors can have an effect on the rate that’s offered. People with credit scores above 800, for instance, will receive mortgages with rates that are 42 basis points lower on average than borrowers with a score below 650.

And perhaps the easiest way to save money is by shopping around. Haus found that there was a difference of 75 basis points between the most and least expensive large mortgage lenders across the U.S. “This means that, all else equal, the same borrower would get a 5% rate with the most expensive lender and a 4.25% rate with the least expensive lender,” McLaughlin said.

Source: realtor.com

Understanding the seasonal patterns of mortgage rates

Much like the changing of the calendar, buying and selling homes follows a seasonality that that those in mortgage and real estate have grown accustomed to. But a recent study from tech startup Haus found that mortgage rates can also be seasonal, and borrowers can benefit from understanding that rhythm.

Analyzing over 8.5 million mortgage originations between 2012 and 2018 from Freddie Mac’s Single-Family Loan-Level dataset, Haus found that the sweet spot for rates is typically in January, when mortgage originations also typically slump.

Ralph McLaughlin, chief economist at Haus, explained the correlation. “So, what do lenders have to do to be competitive? They lower their rates. But let’s look at when Treasury rates were dropping like crazy early in 2020. What that usually means is that mortgage rates would also drop like crazy. But at first, mortgage rates didn’t drop. And it’s because there was such a flood of people looking to refinance that lenders couldn’t keep up.

“They couldn’t keep up with demand and so if they couldn’t keep up with demand that allows them to keep their prices relatively high,” McLaughlin said.

2020 was an outlier, with mortgage rates dropping to record lows on 16 different occasions. However, many economists expect as the economy begins its post-pandemic recovery, rates will also begin to stabilize to a more predictable pattern.

“We forecast rates to remain relatively low this year as the Federal Reserve keeps interest rates anchored near zero for a longer period of time, if needed until the economy rebounds,” said Sam Khater, Freddie Mac’s chief economist.

If rates stay low, the Haus study estimates that borrowers buying houses between $400,000 and $500,000 are going to reap the greatest reward – averaging a discount of 23 basis points compared to cheaper loans. That’s because it costs the same to originate a loan that is half a million dollars as it does $200,000, but the latter doesn’t involve as much return.

“You’re not making as much as you would on that more expensive mortgage, obviously, in order to cover some of those fixed costs, so lenders actually increase rates on the lower end of mortgage originations.” McLaughlin said.

An updated market outlook from Zillow expects seasonally adjusted home values to increase by 3.7% from December 2020 to March 2021, and by 10.5% through December 2021.

But even if lenders do inflate prices on a lower mortgage, borrowers can gain an advantage by playing the field. Across the largest lenders in the country (the 100 largest by volume of originations), Haus found on average a 75-basis point spread between the most expensive and least expensive lender. Taking into account size of down payment, existing debt and credit score, the study found that for the same borrower, a potential mortgage rate could, for example, average anywhere from 3.25% to 4%.

So how do lenders retain a potential borrower if they can’t match the price? McLaughlin said they are speculating that the convenience and experience borrowers play may be a leading factor. Those lenders who invest in digital technology and digital documentation are going to have the upper hand.

“It’s like, how much are you willing to pay for a hotel? I don’t think there’s a Ritz Carlton of mortgages or a Motel 6 of mortgages, but nonetheless there is variation and even if a rate is cheaper, a lot borrowers are thinking about quality,” McLaughlin said.

Surprisingly, a borrower who lowers their debt to income ratio doesn’t move the needle much on rates. According to the study, borrowers with a DTI below 36% (considered a “good” DTI), on average have mortgage rates that are just 3-6 basis points lower than borrowers with a DTI above 43% (considered “high”).

That said, recent changes implemented by the Consumer Finance Protection Bureau have removed DTI requirements from qualified mortgages. Haus estimates the ongoing impact that DTI will have on mortgage pricing is also likely to fall.

Source: housingwire.com