Fannie Mae and Freddie Mac Mortgage Refinances Just Got More Expensive

Last updated on October 30th, 2020

Way to rain on our parade, Fannie Mae and Freddie Mac.

Just when mortgage rates were hitting record lows, the pair decided to add a new fee to mortgage refinances in light of the ongoing pandemic.

Simply put, they expect more losses related to a higher rate of loan defaults, and are adjusting their pricing accordingly. And refinance rates are higher to begin with so it’s a double-whammy.

Remember, they don’t lend directly, but rather purchase and securitize many of the mortgages that are funded by banks and mortgage lenders.

As such, this new cost will be passed along to you, the consumer.

Introducing the Adverse Market Refinance Fee

  • Fannie Mae and Freddie are charging a new fee to account for higher risk related to COVID-19
  • It applies to all mortgage refinance transactions, including those without cash-out
  • Only exception is certain single-close construction-to-permanent loans
  • The new fee will apply to mortgages with settlement dates on or after September 1st, 2020

On August 12th, both Fannie Mae and Freddie Mac released lender letters discussing a new fee that they’re going to tack onto ALL mortgage refinance loans.

Known as the “Adverse Market Refinance Fee,” it is designed to cover higher costs associated with increased risk thanks to COVID-19.

Instead of absorbing that cost themselves, they’re passing it onto homeowners, even if you don’t actually pose any additional risk to Fannie and Freddie, collectively known as the government-sponsored enterprises (GSEs).

Fannie Mae said the new fee is being charged as a result of “market and economic uncertainty resulting in higher risk and costs incurred by Fannie Mae.”

Meanwhile, Freddie Mac said it “is a result of risk management and loss forecasting precipitated by continued economic and market uncertainty.”

In other words, they expect more of these new refinance loans to sour at some point after origination, despite borrowers likely obtaining lower interest rates and corresponding monthly payments.

Makes sense, right?

How Much More Expensive Will a Mortgage Refinance Be?

  • The Adverse Market Refinance Fee is 50 basis points in price (not rate)
  • This will result in either higher closing costs or a slightly higher mortgage rate
  • Someone with a $300,000 loan amount may have to pay an extra $1,500 in closing costs
  • Or accept a higher mortgage rate to absorb those costs so they aren’t paid out-of-pocket

Fannie Mae and Freddie Mac are tacking on a 50-basis point fee to both no cash-out and cash-out refinance mortgages.

This means rate and term refinances where you don’t actually pull any cash out are subject to the fee, along with cash out refinances.

The new fee is in addition to any other mortgage pricing adjustments that may otherwise apply to your home loan.

On a $300,000 loan amount, we’re talking about another $1,500 in closing costs, which would likely just result in the borrower taking a slightly higher mortgage rate.

For example, if mortgage rates were to stay constant, and the borrower originally qualified for a 30-year fixed at 2.5% with no costs, their new rate might be 2.625% instead.

The good news is that’d only be a difference of about $20 in monthly payment. But it’s still an unwelcome development for those looking to snag the lowest mortgage rates in history.

It applies to mortgages with settlement dates on or after September 1st, 2020. It’s unclear how long they’ll impose this new Adverse Market Refinance Fee.

If you were thinking about refinancing your mortgage, you may want to do it sooner rather than later.

The big question though is how low will mortgage rates go, as I posed yesterday? If they keep falling from here, this new fee can be absorbed via the lower rates available.

So it’s hard to know if this will actually increase borrowing costs once we factor in where mortgage rates are in September and beyond.

They recently pulled back slightly after hitting new record lows, but it could just be a temporary rise before they reach even lower lows.

Note: This doesn’t affect FHA loans, but it often doesn’t make sense to refinance into an FHA loan due to the mandatory mortgage insurance premiums.

Fannie and Freddie CEOs Respond to Criticism

Folks in the industry were none too happy with the announcement, which eventually prompted a joint letter from the CEOs of Fannie Mae and Freddie Mac, Hugh Frater and David Brickman.

The pair attempted to justify the fee, claiming it wouldn’t cause mortgage payments to “go up” because a refinance generally results in a lower interest rate, which in turn reduces the monthly payment.

But that’s kind of like telling someone don’t worry about our cut, you’re still saving money.

Sure, a borrower’s payment may be lower post-refinance, but not as low as it was supposed to be, thanks to subsidizing an adverse market fee they may have nothing to do with.

The CEOs are basically arguing that with mortgage rates at or near record lows, you’re already saving lots of money, so why get upset. Hmm.

Something tells me that’s not going to go over well either.

Update: After mounting pressure, the FHFA has delayed the implementation date of their Adverse Market Refinance Fee until December 1st, 2020.

Additionally, the new fee will not apply to refinance loans with loan amounts below $125,000, Affordable refinance products, Fannie Mae HomeReady loans, and Freddie Mac Home Possible loans.


Veterans Can Now Get Rates as Low as 2.25% on a 30-Year Fixed Mortgage

Posted on June 24th, 2020

It seems mortgage rates keep moving lower and lower, and now some veterans and active duty military might be able to snag a 30-year fixed as low as 2.25%! That’s pretty unheard of.

While it sounds too good to be true, it appears to be a reality thanks to United Wholesale Mortgage’s push to dominate the mortgage market.

The rapidly growing wholesale lender based out of Pontiac, Michigan announced the new offering today via their website, calling it “Conquest for VA.”

Who Is Eligible for Conquest for VA?

  • Active duty military and veterans who otherwise qualify for VA loans
  • Those looking for a VA purchase loan or VA IRRRL (streamline refinance)
  • Primary residence only for purchases
  • Primary and second homes for VA IRRRLs
  • Minimum FICO score of 640
  • Must obtain financing via a mortgage broker approved to work with UWM
  • Homeowner must not have closed a refinance through UWM in past 18 months
  • Mortgage rates start from 2.25% to 2.375% on the 30-year fixed

Now let’s talk about who’s eligible for this seemingly fantastic loan program, which UWM says is being offered to honor our nation’s veterans.

As the name suggests, Conquest for VA is reserved for veterans and active duty military, and anyone else generally eligible for a VA home loan.

So if you don’t qualify for a VA loan, you’ll have to look into their general Conquest loan program instead.

Additionally, these low rates are only applicable to new home purchase loans and streamline refinances (IRRRLs). In other words, no cash out refinances here.

Take note of the occupancy type as well – primary residence only for purchases, primary and second homes for IRRRLs.

You must have a minimum FICO score of 640 and like the conventional Conquest program announced a couple weeks ago, these rates are only available to borrowers who haven’t worked with UWM in the past 18 months.

In terms of interest rates, they start as low as 2.25% on the 30-year fixed, which is surreal, though they could be an eighth higher at 2.375%. Either way, pretty hard to beat.

Another cool feature to this program is you can choose your own loan term, ranging from as little as eight to a full 30 years.

For example, if you’re already several years into a 30-year fixed, you could choose a shorter term to avoid resetting the clock while refinancing.

Lastly, UWM is a wholesale mortgage lender, meaning you can’t contact them directly as a homeowner.

Instead, you have to work with a mortgage broker who is approved with UWM.

So if you’re weighing the mortgage broker vs. bank argument, these super low rates could be a tipping point for some.

As always, be sure to shop mortgage rates with mortgage brokers and banks to ensure you don’t miss an even better deal.

Also, pay attention to the closing costs associated with these mortgage rates since interest rate is just one piece of the pie, and mortgage APR is a more accurate representation of total loan cost.

Like I mentioned with their conventional Conquest program, UWM seems to be the trailblazer here, but my guess is other mortgage lenders will jump on board and offer similarly low rates now or in the very near future.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.


When Do Mortgage Payments Start?

A little bit of mortgage Q&A: “When do mortgage payments start?”

New homeowners (and those refinancing a mortgage) often wonder when mortgage payments start, as there’s sometimes a considerable gap between loan closing and the due date of the first monthly payment.

For example, you may have been told by your real estate agent or mortgage broker that payments won’t start for 45 days or longer and express some intense optimism as a result.

But you might be skeptical as well, and for good reason. Why would it take so long to start paying your mortgage lender back? Let’s find out!

Mortgages Are Paid in Arrears

when mortgage payments start

  • Unlike rental payments that are paid a month in advance
  • Mortgage payments are paid after the fact (arrears)
  • Because interest must actually accrue before it becomes due
  • So once the month is over you pay interest for that time period
payment date

This loan was closed in early August, but the first payment isn’t due until October.

This phenomenon occurs because mortgages are paid in arrears, not in advance, meaning payment is made at the end of a certain period, such as one month.

Because interest is accrued on a mortgage balance each month, it cannot be paid until after the fact.

Simply put, your mortgage payment made on the first of the month will cover last month’s interest, along with taxes and insurance, and principal (if applicable).

This differs from monthly rental payments, which are paid in advance for the month they cover; if you rent a property, your payment due on say August 1st covers rent for the month of August.

You are paying the landlord ahead of time for the privilege to live in their property.

It makes sense if you think about it. With rent there isn’t a loan involved, and thus no interest. So it doesn’t need to accrue first before it is paid.

You just make your payment and get to stay in the property for the month.

With a home loan, it’s the opposite, which explains the time lag you might experience after first taking out a mortgage.

First Mortgage Payment Determined by Closing Date

  • Your first mortgage payment is driven by the closing date
  • If you close late in the month, your first payment will be due about a month later
  • If you close early in the month, you may get nearly two months before the first payment is due
  • Be sure to speak with your loan officer about timing this if you want payments to start sooner or later

It’s gets tricky when you start making mortgage payments, as the start date of your first payment is determined by your closing date.

Example: If you close your mortgage on August 20th, your first mortgage payment isn’t due until October 1st.

However, at closing, you would need to pay the remaining interest for the month of August, or 11 days worth; this is typically known as prepaid interest, and appears as a closing cost.

In this particular example, assuming your mortgage rate was 5.50% and the loan balance was $300,000, the daily interest rate ($45.83) x 11 would be $504.17.

Some borrowers think they’re skipping a monthly mortgage payment, but in fact they’ve paid the 10 days of interest in August and the full month of September by the time the October payment is due.

You can, however, avoid costly out-of-pocket upfront expenses by closing at the end of the month.

Doing so cuts down on the amount of prepaid interest that is due initially, but it doesn’t make a difference long-term. And your first mortgage payment will be due sooner.

If you close early in the month, you’ll pay many more days of prepaid interest at closing but your first mortgage payment won’t be due for about two months, as our scenario above illustrates.

For example, if you close on the 7th of August, you’ll pay about three weeks of interest at closing, but you’ll have nearly two months to make your very first mortgage payment.

In fact, because lenders typically provide a grace period to pay up until the 15th of the month, you could actually have more than two full months before the first payment is due.

However, if you close very early in the month, say on the 1st, 2nd, or 3rd, there might be an option to receive a credit from the lender for those few days of prepaid interest.

Then you’d make your first payment the very next month for the full amount of interest due.

This way you can start tackling your mortgage if your goal is to pay it off sooner rather than later. And you can keep closing costs down if money is tight, or if cash to close is an issue.

But don’t forget about other prepaid items, like homeowners insurance, property taxes, and HOA dues, for which reserves may also increase if your loan closing date falls into the next month.

There is an advantage to closing early in the month though; mortgage lenders are typically a lot less busy.

This has to do with a company’s monthly funding goals and getting those loans closed by month’s end for the borrower’s sake.

And really, you should have enough money set aside for closing costs regardless of when your home loan funds.

Read more: 21 mortgage questions commonly asked, answered.

(photo: thejaymo)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.


Mortgage Lending Volume Hits Highest Level on Record Despite COVID-19

Posted on September 9th, 2020

It makes sense that the mortgage industry would see its best quarter in history during a global pandemic.

Okay, it doesn’t make sense, but that’s what happened anyway, per the latest Mortgage Monitor report from Black Knight.

Mortgage Lenders Originated $1.1 Trillion in Home Loans During the Second Quarter

record originations

  • Mortgage lenders experienced best quarter in history during Q2 2020
  • Driven most by refinance loans thanks to record low mortgage rates
  • Refinancing was up 60% from first quarter and 200% from a year earlier
  • Purchase lending was only down 8% from a year earlier despite pandemic

The data analytics firm said about $1.1 trillion (yes, trillion) in first-lien mortgages were originated during the second quarter of 2020, the best three months on record since reporting began in January 2000.

The record numbers were mostly fueled by mortgage refinance transactions, which have surged due to continued record low mortgage rates, helped in part by the COVID-19 pandemic.

They said refinance lending was up more than 60% from the first quarter alone, and more than 200% higher than the same time last year.

Such home loans accounted for almost 70% of all first-lien mortgage originations in terms of dollar value, compared to just 39% in the second quarter of 2019.

Meanwhile, home purchase lending was down about eight percent from a year earlier, which is surprisingly strong given the economic uncertainty surrounding the coronavirus.

Some $351 billion in home purchase loans were originated during the quarter, thanks again to low mortgage rates and improved housing affordability that returned demand to its pre-COVID levels quickly.

We Might Set Another Record in the Third Quarter

purchase rate locks

  • The third quarter of 2020 might be even better than the second
  • Rate lock data reveals that many more home loans are slated to close in Q3
  • And there are still nearly 18 million homeowners ripe for a refinance
  • So there’s plenty of business left despite the already big numbers

Despite those amazing numbers, the record set in the second quarter might be very short-lived.

Based on rate-lock data gathered by Black Knight, the third quarter is looking like it’s going to be even bigger.

The company said locks on home refinance loans are up 20% from the second quarter, assuming these loans close during the third quarter based on a 45-day lock-to-close timeline (how long does it take to close a mortgage).

They also pointed out that there are still nearly 18 million homeowners with sufficient credit scores and at least 20% home equity who could reduce their mortgage rate by at least 0.75% by refinancing.

And purchase locks that are scheduled to close during the third quarter are 23% higher than the seasonal expectation, which could be an indication of making up for lost time during the early days of the pandemic.

The second and third quarter combined purchase locks are more than 6% above their expected seasonal volume based on January’s pre-pandemic baseline.

So in essence, the traditional spring home buying season was merely shifted into the summer months, which is great news for real estate agents and home builders.

Most Homeowners Refinance with a Different Mortgage Lender

servicer retention

  • Customer retention continues to be an issue for mortgage lenders
  • About one in five borrowers use their original mortgage lender when refinancing
  • Despite very marginal differences in interest rates among lenders
  • But given how busy they all are it might not matter right now

Lastly, Black Knight highlighted the awful retention rates in the mortgage industry.

Simply put, most borrowers don’t stick with their old mortgage lender when refinancing the mortgage.

Instead, they go with a new company, as indicated by the fact that just 22% of rate and term refinances and 13% of cash out refinances were retained in loan servicers’ portfolios.

Essentially, less than one in five homeowners went back to their original lender during the second quarter.

Interestingly, the difference in mortgage rate pricing for rate and term refinance borrowers (into GSE mortgages) was only seven basis points lower on average than borrowers who stuck with their original company.

So while pricing is key to drumming up business, it shows lenders could probably retain many of their customers given the very marginal price difference.

Of course, it might be a case of a lender merry-go-round, with lenders simply taking each other’s business over time, as opposed to some lenders losing out.

Nonetheless, identifying those borrowers ripe for a refinance should be a top priority for lenders/servicers if they’re interested in driving more business and growing their portfolios.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.


How To Buy A Home With A Low Credit Score

July 23, 2019 Posted By: growth-rapidly Tag: Buying a house

Life is full of surprises. Just when you think you have everything figured out, a roadblock, like losing your job, presents itself. And a few months later you realize that you have missed on a few credit card payments.

When applying for a mortgage loan, mortgage lenders not only assess your ability to repay the loan, but they also review your credit report.

Click here to find the best mortgage lenders for low or bad credit score.

And if your credit report does not reveal a good credit score, then getting a mortgage loan to finance your property can be quite difficult. If you’ve found yourself in this situation, do not despair yet. There are a few things you can do to overcome a low credit score. Here are a few tips to get started:

1. Meet face-to-face with a lender and be transparent

When you have a low credit score and you have run out of time to fix it, one of your best options is to meet face-to-face with a lender and explain your situation.

Indeed, there are some lenders out there who are inclined to offer you a home loan despite bad credit after taking into consideration your unique circumstances.

LendingTree: A Better Way to Find A Mortgage is making getting a mortgage loan simpler, faster, and more accessible. Compare the best mortgage rates from multiple mortgage lenders all in one place and at the same time. LEARN MORE ON LENDINGTREE.COM >>>

Related Resources

When a lender runs your credit through a computer, you risk to be automatically rejected if you don’t meet the computer’s prerequisites.

But when you sit down with a lender and explain your poor credit, the lenders will be able to reach a deeper understanding on whether you are able to repay the loan.

So if you have a bad credit score, it’s best to be transparent and upfront about it.

2. Show that you have a full time, stable job.

Although your credit score is an essential lending requirement, it’s not the only thing a lender looks at.

Being able to show that you have a full time, stable job is another way to increase your chance of getting a loan even if you have a low credit score.

A good income will show that you’re able to make the payments on the loan despite a bad credit score.

Related: Apply for a Mortgage Loan Today

3. Have a bigger down payment.

A bigger down payment, say 20% + of the home purchase price, makes it more likely to get approved for a loan despite having a low credit score.

Furthermore, and more importantly, putting at least 20% down will allow you to avoid paying private mortgage insurance (“PMI”), which is an additional monthly payment you make on top of your monthly mortgage payments.

A PMI is a way to assure the lenders, that if you, as a borrower, default on the loan, the bank will be covered by mortgage insurance.

Feeling Overwhelmed With Your Finances?, You have options and there are steps you can take yourself. But if you feel you need a bit more guidance, simply speak with a financial advisor. SmartAsset’s free tool matches you with fiduciary advisors in your area in 5 minutes. If you are ready to meet your goals, get started with Smart Asset today.

4. Consider applying for an FHA loan.

Since you have a low credit score, you may assume that you have little to zero chance with a lender. But did you know that you still can get approved for an FHA loan?

Depending on the amount of money you’re seeking as there are limits, an FHA loan may be the right loan for you.

An FHA loan is loan that’s insured by the Federal Housing Administration. FHA Loans are very popular among first time home buyers because they require a much lower down payment (3.5%) and a very low credit score (580).

So if you have a low credit score of 580 and can meet the other FHA loan requirements, you should be able to a home loan.

Click here to compare FHA loan rates

For more information see: FHA Loan Requirements – Guidelines & Limits.

5. Avoid applying for more credit prior to loan approval.

A low credit score is itself not a good sign. But the more debt you’re applying to prior to seeking loan approval can significantly damage your file.

You see, every time you’re applying for a new credit, it can be a credit card, a car loan or a personal loan, it goes to your credit report. And the more inquiries you have on your credit report raises a red flag that you’re experiencing financial difficulty.

These are just a few tips to consider when shopping for a home loan with a low credit score.

Tips to raise your credit score:

Although you still can get a loan despite having a low credit score, it’s not always the best decision. For one, it comes with higher interest rates.

So if you’re not in a rush, your best bet is to put buying a house on hold and work on improving your credit score. Here are a few tips to improve your credit score. For more information, read: How To Raise Your Credit Score To 850.

Always pay your bills on time and in full. Payment history accounts for 35% of your total credit score. So whether it’s a credit card or a phone bill, stay on top of these payments

Keep your credit card utilization rate below 30 percent if your total balance.

Be stable. One thing that may make you a low risk borrower before a lender’s eyes is having a stable job. Lenders love stability. So if you have been with your current job for a while, that will work in your favor.

Get a credit card if you don’t have one. You may think having a new credit card may hurt you, but it can actually help you if you’re able to manage it properly.

Click here to compare mortgage rates through LendingTree. It’s completely FREE

Related Articles:

5 Signs You’re Not Ready To Buy A House

Top 6 Home Buying Risks To Avoid

The Biggest Mistakes Millennials Make When Buying A House

How Much House Can I afford

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Not All Mortgage Lenders Are Created Equally

When it comes to getting a mortgage, rates and fees vary. LendingTree allows you to view and compare multiple mortgage rates from multiple mortgage lenders all in one place and at the same time, so you can choose the best rates for your needs. LendingTree makes getting a loan faster, simpler, and better. Get started today >>>


How Low Will Mortgage Rates Go?

It seems that lately we reach a new all-time low for mortgage rates just about every week, which begs the question, how low can they go?

Indeed, mortgage rates have hit record lows eight times so far in 2020, and it is only mid-August.

If you had to bet, you’d probably guess that we’d see at least two more record lows this year, given the recent trend of lower and lower.

I assume that too would break some sort of record for most record lows in a calendar year, but that’s unclear.

What is clear is that we continue to see old records get broken with relative ease, and at this point even lower rates feel like a given.

The 2020 mortgage rate predictions are now totally laughable, with a 30-year fixed around 3.75% the most common response.

Can Mortgage Rates Get Even Better from Here?

how low will mortgage rates go

  • Fixed mortgage rates are already at all-time record lows
  • There have been eight record lows this year, including three record lows in three weeks recently
  • Is it possible that mortgage rates could move even lower in the second half of 2020?
  • The trend certainly seems to point to even lower rates, especially with wide spreads relative to Treasuries

As noted, mortgage rates are hitting record lows so often it’s becoming a bit of a non-event. Heck, I don’t even write about it anymore.

And it’s hard to know if homeowners are even excited about it at this point. When something happens on a weekly basis, it’s difficult to garner any sort of novelty.

There’s also an expectation at this point that mortgage rates will simply get better and better and better.

Oddly, you can’t blame folks for thinking that way because they’re probably right.

If you asked me right now if I thought mortgage rates would move even lower from their current levels, I’d say YES with no hesitation.

That’s not just a gut feeling – it’s based on math and data and events going on in the industry and the world.

Just Look at Spreads If You Want a Hint

treasury spreads

For one, the spread between 30-year fixed mortgage rates and the 10-year Treasury (which they track) is super wide at the moment.

At last glance, the 30-year fixed was averaging 2.88%, per Freddie Mac, while the 10-year yield was around 0.55%.

While yields did “jump” a tad in the latest week, the spread is still historically large, around 225 basis points.

Typically, the spread might be 170 basis points or even less, meaning the 30-year fixed could easily be pricing around 2.25% today if spreads were more normal.

This implies that mortgage rates have plenty of room to move lower, despite hitting a fresh record low just last week.

The next clue that mortgage rates may fall even more is the fact that a 2.25% mortgage bond coupon has already been introduced, all the way back in April.

That came four months ago, and we’re now in a very different, arguably more volatile and fragile August, which tells me it’s a matter of time before the 30-year fixed moves to that range and possibly beyond it.

Lower Mortgage Rates Are Already Being Offered

Finally, we’re already seeing certain mortgage lenders offer the 30-year fixed below 2%. So it’s not just a question of if, it’s already a reality.

This week, wholesale mortgage lender UWM announced the availability of a 1.999% 30-year fixed mortgage rate via its Conquest program.

In order to get that rate, you need to work with a mortgage broker since UWM doesn’t work directly with the public.

You also need to qualify for that rate by being a solid borrower with a vanilla loan scenario, e.g. excellent credit score, low LTV, conforming loan amount, etc.

And there’s a good chance you’ll need to pay mortgage discount points to obtain that rate.

That brings up another important point – it may not be wise to pay points right now given the trend of lower and lower mortgage rates.

If you’re just going to refinance your mortgage a second time a couple months later, you certainly don’t want to pay lots of money upfront for a home loan you’ll barely keep, and thus not actually benefit from.

Now in terms of how low mortgage rates will go, that’s anybody’s guess, but at this point I wouldn’t rule anything out.

We’re already seeing mortgage rates in the 1% range, and we’ve got the potential for a very wild second half of the year with a contentious U.S. presidential election and a stock market that refuses to read the writing on the wall.

The only real caveat, as I’ve mentioned before, is the lower you go, the harder it is to see massive improvement.

After all, if mortgage rates are already in the 1% range, how much better can they really get?

The caveat to that statement is I said the same thing when mortgage rates were 3%…


Beware the New Mortgage Fee Fearmongering

You may have heard there’s a “new mortgage fee.” And you might have been told to hurry up and refinance NOW to avoid said fee.

While there is some truth to that, it is by no means a reason to panic, nor is it even applicable to all homeowners.

Additionally, it’s possible it may not save you money to refinance now versus a couple months from today, depending on what direction mortgage rates go.

So before we all get in a tizzy and give in to what some are clearly utilizing as a scare tactic, let’s set the record straight.

What the New Mortgage Fee Is and Is Not

  • A 50-basis point cost known as the Adverse Market Refinance Fee intended to offset COVID-19 related losses
  • It’s not a .50% higher mortgage rate
  • It’s an additional .50% of the loan amount via closing costs
  • Only applies to mortgage refinance loans backed by Fannie Mae or Freddie Mac
  • Home purchase loans are NOT affected by the new fee
  • Nor does it apply to FHA loans, USDA loans, or VA loans

Over the past week, I’ve been bombarded by articles warning of the new mortgage fee – most feature something to the effect of “refinance now” and “act fast!”

But in reality, you might not need to do anything different, nor hurry.

Sure, it’s an amazing time to refinance a mortgage, what with mortgage rates hovering at or record all-time lows. No one can argue that.

Still, it all seemed to come to a screeching halt two weeks ago when Fannie Mae and Freddie Mac surprised us with their Adverse Market Refinance Fee, which is designed to offset $6 billion in COVID-19 related losses.

Why would they do such a thing at a time when the economy (and homeowners) are already suffering due to COVID-19? Well, that’s a different story and not really worth getting into here.

The important thing to know is this new mortgage fee only applies to home loans backed by Fannie Mae and Freddie Mac, and only if you’re refinancing an existing mortgage.

It has nothing to do with FHA loans, USDA loans, VA loans, or home purchase loans. Or jumbo loans while we’re at it.

Additionally, they have since exempted Affordable refinance products, including HomeReady and Home Possible, and refinance loans with an original principal amount of less than $125,000.

Some single-close construction-to-permanent loans are also exempt.

In terms of cost, it’s .50% of the loan amount, not a .50% increase in mortgage rate. That could mean another $1,500 in closing costs on a $300,000 loan, which is nothing to sneeze at.

But mortgage rates don’t live in a vacuum, and can change daily, so how much more (or less) you’ll actually pay depends on what transpires between now and the implementation date.

When Does the New Mortgage Fee Go into Effect?

  • Applies to loans purchased or delivered to Fannie and Freddie on or after December 1st, 2020
  • This means you’d want to apply for a refinance 60 or so days before that cutoff
  • Since mortgages are sold and securitized once the loan actually funds
  • But remember there’s more to mortgage pricing than just this new fee

The fee was originally supposed to go into effect for loans purchased or delivered to Fannie and Freddie on or after September 1st, 2020, but after much uproar, they just delayed it to December 1st, 2020.

This doesn’t mean you have until December 1st to apply for a refinance in order to avoid the fee.

Since we’re talking purchase of your loan or delivery of your loan so it can be bundled into a mortgage-backed security, there needs to be a buffer.

We have to account for how long it takes to get a mortgage, plus the post-closing stuff that takes place before delivery or sale.

You’d really want to get your refinance in maybe 60+ days prior to December 1st to be safe, though it’s unclear if mortgage lenders will already start baking in the fee even earlier.

If not, you might be stuck paying an additional .50% of your loan amount, either via out-of-pocket closing costs or a slightly higher mortgage rate.

Assuming you don’t want to pay anything at the closing table, your interest rate might be .125% higher, all else being equal.

So if you qualified for a 30-year fixed mortgage rate of 2.5%, it might be 2.625% instead. On a $300,000 loan, it’s about $20 higher per month.

Sure, nobody wants to pay more, but it shouldn’t be a refinance deal breaker for most folks.

And here’s the other thing – mortgage rates might move lower over the next few months due to, I don’t know, COVID-19, the most contentious presidential election in recent history, a stock market that could collapse at any moment, and so on.

In other words, if mortgage rates drop another .25% or .375% by later this year, it’s possible to come out ahead, even with the new fee.

The counterpoint is not to look a gift horse in the mouth. Either way, don’t panic.


Top 6 Home Buying Risks To Avoid

June 22, 2019 Posted By: growth-rapidly Tag: Buying a house

Buying a home, especially as a first time home buyer, while can be an exciting time, can be a scary, stressful and expensive process. That’s why it’s important to be aware of the risks involved. By having an idea of what you may encounter when buying a home, you can take steps to avoid them. If you think you’re ready to buy a house, here are some home buying risks to avoid.

If you are interested in comparing the best mortgage rates through LendingTree click here. It’s completely free.

Check out: 5 Signs You’re Not Ready to Buy a House

If the process of buying a home seems complicated to you, it may make sense to speak with a professional. The SmartAdvisor free matching tool can connect you with up to three financial advisors in your neighborhood.

1. Obtaining the wrong mortgage.

The worst thing you can do when buying a house is to obtain the wrong home loan. A bad mortgage loan can be one with a high interest rate, which means that your monthly payments are higher. You also have to pay more in interest over the term of the loan.

The people who find themselves in this kind of situation are those who fail to shop for multiple mortgage lenders before deciding on one.

Not all mortgage loans are created equal. Mortgage rates and fees may differ from lender to lender. So to avoid this risk, you should plan to compare several mortgage rates. While the mortgage process can be overwhelming at times, you can navigate the process by comparing home loans side by side through LendingTree.

LendingTree: A Better Way to Find A Mortgage is making getting a mortgage loan simpler, faster, and more accessible. Compare the best mortgage rates from multiple mortgage lenders all in one place and at the same time. LEARN MORE ON LENDINGTREE.COM >>>

2. You don’t have any job security.

Another of the several home buying risks to avoid is to make sure you have a stable job with a steady paycheck so you can make your payments on time.

Unless you were able to purchase your home with all cash, you will need to make monthly mortgage payments to satisfy your loan requirements.

In addition, you will need to consider additional expenses, like money to replace the roof or to renovate the kitchen and bathroom. Therefore you will need a steady paycheck or stream of income.

So before you jump into homeownership, make sure you have a stable job.

Related: Apply for a Mortgage Loan Today

3. You forget about other costs.

First time home buyers may think that buying a house only involves finding and getting a mortgage loan, coming up with a down payment, making an offer on a house that they like, and preparing for closing.

However, they may not realize that there are other costs that come with buying a house.

In addition to the down payment and mortgage payments, they need to come up with closing costs, inspection costs, moving costs, maintenance costs, taxes, etc… And if you don’t consider and budget for these costs, you may be in hot water.

4. Buying a home full with problems.

You may have found a house you’ve always dreamed about. But it’s never good idea to purchase a home without conducting a building inspection.

A house inspection is crucial, because it can let you know of a lot of problems that you as a first time home buyer would have never thought existed.

It can reveal problems with the structure of the house, the roof, plumbing, electricity, etc.

Click here to compare mortgage rates through LendingTree. It’s completely FREE.

If you ignore house inspection and move in anyway, these issues can end up cost you a lot of money and can also be detrimental to your safety and well-being.

In conclusion, buying a home can be a fun and exciting experience. It can also come with unique challenges. By being aware of these home buying risks, you can take steps to avoid them.

More articles on buying a house:

The Biggest Mistakes Millennials Make When Buying a House

How Much House Can I Afford

5 Signs You’re Better Off Renting

10 First Time Home Buyer Mistakes to Avoid

Not All Mortgage Lenders Are Created Equally

When it comes to getting a mortgage, rates and fees vary. LendingTree allows you to view and compare multiple mortgage rates from multiple mortgage lenders all in one place and at the same time, so you can choose the best rates for your needs. LendingTree makes getting a loan faster, simpler, and better. Get started today >>>


How Can You Get Out of Debt with Bad Credit?

  • Get Out of Debt

As many as 8 out of 10 American adults have some form of debt and the vast majority are stuck in a persistent cycle of interest, penalty fees, and escalating APRs. It’s not always something they accumulated through careless abandon or something they acquired as a means of paying for a lifestyle they otherwise can’t afford. 

In fact, close to a quarter are using debt to pay for necessities like food and utilities. 

Many of these persistent debtors feel trapped. They’re making monthly payments they can barely afford, dealing with creditors that penalize them for every setback, and struggling with credit scores so low they have no hope of acquiring additional loans or credit cards, let alone a mortgage.

So, what should you do if you’re in this position? How can you clear your debt if you have bad credit?

Challenges to Getting out of Debt with Bad Credit

A good credit score makes a massive difference when it comes to escaping debt. You have creditors at your mercy, because they see you as a trustworthy, reliable borrower. You can refinance, consolidate, and generally reduce the size and scale of your debts by using your credit score as leverage.

If your credit score is poor, you can still acquire new credit cards and personal loans, but the interest will be so high and the fees so severe that you’ll become trapped in an endless cycle of escalating repayments and penalty fees. 

The Difference a Good Credit Score Can Make

Let’s forget about consolidation loans for a moment and focus purely on credit cards. If you have an exceptional credit score, there’s no reason why you can’t get a rewards card with an APR as low as 15%. On a balance of $10,000 and with a minimum monthly payment of $300, it will take you 44 months to clear this debt. In that time, you’ll pay $3,017 in interest.

If you have a bad score, your options are a little more limited and you may be stuck with a rate of 26% APR. In this case, it will take you 60 months to clear the debt and cost you close to $8,000 in interest.

The debtor with bad credit clearly needs the money more, but over the course of several years, they’ll have $5,000 less and be forced to deal with the debt for 16 months more.

Statistics like this are why it’s so hard for individuals to escape the cycle of bad credit.

How Much Debt is too Much?

There is no such thing as “too much debt”. The United States has trillions worth of debt and Apple, one of the biggest companies in the world, has billions. You can be rich, have a positive cash flow, and still have a lot of debt. However, everyone has a ceiling point, and this is based on their income.

To estimate yours you can use something known as the debt-to-income ratio. This is calculated by combining your total monthly payments and comparing them to your gross income.

If, for instance, you earn $10,000 a month and have total monthly payments of $3,000 ($1,000 in credit cards; $1,000 in personal loans, and a $1,000 mortgage payment) then your debt-to-income ratio is 30%. 

This ratio doesn’t directly affect your credit score, but it is used by mortgage lenders to determine your creditworthiness. You can also use it yourself to assess your financial situation.

A debt-to-income ratio below 30% is optimal and anything below 20% is ideal. If it climbs above 43%, you’ll start being rejected for mortgages and other major loans and if it climbs above 50%, it’s time to seek help.

A 50% debt to income ratio means, for example, that your monthly payment is $2,500 and your income is $5,000. Once you add utility bills, food, and other essentials to the mix, you won’t have a lot of money to play with and you’ll be one medical disaster away from financial ruin.

What Qualifies as Bad Debt?

All debt can be considered bad as you’ll always pay interest and run the risk of receiving derogatory marks. But some debts are worse than others and these are known as “Bad Debts”.

Generally speaking, bad debt is any form of debt that doesn’t increase your net worth. A mortgage, therefore, is classed as good debt, because it gives you a sizable asset that will likely appreciate in value; a brand-new car is bad debt, because its value will plummet as soon as you drive it away.

Student loans are also considered to be good debts as they help you build towards your future.

Debt is a common part of modern life. If you want a good education, a home, and a clean bill of health in the United States of America, you need to accumulate debt. By focusing only on “good debt” and avoiding “bad debt” (store cards, credit cards, car loans, retail loans) you can increase your chances of turning your life around and greatly improving your financial situation.

Options for Clearing Debt with a Bad Credit Score

Now that we’ve established just how damaging bad credit can be, it’s time to look at your options. There are a few ways you can pay off debt with a Poor or Very Poor credit score, but they may not all be available to you.

Build Your Credit Score

If time is on your side then your first step should be to improve your credit score, thus increasing your chances of making the following options work. This is easier said than done, but in just 3 months you could add up to 200 points to your credit score, which is enough to move from Very Poor to Good or from Fair to Excellent.

Credit scores are calculated based on 5 criteria, each weighted differently. Improving your score is a simple case of understanding what these criteria are and knowing how to manipulate them in your favor:

  • 10% – New Credit Accounts: Avoid opening any new accounts or applying for anything unless it is absolutely necessary. If you do apply for new loans, make sure those applications occur within a 14- to 30-day period (depending on the credit scoring system) so that all inquiries merge into one.
  • 10% – Mixture of Credit: This can only be improved by adding a variety of credit accounts to your credit report. However, in the short-term, this will do more harm than good and is therefore not something you should do simply for the sake of improving your score. It’s worth keeping in mind for the future, though.
  • 15% – Age of Accounts: Age is key. The older the accounts are, the better. Don’t open anything new and keep all cleared accounts active where possible.
  • 30% – Credit Utilization: This aspect of your credit score compares your available credit (such as the combined limits of all credit cards) to the used credit (such as the balance on those cards). You can improve it by increasing the number of payments you make every month but also by requesting an increased credit limit. This won’t reduce your score and will simply add some much-needed percentage points to your utilization ratio. You can also add yourself as an authorized user to a friend’s or family member’s credit card and keep all cleared credit cards active.
  • 35% – Payment History: Dispute all errors on your report and do everything you can to remove them. Keep meeting your minimum monthly payment obligations and every month your payment history will improve and your credit score will improve with it.

If you’re in such dire straits that you can’t increase your limits, acquire any new credit or do anything else discussed below, then seek to build your credit score with the following:

  • A Secured Credit Card: Offered by many credit card companies, these cards are secured against a cash deposit. You get all the benefits (including the convenience of a secure credit card) without the risks that large, unsecured debts can bring.
  • Online Lending Circles: These services bring many debtors together. They essentially just move money around, but everything is reported to the credit bureaus and if you meet the terms of service you can slowly build your score.
  • Credit Counselor: An expert in finance, budgeting, and debt relief who can help you find a solution that is tailor made for your specific needs. They can’t improve your credit score directly, but they can show you how.

Get a Cosigner

A cosigner with good credit can help you acquire a personal loan, consolidation learn, or low-interest credit card. If your parents are homeowners, you can also consider home equity loans or reverse mortgages, swapping home equity for a cash sum that you can use to clear your debts.

It’s not an option for everyone, however, and you’ll need to find someone who trusts you and has a strong credit score or a home to use as collateral.

A Debt Management Plan

You can get a debt management plan through a credit counseling agency or credit union. They work with debtors suffering hardship and essentially consolidate and then manage debts on their behalf.

You can reduce all debts to a single monthly payment, eliminating the risk of penalty rates, extra fees, and escalating payments.

They often require that you cancel all your credit cards except for one, which should only be used in emergencies. This is really the only downside to debt management, as canceling cards and other credit accounts will reduce your credit utilization score. 

If you fail to make your monthly payment during any given month the agreement may be canceled, at which point your creditors will defer to the original terms of the loan/credit.

A Debt Consolidation Loan

Consolidation loans are somewhat misunderstood. The idea behind these loans is that you consolidate multiple high-interest debts into one low-interest personal loan. The problem is, you can’t acquire this personal loan yourself, because if you have bad credit then low-interest loans are not exactly easy to come by.

You have to go through a debt consolidation company. These companies work with all kinds of credit scores and provide a debt consolidation loan that is large enough to cover your debts and has an interest rate low enough to reduce your monthly payment.

But, of course, creditors are not there to do you any favors. While the interest rates and monthly repayments are lower, the loan term is extended, which means you’ll have the debts for longer and will repay more interest over the term.

This is something that few debtors take into consideration as they get too caught up in the APR and monthly payment. As an example, let’s imagine that you have three credit cards totaling $20,000 and charging an average of 25% interest. With a minimum payment of $800 a month, it will take you 3 years to clear the debt and cost you over $8,500 in total interest.

If you consolidate that debt with a 10% interest rate, you can reduce the monthly payment to $264.30, but in doing so you’ll have the debt for 10 years and will repay over $11,700 in total interest.

A Balance Transfer Credit Card

A balance transfer credit card is basically a debt consolidation loan, only you’re moving multiple credit card balances onto a single card. Balance transfer cards offer introductory 0% interest rates that last for up to 18 months. 

You’ll need to pay a transfer fee of between 3% and 5%, which means a $20,000 balance will grow to $21,000, but if you continue making that $800 monthly payment then you’ll reduce your balance to just $6,600 by the time that introductory period ends.

Your credit score will drop temporarily when you sign up for a new credit card, but the drop will be small and will diminish over time. 

Your credit score will also drop if you close all credit cards that you clear, so keep these open if you can.

Debt Settlement

Debt settlement companies work best when you have bad credit resulting from multiple missed payments, collections, and charge-offs. At this point, your creditors/collectors are desperate to cut their losses and get a return, even if it’s just a fraction of the original balance. They’re open for negotiations and a debt settlement specialist will use this to their advantage and try to settle for between 40% and 90% of the balance.

The problem is, they will also request that you stop making payments as soon as the debt settlement process begins. This deprives your creditors of interest payments and makes them more inclined to settle. It also gives you more money to use towards the settlements. 

At the same time, it destroys your credit score, or what’s left of it, and there’s a risk you’ll be sued. This process can also last for up to 4 or 5 years and it may take several more years to rebuild your credit score after this.

Staying out of Debt and Building Your Credit Score

Clearing your debts is just half the battle. If you think your credit score is low now, wait until you go through debt settlement, bankruptcy, and even debt management. These debt relief methods will clear your debts, but they’ll do so in a way that damages your credit score and leaves derogatory marks that may remain for years.

The good news is that you have a clean slate and can slowly rebuild your credit score and get back on your feet. Just keep the following tips in mind:

Spend What you Can Afford

Don’t deprive yourself of credit cards just because you spent years battling credit card debt. A credit card gives you a secure and convenient way to spend money. It can help you during an emergency and cover you several days before payday when money is tight and your options are limited. A credit card with a large and relatively untouched credit limit is also hugely beneficial for your credit score.

So, by all means, keep your credit cards active, but be careful how you use them in the future. Only spend the money that you’re 100% confident you can repay. In most cases, you should limit yourself to spending money that you already have in your bank and then transferring that money across every couple of weeks. 

Not only will this prevent your balance from growing, in which case you’re one financial disaster away from that balance rolling over, but it will also improve your credit score.

Credit cards are reported to the credit bureaus once every 30 days and your balance will show as credit card debt even if you have every intention of paying the balance in full and have done so for every previous month. By clearing that balance early or repaying large quantities of it, your debt will be much lower at the end of the month.

Give Yourself a Strict Budget

Set a strict spending budget every month based on incomings and outgoings. Don’t just calculate your debt-to-income ratio—include all outgoings, such as food, bills, and other essentials, and calculate your incomings after tax. The figure you arrive at is your disposable income, at which point you can reduce it by 70%. This is the amount of money that you can comfortably spend every month, with the rest going towards your savings.

As an example, let’s imagine that you earn $4,000 per month after tax and have all the following obligations:

  • Credit Card Debt: $500
  • Personal Loan Debt: $500
  • Other Creditors: $100
  • Utility Bills: $300
  • Food: $600
  • Subscriptions: $200
  • Other Payments: $300
  • Remaining Balance = $1,500 – 70% = $450

Every month you have $450 to spend on eating out, day trips, clothes, electronics, and other luxuries. This ensures that your debts are paid, and you don’t spend money you don’t have. It will also prioritize your savings, which can help you during a future emergency.

Reduce Housing Expenses

A growing number of Americans are spending up to 50% of their income on housing expenses, including rent and insurance. If you have a mortgage, 50% is still a huge amount to spend, but it’s excusable because every month you move one step close to owning your home.

But if you’re spending all that income on rent, then you’re not moving any closer to acquiring an asset and are just flushing money down the drain. Try to reduce your housing expenses by moving to cheaper accommodation. If you move out of the city you get better accommodation for less, albeit with the added expense of an extended commute.

Reduce Your Subscriptions

The average American household spends several thousand dollars on nonessential subscription services every year. These packages cost just $5 to $30 each and seem insignificant at first, but if you have 5 of them that’s between $25 and $150 a month or $300 and $1,800 a month.

Amazon Prime, Netflix, Hulu, Xbox Live, PlayStation Plus, Beauty Boxes, Music Streaming Services, Meal Delivery Services, Diet Clubs, Gift Boxes—it’s easy to accumulate thousands of dollars’ worth of annual debt without even realizing it. Get rid of the services that you don’t use and focus on the bare essentials.

Summary: Which Option is Right for you?

Your options are pretty limited if you have bad credit, but there are still a few things that you can do. If you have trusting parents who own their own home, begin by asking them to cosign or help you in other ways. If you have money for settlements, lots of derogatory marks and heaps of unsecured debt, then debt settlement might be the way to go.

If you’re struggling to make a decision, contact a credit counseling service in the first instance. They will ask you a few basic questions, asses your situation, and then recommend the best course of action. This service is provided for free by settlement companies, but you may not get the best advice as they’re more inclined to direct you towards their own services. However, even the best counseling services will charge you less than $40 for a short 30- to 60-minute appointment and this is all you need.