Mortgage rates had a chance to break to new highs this year, but the Federal Reserve took a moderate tone at the last Fed meeting. We saw the benefit of lower mortgage rates with the last two existing home sales reports, which showed growth. Then mortgage rates rose, facilitating five weeks of negative purchase application data.
As rates were hitting year-to-date highs, the fear was that the Fed would go hawkish in their March meeting, which could push mortgage rates toward 8% and tank 2024 demand. Thankfully, that didn’t happen, and — as I said on the HousingWire Daily podcast last week —we dodged a bullet.
Let’s look at the tracker data to see how mortgage rates are impacting the housing data as we settle into spring.
10-year yield and mortgage rate talk
For those of you who have me for the last 12 months, you know how important the 4.34% level on the 10-year yield is for my economic work. A break of this level could send mortgage rates toward 7.5%-8% for spring 2024. Not only did this not happen last week, but bond yields fell during the week. As we can see below, we have held the line once again, but we aren’t out of the dark forest yet.
As we can see in the chart below, the 10-year yield and mortgage rates have made a massive move higher since 2022. However, whenever the 10-year yield falls with duration, as we saw toward the end of 2022 and into 2023, it sends mortgage rates lower, and we can grow sales from these record-low levels.
Purchase application data
Purchase application data really moves on mortgage rates — something we saw in late 2022 and into 2023. As rates ticked up recently, purchase apps were down 1% week to week and down 14% year over year.
Since November 2023, we have had 10 positive and six negative purchase application prints after making holiday adjustments. Year to date, we have had four positive prints versus six negative prints. What have 2022, 2023, and 2024 shown us? When mortgage rates fall, demand picks up. Imagine a housing market with just 6% mortgage rates or lower — it would be growing like what we see in the new home sales market.
Weekly housing inventory data
The best housing story for 2024 so far is that inventory is growing yearly. The growth isn’t just in active inventory but also new listings. We’re not seeing seller stress in the inventory data but just a typical increase in inventory when rates are higher, which looks perfectly normal.
Here is a look at the inventory last week:
Weekly inventory change (March 15-22): Inventory rose from 507,160 to 512,759
The same week last year (March 16-23): Inventory fell from 414,967 to 413,883
The all-time inventory bottom was in 2022 at 240,194
The inventory peak for 2023 was 569,898
For some context, active listings for this week in 2015 were 985,141
New listings data
New listing data is growing! This data line is slightly lower than I hoped for for 2024, but we are still growing. Right now we are a tad below the levels we saw in 2022 before mortgage rates spiked over 6%. Here’s the weekly new listing data for last week over several previous years:
2024: 60,328
2023: 49,933
2022: 61,862
For some historical context, in 2011, new listings this week were at 362,339 .
Price-cut percentage
Every year, one-third of all homes take a price cut before selling — this is regular housing activity and this data line is very seasonal. The price-cut percentage can grow when mortgage rates move higher and demand gets hit. When rates fall, they go lower than an average year.
Keep it simple here, folks: inventory is growing year over year; if demand stays weaker with higher rates, the price-cut percentage data should increase faster, and if demand picks up with lower rates, it shouldn’t. As we can see below, the data line is very seasonal, like most housing data.
2024: 31.4%
2023: 30.4%
2022: 17%
The week ahead: Housing and inflation data
Next week, we have new home sales, pending home sales and the national home price index data. I will be on CNBC Monday morning to discuss the new home sales report. Of course, the Fed’s main inflation indicator, the PCE, will come out on Friday, which is a trading holiday, which will be key for rates short-term until we have the next Fed meeting. So, we have a lot of data to work with this week.
Building your dream home from the ground up is a great way to make sure it meets all your expectations. Securing a home construction loan can assist you in realizing your plans, but you need to know the specifics that come with these types of loans.
Here’s an overview of what you should know when obtaining a construction loan.
What is a construction loan?
A construction loan is a type of loan specifically designed to finance the cost of building a new home or renovation of an existing property. It’s a short-term loan with a variable interest rate, and is typically used during the construction phase of a project.
Unlike a traditional mortgage, construction loans are disbursed in installments as the construction progresses, rather than as a lump sum. This helps to minimize the risk for both the lender and the borrower, as the loan amount is based on the actual costs of construction.
How do construction loans work?
Construction loans are typically offered by specialized lenders or banks and are often secured by the property being built. Borrowers are usually required to provide a detailed construction plan, as well as a budget and timeline for the project. The lender will then release funds as each construction milestone is completed and inspected.
At the end of the construction process, the construction loan will typically be converted into a permanent mortgage. This conversion process can occur automatically or require a separate application and approval process, depending on the lender’s requirements.
3 Types of Home Construction Loans
There are three main types of home construction loans: construction-to-permanent, construction-only, and renovation.
Construction-to-Permanent Loan
With this type of home construction loan, once the home is built, the loan converts to a permanent mortgage. You typically only have to pay closing costs once, which can save you money.
You can also choose to pay interest during the building phase. However, it’s typically a variable interest rate, so your payments will fluctuate. After the home is built, and your construction loan converts to a permanent mortgage, you might be able to choose whether you want a variable rate or a fixed rate.
You may want to consider this type of loan if you have a feasible plan for your house’s construction, and you want to pay it back over time with a reliable monthly payment.
Construction-Only Loan
This type of loan requires full repayment at the end of the construction phase, rather than automatic conversion to a mortgage. This means that you’ll incur two sets of closing costs and have to secure approval for two separate loans.
However, a construction-only loan may require a smaller down payment compared to a construction-to-permanent loan. If you already own a home, you may consider obtaining a construction-only loan initially and waiting to sell your current home to accumulate a larger down payment for a mortgage.
Construction-only loans can be a suitable option for individuals who currently have limited funds but expect to have more in the future. After completing construction, you can apply for a mortgage to pay off the loan.
One potential drawback of this type of loan is that if your financial or credit situation changes during construction, you may not qualify for a mortgage large enough to repay the loan. This can lead to new problems, including the possibility of losing your home before you even move in.
Renovation Construction Loan
Rather than helping you build something new, a renovation loan is designed to help you cover the costs of a major remodel. If you want to turn a fixer-upper into the home of your dreams, but aren’t sure if you have the money for renovations, this type of loan can help.
It’s important to note that these aren’t home improvement loans. A home improvement loan often deals with smaller remodels and is based on how much equity you currently have in the home. Renovation construction loans are about major overhauls.
Typically, you’ll get a loan big enough to cover the costs of renovations as a mortgage. You only apply for one loan, and it’s based on the likely value of the home after the remodel is finished. This can be a big help if you don’t want to try to finance the cost of upgrades after you buy the house.
Expenses Covered by Construction Loans
In general, you’ll find that most construction loans pay for various aspects of a project, including:
Obtaining the land (or the fixer-upper if you’re getting a renovation loan)
Getting the plans for the home
Applying for the permits
Paying the fees associated with construction
Contingency reserves for covering unexpected costs
Closing costs
You might also be able to have interest reserves built into your construction loan if you would rather not make interest payments while your home is being built or renovated.
The idea is that everything you need to complete your home, whether new-built or a renovation, is wrapped up in the loan.
Create a Plan for Your Custom Home
When building a home, you can’t just ask a lender for an appraisal or just get approved for a certain amount. Construction loan lenders expect to see a plan for the construction of the home.
When you apply for a home construction loan, you’ll need to let your lender know the following information:
Size of the home and the lot
Placement of the lot
Home plans (possibly include blueprints)
Materials used to build the home
Types of renovations you plan to make (for an applicable loan)
Timeline for completing the home
Contractors that will be hired
Lenders will dig into this information to decide if you’re a good risk. They want to know that the home, or the lot, will at least be worth something if you default on the loan. Part of the process is understanding that the home will at least be worth what you’re borrowing once it’s finished.
At each stage of construction, and before disbursement is made, the work will have to be inspected. If you choose a general contractor that’s experienced and respected, they can help you provide needed information to your lender, and you can be reasonably assured that they will do good work.
Qualifying for a Home Construction Loan
Now that you have a plan for your new home, it’s time to qualify for your construction loan. In many ways, the process is the same as qualifying for a traditional mortgage loan. The construction loan lender will review your financial situation and decide if you present a relatively low risk. Some of the things that a construction loan provider looks at include:
Credit score: This is the most important element of any home loan, and it’s no different with construction loans. In fact, because there might not be anything of tangible value before construction, you might need an even higher credit score. You typically need a minimum credit score of 680 to qualify, so you need to improve your credit score if you’re not there yet.
Debt-to-income (DTI) ratio: As with a regular mortgage, the lower your debt-to-income ratio, the better off you’ll be. Most lenders require that your DTI be no more than 45% of your gross monthly income.
Down payment: While you might be able to get by with 5% or less for a down payment with traditional mortgages (FHA, USDA, and VA loans famously come with much lower down payments), construction loans are a different story. You’ll likely have to put down at least 20% to make it happen. In some cases, though, as with a renovation loan, you might get away with a lower down payment.
By planning ahead and making sure your finances are in order, you have a better chance of qualifying for a construction loan.
Prepare for a Longer Closing Period
Realize that there are many moving parts to your home construction loan. It’s not just you and your lender involved. You’ve got a builder or contractor as part of the arrangement, and you’re not going to get a lump sum. Instead, the lender will evaluate you and the contractor you choose separately.
Additionally, a timeline for disbursements needs to be set up. Moreover, a lender might need to consider insurance related to the process. Plus, whether you choose a construction-to-permanent or construction-only loan matters a great deal as you negotiate with a lender about your terms.
As a result of these different aspects of construction loans, you might have to allow for a longer closing period. Additionally, you’re likely to see delays and additional costs during the building portion, so making sure you have adequate contingency reserves built into your new home is vital.
Bottom Line
With a construction loan, you can turn your dream home vision into a reality, whether building from the ground up or renovating a fixer-upper. Be aware, however, that a construction loan entails different terms and conditions.
Your lender will not simply grant you the entire loan amount without first ensuring your ability to use it responsibly. You must prove your financial capability and the viability of your construction project. Your lender will keep a close eye on the allocation of funds as the project progresses.
If you have a good understanding of how a construction loan operates, it can be a valuable tool in ensuring you achieve the home of your dreams.
See also: Is It Cheaper to Build or Buy a House?
Frequently Asked Questions
How do I qualify for a construction loan?
To qualify for a construction loan, you will typically need to have a good credit score and a sufficient amount of equity in your property (if you are building on land that you already own). You will also need to provide a detailed construction plan and budget, as well as proof of your ability to repay the loan.
How long does it take to get a construction loan?
The process of getting a construction loan can vary in length depending on the lender and the specifics of your situation. In general, it can take several weeks or even months to complete the application process and receive approval for a construction loan.
How much can I borrow with a construction loan?
The loan amount you can obtain through a construction loan is based on various factors including your credit score, the worth of the property, and your equity in the property. Usually, borrowers can expect to secure up to 80% of the property value. However, the loan amount can differ based on the lender’s policies.
How are funds from a construction loan distributed?
The distribution of funds from a construction loan is typically done in stages, based on the progress of the construction project. The lender will release funds as specific milestones are reached, such as the completion of the foundation, the rough framing, or the final inspection. This process helps to ensure that the funds are used for the intended purposes and that the construction project is proceeding as planned.
Before each release of funds, the lender may require an inspection to verify that the work has been completed to their satisfaction. The exact terms of the distribution of funds may vary based on the lender and the specifics of the loan agreement.
Are construction loans more expensive than other types of loans?
Construction loans can carry higher interest rates and fees due to the higher risk for the lender. However, the total cost of the loan will vary based on the lender, loan type, and loan terms.
Can I use a construction loan to remodel my existing home?
Yes, construction loans can be utilized for renovating an existing home too. Normally, those borrowing must present a comprehensive renovation plan, cost estimate, and demonstrate their repayment capability.
The home buying process involves many steps, but it always starts with getting preapproved for a mortgage. A preapproval letter shows that a lender has checked your credit report and approved you to take out a mortgage.
It can be tempting to skip over the mortgage preapproval process and go straight to looking at potential homes, but this is almost always a mistake. Getting preapproved will ensure that real estate agents and home sellers know you’re a serious buyer. It will also give you more room to negotiate on your offer.
Plus, preapproval gives you a better idea of what kind of home you can afford to buy. Let’s look more closely at what mortgage preapproval is and how you can get started.
How does a preapproval letter work?
In the home-buying process, a preapproval letter serves as tangible proof to potential sellers that the borrower has secured financing. This letter is generated by a lender after evaluating a borrower’s financial information, including credit score, income, and assets. It’s an assurance to sellers that the borrower is financially capable of following through on the purchase.
The preapproval process starts with the borrower submitting an application to the lender, who then conducts a thorough evaluation of the borrower’s finances. Based on this information, the lender will determine the maximum loan amount for which the borrower is eligible and issue the preapproval letter.
Preapproval letters are valid for a specified amount of time – usually between 60 and 90 days. During this time, the borrower can confidently make an offer on a property, demonstrating their commitment and financial stability to the seller.
While a preapproval letter is not a guarantee, it’s an important step in streamlining the home-buying process. It can make all the difference in helping the borrower secure their dream home.
Why You Should Get a Preapproval Letter
The process of buying a home can be overwhelming and stressful, but obtaining a preapproval letter can help alleviate some of those worries. This letter serves as a crucial first step in the home-buying journey, providing potential sellers with the assurance that you are a serious and financially capable buyer.
By taking the time to secure a preapproval letter, you will have a much clearer understanding of your borrowing power and what you can afford. Not only does a preapproval letter give you a competitive edge in a crowded housing market, but it can also save you time and heartache in the long run.
With this letter in hand, you can confidently make an offer on a property. This is because you have taken the necessary steps to secure financing and increase your chances of having your offer accepted.
So, whether you’re a first-time homebuyer or an experienced real estate investor, getting a mortgage preapproval letter should be at the top of your to-do list.
Preparing for Preapproval
Getting preapproved alerts you to any potential problems with your credit or income. Many people have issues with their credit that they need to clear up before obtaining a mortgage will be possible.
If you know about these issues, you can take the necessary steps to clean up your credit first. It’s much harder if you go house hunting first, find a home you love, and then realize you’re not prepared to buy it just yet.
For that reason, preapproval will help you be taken more seriously by sellers and listing agents. Sellers want to accept an offer that they are reasonably certain will go through.
Home loan preapproval assures them that you’re in a position to be able to close on the home. This is especially important in a seller’s market where there could be multiple offers on one home.
And finally, being preapproved for a mortgage gives you more clarity when you start looking at different homes. Without a preapproval letter, you’re really just guessing when it comes to the type of home you think you can afford. Getting preapproved takes all the guesswork out of it.
Preapproval vs. Prequalification
Many people use the terms preapproval and prequalification interchangeably, but they are two different things. Getting prequalified is similar to preapproval, but it’s not quite as accurate or thorough.
When you get prequalified for a mortgage, your lender won’t pull your credit and won’t ask for as much information about your finances. This obviously makes it much less time-intensive for you, but it also means that the information you receive is an estimate that could change.
In comparison, with preapproval, your lender will check your credit and do a more thorough examination of your finances. Because this process is much more comprehensive, you’ll receive a more accurate estimate of how much you’re approved to borrow.
What You Need for a Successful Mortgage Preapproval
Your loan officer will require a lot of documentation before they preapprove you for a mortgage. This can be quite tedious.
But the good news is, you already have access to all the information needed. So, it’s really just a matter of gathering all the necessary paperwork to submit to your lender.
Here is an overview of the documents and information you’ll need to get preapproved:
A good credit score: Unless you’re applying for an FHA loan or VA loan, you’re going to need a good credit score to get preapproved for a mortgage. Most mortgage lenders require a minimum credit score of 620 to qualify. However, you’ll receive the lowest interest rate if your credit score is 760 or higher.
Employment history: Your mortgage lender will want to see proof of employment before they’ll be willing to preapprove you for a mortgage. You’ll need to provide copies of your tax returns as well as your annual W-2. Your lender may even contact your employer to verify your employment status and income.
Proof of assets: You’ll also need to provide evidence that you can afford to pay the down payment and closing costs on your new home. This can typically be done by providing pay stubs, tax returns, or bank statements. If you aren’t able to pay the standard 20% down payment, you must purchase private mortgage insurance (PMI).
Your debt-to-income ratio: Debt-to-income ratio (DTI) is the percentage of gross monthly income that goes toward debt payments, such as credit cards, auto loans, and student loans. You must let your lender know of your monthly debts, since this will affect your debt-to-income ratio. You can provide a list with all of your outstanding debt, as well as the loan balance and minimum monthly payments.
Additional documents: Your lender will likely want additional information, like your Social Security Number and your driver’s license. And if you’ve been through a divorce or owe alimony payments, you’ll need to provide documentation of that as well.
How to Get Preapproved for Your Mortgage
Hopefully, by this point, you understand what mortgage preapproval is and why it’s so important. Here are the five steps you’ll need to take to get preapproved for a mortgage loan.
1. Check your credit report
Before you even begin the preapproval process, it’s a good idea to request a copy of your credit report from the three major credit bureaus. You can receive your free annual copies at AnnualCreditReport.com.
That way, you’ll know where you stand when it comes to your credit history. And this will give you a chance to review your credit report for any errors or delinquent accounts. It’s a good idea to resolve these issues before applying for mortgage preapproval.
2. Gather the necessary documentation
Take the time to gather the necessary paperwork before you approach your lender. This ensures that you go into the mortgage process prepared, and will help things move along much more smoothly.
3. Submit your application
Now it’s time to apply for preapproval. Your loan officer may have you apply for preapproval online. Answer all the questions as accurately as you can, and submit all the necessary paperwork.
It may be a good idea to apply for preapproval with multiple lenders. This allows you to compare your options and get the most favorable terms possible.
4. Receive your offers
Once your lender has reviewed your credit score and financial information, you’ll receive several recommended mortgage options. At this point, you’ll see how much you’ve been approved for and your recommended loan types. You’ll also get an idea of what your estimated monthly mortgage payment and interest rate might be.
5. Receive your preapproval letter
Once you’ve chosen your mortgage option, your lender will send you a preapproval letter. You can take this letter with you as you begin shopping for your home.
Bottom Line
Applying for mortgage preapproval is probably the least exciting part of the mortgage process, but it’s an essential first step every new homebuyer should take. Getting a preapproval letter will let you know what kind of home you can afford, and it will give you an advantage when you’re negotiating with sellers.
However, keep in mind that a mortgage preapproval is not a guarantee. If you suddenly lose your job or your financial situation unexpectedly changes, then the previous offer will no longer stand. But it’s as close to a guarantee as you can get before finally closing on your home.
Frequently Asked Questions
Why does it matter if I receive a preapproval letter?
It’s essential to get preapproved for your mortgage for a couple of reasons. First, it gives you a realistic picture of the type of house you can afford. And sellers will take your offer more seriously if you’ve already been preapproved for a mortgage.
What is the difference between a mortgage prequalification and preapproval?
Getting prequalified for a mortgage is much less thorough than a preapproval. Your lender won’t run a credit check, and they won’t review your finances as carefully. This makes it much less accurate than receiving a preapproval letter.
If you go through the process of getting preapproved, then it’s likely you’ll be able to close on a home, unless something drastic happens. But if you’ve only been prequalified, your offer could change once the lender does a more in-depth credit check and financial review.
When should I get preapproved?
You should get preapproved before you start looking at homes. That way, you’ll know what kind of home you can afford before you start shopping for a new home.
Will getting preapproved for a mortgage hurt my credit score?
As part of the preapproval process, your lender will conduct a hard inquiry on your credit report. Typically, this can hurt your credit score slightly. However, multiple hard inquiries for a home loan shouldn’t hurt your credit score.
Average mortgage rates edged higher yesterday. Unfortunately, it was the sixth consecutive business day on which they’ve risen.
Earlier this morning, markets were signaling that mortgage rates today might barely move. However, these early mini-trends frequently alter speed or direction as the hours pass.
Current mortgage and refinance rates
Find your lowest rate. Start here
Program
Mortgage Rate
APR*
Change
Conventional 30-year fixed
7.15%
7.17%
Unchanged
Conventional 15-year fixed
6.57%
6.61%
-0.04
Conventional 20-year fixed
7.16%
7.19%
+0.02
Conventional 10-year fixed
6.63%
6.66%
-0.05
30-year fixed FHA
6.51%
7.19%
Unchanged
30-year fixed VA
6.61%
6.72%
-0.03
5/1 ARM Conventional
6.3%
7.39%
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 See our rate assumptions here.
Should you lock your mortgage rate today?
Tomorrow’s Federal Reserve events (see below) could make a big difference to mortgage rates in the near and medium terms. But, right now, I’m pessimistic about our seeing a sustained downward trend until the summer. And some wonder if the fall might be a more realistic timeframe.
So, for now, my personal rate lock 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
LOCKif closing in 60days
However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So, let your gut and your own tolerance for risk help guide you.
>Related: 7 Tips to get the best refinance rate
Market data affecting today’s mortgage rates
Here’s a snapshot of the state of play this morning at about 9:50 a.m. (ET). The data are mostly compared with roughly the same time the business day before, so much of the movement will often have happened in the previous session. The numbers are:
The yield on 10-year Treasury notes held steady again at 4.32%. (Neutral for mortgage rates. However, yields were rising this morning.) More than any other market, mortgage rates typically tend to follow these particular Treasury bond yields
Major stock indexes were mixed this morning. (Neutral for mortgage rates.) When investors buy shares, they’re often selling bonds, which pushes those prices down and increases yields and mortgage rates. The opposite may happen when indexes are lower. But this is an imperfect relationship
Oil prices increased to $83.18 from $81.35 a barrel. (Bad for mortgage rates*.) Energy prices play a prominent role in creating inflation and also point to future economic activity
Goldprices inched down to $2,156 from $2,159 an ounce. (Neutral for mortgage rates*.) It is generally better for rates when gold prices rise and worse when they fall. Because gold tends to rise when investors worry about the economy.
CNN Business Fear & Greed index — dropped to 69 from 75 out of 100. (Good for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So, lower readings are often better than higher ones
*A movement of less than $20 on gold prices or 40 cents on oil ones is a change of 1% or less. So we only count meaningful differences as good or bad for mortgage rates.
Caveats about markets and rates
Before the pandemic, post-pandemic upheavals, and war in Ukraine, you could look at the above figures and make a pretty good guess about what would happen to mortgage rates that day. But that’s no longer the case. We still make daily calls. And are usually right. But our record for accuracy won’t achieve its former high levels until things settle down.
So, use markets only as a rough guide. Because they have to be exceptionally strong or weak to rely on them. But, with that caveat, mortgage rates today look likely to hold close to steady. However, be aware that “intraday swings” (when rates change speed or direction during the day) are a common feature right now.
Find your lowest rate. Start here
What’s driving mortgage rates today?
Tomorrow
I covered yesterday the three Federal Reserve events due early tomorrow afternoon:
2 p.m. Eastern — Rate announcement and report publications
2 p.m. Eastern — Summary of Economic Projects publication. This occurs only quarterly and includes a dot plot
I’ll brief you more fully on those tomorrow morning. That way you’ll know what to look out for before it’s too late to act.
Personally, I’m not very hopeful about the impact of the Fed’s events on mortgage rates. Of course, I can’t be sure what they’ll bring. But recent economic data has likely reinforced the central bank’s natural caution. And I suspect that it may signal later and fewer cuts in general interest rates this year than markets have been expecting.
If I’m right, that could be seriously bad for mortgage rates. So, let’s hope I’m wrong.
Today and later in the week
I’ll be surprised if today’s economic reports move mortgage rates much. They cover February’s housing starts and building permits. It’s not that those data are unimportant. However, they rarely attract the attention of the investors who largely determine mortgage rates.
We have to wait until Thursday for a couple of reports that sometimes affect mortgage rates. They’re two March purchasing managers’ indexes (PMIs) from S&P. One is for the services sector and the other covers manufacturing. I’ll brief you on those tomorrow morning.
Don’t forget you can always learn more about what’s driving mortgage rates in the most recent weekend edition of this daily report. These provide a more detailed analysis of what’s happening. They are published each Saturday morning soon after 10 a.m. (ET) and include a preview of the following week.
Recent trends
According to Freddie Mac’s archives, the weekly all-time lowest rate for 30-year, fixed-rate mortgages was set on Jan. 7, 2021, when it stood at 2.65%. The weekly all-time high was 18.63% on Sep. 10, 1981.
Freddie’s Mar. 14 report put that same weekly average at 6.74% down from the previous week’s 6.88%. But note that Freddie’s data are almost always out of date by the time it announces its weekly figures.
Expert forecasts for mortgage rates
Looking further ahead, Fannie Mae and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.
And here are their rate forecasts for the four quarters of 2024 (Q1/24, Q2/24 Q3/24 and Q4/24).
The numbers in the table below are for 30-year, fixed-rate mortgages. Fannie’s were updated on Feb. 12 and the MBA’s on Feb. 20.
Forecaster
Q1/24
Q2/24
Q3/24
Q4/24
Fannie Mae
6.5%
6.3%
6.1%
5.9%
MBA
6.9%
6.6%
6.3%
6.1%
Of course, given so many unknowables, both these forecasts might be even more speculative than usual. And their past record for accuracy hasn’t been wildly impressive.
Important notes on today’s mortgage rates
Here are some things you need to know:
Typically, mortgage rates go up when the economy’s doing well and down when it’s in trouble. But there are exceptions. Read ‘How mortgage rates are determined and why you should care’
Only “top-tier” borrowers (with stellar credit scores, big down payments, and very healthy finances) get the ultralow mortgage rates you’ll see advertised
Lenders vary. Yours may or may not follow the crowd when it comes to daily rate movements — though they all usually follow the broader trend over time
When daily rate changes are small, some lenders will adjust closing costs and leave their rate cards the same
Refinance rates are typically close to those for purchases.
A lot is going on at the moment. And nobody can claim to know with certainty what will happen to mortgage rates in the coming hours, days, weeks or months.
Find your lowest mortgage rate today
You should comparison shop widely, no matter what sort of mortgage you want. Federal regulator the Consumer Financial Protection Bureau found in May 2023:
“Mortgage borrowers are paying around $100 a month more depending on which lender they choose, for the same type of loan and the same consumer characteristics (such as credit score and down payment).”
In other words, over the lifetime of a 30-year loan, homebuyers who don’t bother to get quotes from multiple lenders risk losing an average of $36,000. What could you do with that sort of money?
Verify your new rate
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.
How your mortgage interest rate is determined
Mortgage and refinance rates vary a lot depending on each borrower’s unique situation.
Factors that determine your mortgage interest rate include:
Overall strength of the economy — A strong economy usually means higher rates, while a weaker one can push current mortgage rates down to promote borrowing
Lender capacity — When a lender is very busy, it will increase rates to deter new business and give its loan officers some breathing room
Property type (condo, single-family, town house, etc.) — A primary residence, meaning a home you plan to live in full time, will have a lower interest rate. Investment properties, second homes, and vacation homes have higher mortgage rates
Loan-to-value ratio (determined by your down payment) — Your loan-to-value ratio (LTV) compares your loan amount to the value of the home. A lower LTV, meaning a bigger down payment, gets you a lower mortgage rate
Debt-To-Income ratio — This number compares your total monthly debts to your pretax income. The more debt you currently have, the less room you’ll have in your budget for a mortgage payment
Loan term — Loans with a shorter term (like a 15-year mortgage) typically have lower rates than a 30-year loan term
Borrower’s credit score — Typically the higher your credit score is, the lower your mortgage rate, and vice versa
Mortgage discount points — Borrowers have the option to buy discount points or ‘mortgage points’ at closing. These let you pay money upfront to lower your interest rate
Remember, every mortgage lender weighs these factors a little differently.
To find the best rate for your situation, you’ll want to get personalized estimates from a few different lenders.
Verify your new rate. Start here
Are refinance rates the same as mortgage rates?
Rates for a home purchase and mortgage refinance are often similar.
However, some lenders will charge more for a refinance under certain circumstances.
Typically when rates fall, homeowners rush to refinance. They see an opportunity to lock in a lower rate and payment for the rest of their loan.
This creates a tidal wave of new work for mortgage lenders.
Unfortunately, some lenders don’t have the capacity or crew to process a large number of refinance loan applications.
In this case, a lender might raise its rates to deter new business and give loan officers time to process loans currently in the pipeline.
Also, cashing out equity can result in a higher rate when refinancing.
Cash-out refinances pose a greater risk for mortgage lenders, so they’re often priced higher than new home purchases and rate-term refinances.
Check your refinance rates today. Start here
How to get the lowest mortgage or refinance rate
Since rates can vary, always shop around when buying a house or refinancing a mortgage.
Comparison shopping can potentially save thousands, even tens of thousands of dollars over the life of your loan.
Here are a few tips to keep in mind:
1. Get multiple quotes
Many borrowers make the mistake of accepting the first mortgage or refinance offer they receive.
Some simply go with the bank they use for checking and savings since that can seem easiest.
However, your bank might not offer the best mortgage deal for you. And if you’re refinancing, your financial situation may have changed enough that your current lender is no longer your best bet.
So get multiple quotes from at least three different lenders to find the right one for you.
2. Compare Loan Estimates
When shopping for a mortgage or refinance, lenders will provide a Loan Estimate that breaks down important costs associated with the loan.
You’ll want to read these Loan Estimates carefully and compare costs and fees line-by-line, including:
Interest rate
Annual percentage rate (APR)
Monthly mortgage payment
Loan origination fees
Rate lock fees
Closing costs
Remember, the lowest interest rate isn’t always the best deal.
Annual percentage rate (APR) can help you compare the ‘real’ cost of two loans. It estimates your total yearly cost including interest and fees.
Also, pay close attention to your closing costs.
Some lenders may bring their rates down by charging more upfront via discount points. These can add thousands to your out-of-pocket costs.
3. Negotiate your mortgage rate
You can also negotiate your mortgage rate to get a better deal.
Let’s say you get loan estimates from two lenders. Lender A offers the better rate, but you prefer your loan terms from Lender B. Talk to Lender B and see if they can beat the former’s pricing.
You might be surprised to find that a lender is willing to give you a lower interest rate in order to keep your business.
And if they’re not, keep shopping — there’s a good chance someone will.
Fixed-rate mortgage vs. adjustable-rate mortgage: Which is right for you?
Mortgage borrowers can choose between a fixed-rate mortgage and an adjustable-rate mortgage (ARM).
Fixed-rate mortgages (FRMs) have interest rates that never change unless you decide to refinance. This results in predictable monthly payments and stability over the life of your loan.
Adjustable-rate loans have a low interest rate that’s fixed for a set number of years (typically five or seven). After the initial fixed-rate period, the interest rate adjusts every year based on market conditions.
With each rate adjustment, a borrower’s mortgage rate can either increase, decrease, or stay the same. These loans are unpredictable since monthly payments can change each year.
Adjustable-rate mortgages are fitting for borrowers who expect to move before their first rate adjustment, or who can afford a higher future payment.
In most other cases, a fixed-rate mortgage is typically the safer and better choice.
Remember, if rates drop sharply, you are free to refinance and lock in a lower rate and payment later on.
How your credit score affects your mortgage rate
You don’t need a high credit score to qualify for a home purchase or refinance, but your credit score will affect your rate.
This is because credit history determines risk level.
Historically speaking, borrowers with higher credit scores are less likely to default on their mortgages, so they qualify for lower rates.
So, for the best rate, aim for a credit score of 720 or higher.
Mortgage programs that don’t require a high score include:
Conventional home loans — minimum 620 credit score
FHA loans — minimum 500 credit score (with a 10% down payment) or 580 (with a 3.5% down payment)
VA loans — no minimum credit score, but 620 is common
USDA loans — minimum 640 credit score
Ideally, you want to check your credit report and score at least 6 months before applying for a mortgage. This gives you time to sort out any errors and make sure your score is as high as possible.
If you’re ready to apply now, it’s still worth checking so you have a good idea of what loan programs you might qualify for and how your score will affect your rate.
You can get your credit report from AnnualCreditReport.com and your score from MyFico.com.
How big of a down payment do I need?
Nowadays, mortgage programs don’t require the conventional 20 percent down.
Indeed, first-time home buyers put only 6 percent down on average.
Down payment minimums vary depending on the loan program. For example:
Conventional home loans require a down payment between 3% and 5%
FHA loans require 3.5% down
VA and USDA loans allow zero down payment
Jumbo loans typically require at least 5% to 10% down
Keep in mind, a higher down payment reduces your risk as a borrower and helps you negotiate a better mortgage rate.
If you are able to make a 20 percent down payment, you can avoid paying for mortgage insurance.
This is an added cost paid by the borrower, which protects their lender in case of default or foreclosure.
But a big down payment is not required.
For many people, it makes sense to make a smaller down payment in order to buy a house sooner and start building home equity.
Verify your new rate. Start here
Choosing the right type of home loan
No two mortgage loans are alike, so it’s important to know your options and choose the right type of mortgage.
The five main types of mortgages include:
Fixed-rate mortgage (FRM)
Your interest rate remains the same over the life of the loan. This is a good option for borrowers who expect to live in their homes long-term.
The most popular loan option is the 30-year mortgage, but 15- and 20-year terms are also commonly available.
Adjustable-rate mortgage (ARM)
Adjustable-rate loans have a fixed interest rate for the first few years. Then, your mortgage rate resets every year.
Your rate and payment can rise or fall annually depending on how the broader interest rate trends.
ARMs are ideal for borrowers who expect to move prior to their first rate adjustment (usually in 5 or 7 years).
For those who plan to stay in their home long-term, a fixed-rate mortgage is typically recommended.
Jumbo mortgage
A jumbo loan is a mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.
In 2023, the conforming loan limit is $726,200 in most areas.
Jumbo loans are perfect for borrowers who need a larger loan to purchase a high-priced property, especially in big cities with high real estate values.
FHA mortgage
A government loan backed by the Federal Housing Administration for low- to moderate-income borrowers. FHA loans feature low credit score and down payment requirements.
VA mortgage
A government loan backed by the Department of Veterans Affairs. To be eligible, you must be active-duty military, a veteran, a Reservist or National Guard service member, or an eligible spouse.
VA loans allow no down payment and have exceptionally low mortgage rates.
USDA mortgage
USDA loans are a government program backed by the U.S. Department of Agriculture. They offer a no-down-payment solution for borrowers who purchase real estate in an eligible rural area. To qualify, your income must be at or below the local median.
Bank statement loan
Borrowers can qualify for a mortgage without tax returns, using their personal or business bank account as evidence of their financial circumstances. This is an option for self-employed or seasonally-employed borrowers.
Portfolio/Non-QM loan
These are mortgages that lenders don’t sell on the secondary mortgage market. And this gives lenders the flexibility to set their own guidelines.
Non-QM loans may have lower credit score requirements or offer low-down-payment options without mortgage insurance.
Choosing the right mortgage lender
The lender or loan program that’s right for one person might not be right for another.
Explore your options and then pick a loan based on your credit score, down payment, and financial goals, as well as local home prices.
Whether you’re getting a mortgage for a home purchase or a refinance, always shop around and compare rates and terms.
Typically, it only takes a few hours to get quotes from multiple lenders. And it could save you thousands in the long run.
Time to make a move? Let us find the right mortgage for you
Current mortgage rates methodology
We receive current mortgage rates each day from a network of mortgage lenders that offer home purchase and refinance loans. Those mortgage rates shown here are based on sample borrower profiles that vary by loan type. See our full loan assumptions here.
Builder confidence rose for the fourth straight month and residential construction stats may now be trying to catch up. Both construction permits and housing starts rose in February compared to both January and February 2023 levels.
The U.S. Census Bureau and the Department of Housing and Urban Development (HUD) said new residential construction began on a seasonally adjusted pace of 1.521 million units last month. This is 10.7 percent higher than the 1.374 million units reported in January and 5.9 percent more than the level a year earlier.
Single-family starts rose 11.6 percent for the month to a rate of 1.129 million units and were up 35.2 percent year-over-year while multifamily starts increased by 8.5 percent. They retreated however by 35.9 percent on an annual basis.
On a non-seasonally adjusted basis, construction started on 108,100 units during the month, 79,200 of which were single-family houses. The January numbers were 97,400 and 69,700 respectively.
Permitting also increased, although not as dramatically. Authorizations were at a seasonally adjusted level of 1.518 million, 1.9 percent higher than the 1.489 million estimate the previous month. The year-over-year change was +2.4 percent.
Single-family permits were up 1.0 percent to 1.031 million, 29.5 percent higher than a year earlier. Multifamily permits increased 2.4 percent but lagged the prior February by 32.8 percent.
Permits issued during the month totaled 118,300, up from 114,800. Single-family permits increased from 75,900 to 79,300.
Analysts were on target with their forecasts. Those polled by Econoday had consensus estimate of 1.449 million for starts and 1.500 million for permits.
There were an estimated 124,100 residential units completed in February compared to 97,300 in January. Of those, a respective 81,000 and 61,000 were single-family units. On a seasonally adjusted basis, completions increased 19.7 percent from January and 9.6 percent for the year.
The National Association of Home Builders (NAHB) said its index measuring home builder perceptions of the new home market climbed back above the key level of 50 this month. The NAHB/Wells Fargo Housing Market Index rose 3 points to 51, the highest level since July 2023 and the first time it has surpassed the 50 mark since last July. NAHB economist Robert Dietz said builders are responding to the strong demand for housing and mortgage rates which are below the peak reached last fall.
The HMI survey asks builders for their perception of current single-family home sales, sales expectations for the next six months, and current traffic of prospective builders. The scores for each component form an index where any number over 50 indicates that more builders view conditions as good than poor.
All three indices posted gains in March. The HMI index charting current sales conditions increased 4 points to 56, the component measuring sales expectations in the next six months rose 2 points to 62 and the component gauging traffic of prospective buyers increased 2 points to 34.
Dietz also noted that the slightly lower rates are allowing builders to cut back on discounting to boost sales. In March, 24 percent of builders reported cutting home prices, down from 36 percent in December 2023 and the lowest share since July 2023. However, the average price reduction in March held steady at 6 percent for the ninth straight month. Meanwhile, the use of sales incentives is holding firm. Sixty percent of builders offered some form of incentive in March. That share has remained between 58 percent and 62 percent since last September.
Looking at the three-month moving averages for regional HMI scores, the Northeast increased 2 points to 59, the Midwest gained 5 points to 41, the South rose 4 points to 50 and the West registered a 5-point gain to 43.
The Census/HUD report estimates there were 1.666 million residential units under construction at the end of February, 683,000 of them single-family houses. In addition, builders have a backlog of 270,000 permits including 141,000 for single-family residences.
Starts in the Northeast region were down 10.3 percent from January but 16.2 percent higher than the previous February. Permits rose 36.2 percent from January and surged 79.6 percent compared to February 2023.
The Midwest saw gains of 16.4 percent from the prior month and 23.2 percent for the year. Permits increased by 3.8 and 14.9 percent.
Housing starts jumped 15.7 percent and 11.5 percent from the two earlier periods in the South. Permitting dipped by 1.3 percent from January and 5.1 percent for the year.
The West lost ground, with starts falling 7.9 percent and 10.8 percent for the month and the year respectively. Permits were also lower, by 6.8 and 11.2 percent.
From Census: Building Permits:Privately‐owned housing units authorized by building permits in February were at a seasonally adjusted annual rate of 1,518,000. This is 1.9 percent above the revised January rate of 1,489,000 and 2.4 percent above the February 2023 rate of 1,482,000.
When people say housing leads us in and out of a recession, it is a valid premise and that is why people carefully track housing permits. However, this housing cycle has been unique. Unfortunately, many people who have tracked this housing cycle are still stuck on 2008, believing that what happened during COVID-19 was rampant demand speculation that would lead to a massive supply of homes once home sales crashed. This would mean the builders couldn’t sell more new homes or have housing permits rise.
Housing permits, starts and new home sales were falling for a while, and in 2022, the data looked recessionary. However, new home sales were never near the 2005 peak, and the builders found a workable bottom in sales by paying down mortgage rates to boost demand. The first level of job loss recessionary data has been averted for now. Below is the chart of the building permits.
On the other hand, the apartment boom and bust has already happened. Permits are already back to the levels of the COVID-19 recession and have legs to move lower. Traditionally, when this data line gets this negative, a recession isn’t far off. But, as you can see in the chart below, there’s a big gap between the housing permit data for single-family and five units. Looking at this chart, the recession would only happen after single-family and 5-unit permits fall together, not when we have a gap like we see today.
From Census: Housing completions: Privately‐owned housing completions in February were at a seasonally adjusted annual rate of 1,729,000.
As we can see in the chart below, we had a solid month of housing completions. This was driven by 5-unit completions, which have been in the works for a while now. Also, this month’s report show a weather impact as progress in building was held up due to bad weather. However, the good news is that more supply of rental units will mean the fight against rent inflation will be positive as more supply is the best way to deal with inflation. In time, that is also good news for mortgage rates.
Housing Starts: Privately‐owned housing starts in February were at a seasonally adjusted annual rate of 1,521,000. This is 10.7 percent (±14.2 percent)* above the revised January estimate of 1,374,000 and is 5.9 percent (±10.0 percent)* above the February 2023 rate of 1,436,000.
Housing starts data beat to the upside, but the real story is that the marketplace has diverged into two different directions. The apartment boom is over and permits are heading below the COVID-19 recession, but as long as the builders can keep rates low enough to sell more new homes, single-family permits and starts can slowly move forward.
If we lose the single-family marketplace, expect the chart below to look like it always does before a recession — meaning residential construction workers lose their jobs. For now, the apartment construction workers are at the most risk once they finish the backlog of apartments under construction.
Overall, the housing starts beat to the upside. Still, the report’s internals show a marketplace with early recessionary data lines, which traditionally mean mortgage rates should go lower soon. If housing leads us into a recession in the near future, that means mortgage rates have stayed too high for too long and restrictive policy by the Fed created a recession as we have seen in previous economic cycles.
The builders have been paying down rates to keep construction workers employed, but if rates go higher, it will get more and more challenging to do this because not all builders have the capacity to buy down rates. Last year, we saw what 8% mortgage rates did to new home sales; they dropped before rates fell. So, this is something to keep track of, especially with a critical Federal Reserve meeting this week.
Amid a housing shortage and an affordability crisis, US homebuilding heated up in February as builders anticipate demand for new homes to stay strong.
One sure way to improve affordability is to increase the availability of apartments to rent and homes to buy. In areas of the country where there has been robust homebuilding, rents and home price increases have been more moderate.
The pace of new housing starts soared by 10.7% in February from the month before, after slumping in January, according to data released Thursday by the Census Bureau and the Department of Housing and Urban Development.
Starts rose to a seasonally adjusted annual rate of 1.521 million units last month, beating analysts’ estimates of 1.425 million. The pace rebounded from January’s revised pace of 1.374 million and was 5.9% above the 1.436 million pace a year ago.
Meanwhile, the pace of new building permits was up 1.9% from January, which was up 2.4% from a year ago.
Homebuyers look to new construction for much-needed inventory
While the number of existing homes on the market remains historically low, new construction has provided a critical alternative for homebuyers.
Mortgage applications for a newly constructed home were up a whopping 15.7% in February from a year ago, according to the Mortgage Bankers Association; and up by 1% from January. The average loan size jumped to its highest level since last March at almost $406,000, but it was still below the record high of more than $436,000 in April 2022.
“It is possible that we could see more wiggle room on pricing in the coming months, as the inventory of existing homes begins to expand,” said Lisa Sturtevant, chief economist at Bright Multiple Listing Service, in a statement.
Prospective homebuyers who are looking at new construction are still finding some builders offering concessions, upgrades, or favorable financing terms, she said.
But, according to the NAHB, fewer builders are offering price cuts.
Homebuilders are preparing for when rates are lower
The much lower mortgage rates that many homebuyers expected have yet to materialize, but builders want to be ready for when that does happen.
Mortgage rates have come down from their highest levels of last year — 7.79% in October — and are now about a full percentage point below that, at 6.74%.
“Lower mortgage rates are likely to bring buyers to the market in larger numbers, and builders are ramping up supply to meet this demand,” said Kelly Mangold of RCLCO Real Estate Consulting, in a statement.
While existing home inventory has ticked up lately, as is typical this time of year, there is still a historically low number of homes on the market as owners see the gap between their ultra-low rate and prevailing rates as still too wide.
That creates an opportunity for homebuilders who can provide inventory.
“Homebuilders continue to be bullish about the spring market as homeowners are still reluctant to list their homes for sale and new homes account for an outsized share of the active inventory,” said Sturtevant.
Homebuilder confidence improved this month even as mortgage rates climbed, according to a survey from the National Association of Home Builders released Monday.
The lack of existing inventory that continues to push buyers toward new home construction led homebuilder sentiment index to the highest level since July and marked the fourth consecutive monthly gain for the index.
Addressing the housing shortage
Housing affordability amid high inflation and elevated interest rates remains a hot-button issue for the White House as well as the Federal Reserve.
President Joe Biden is set to address the housing shortage Tuesday in a speech from Las Vegas, where the cost of rent has increased 30% from before the pandemic and the cost to buy a home has risen by over 40% since then.
Biden is expected to call on Congress to pass legislation that he says could result in the building and renovation of more than 2 million homes to close the housing supply gap and lower housing costs.
Housing experts agree there are not enough homes available to rent or own compared to the demand. But the size of that gap ranges from a shortfall of 1.5 million units (according to National Association of Home Builders) to 5.5 million units (according to the National Association of Realtors) or as many as 7 million (according to the National Low Income Housing Coalition and Realtor.com), depending on who is calculating it and what assumptions about housing are being made.
Average mortgage rates climbed moderately last Friday. Indeed, they rose on every business day last week. However, that followed a week of mainly falls. And those rates begin this morning close to where they were at the start of March.
First thing, it was looking as if mortgage rates today barely move. But that could change later in the day.
Current mortgage and refinance rates
Find your lowest rate. Start here
Program
Mortgage Rate
APR*
Change
Conventional 30-year fixed
7.12%
7.13%
+0.02
Conventional 15-year fixed
6.62%
6.65%
+0.03
Conventional 20-year fixed
7.15%
7.17%
+0.04
Conventional 10-year fixed
6.64%
6.66%
Unchanged
30-year fixed FHA
6.49%
7.17%
+0.01
30-year fixed VA
6.61%
6.72%
+0.02
5/1 ARM Conventional
6.28%
7.38%
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 See our rate assumptions here.
Should you lock your mortgage rate today?
I doubt we’ll see mortgage rates enter a consistent downward trend much before the summer, and possibly later.
So, for now, my personal rate lock 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
LOCKif closing in 60days
However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So, let your gut and your own tolerance for risk help guide you.
>Related: 7 Tips to get the best refinance rate
Market data affecting today’s mortgage rates
Here’s a snapshot of the state of play this morning at about 9:50 a.m. (ET). The data are mostly compared with roughly the same time the business day before, so much of the movement will often have happened in the previous session. The numbers are:
The yield on 10-year Treasury notes held steady at 4.32%. (Neutral for mortgage rates. However, yields were rising this morning.) More than any other market, mortgage rates typically tend to follow these particular Treasury bond yields
Major stock indexes were rising this morning. (Bad for mortgage rates.) When investors buy shares, they’re often selling bonds, which pushes those prices down and increases yields and mortgage rates. The opposite may happen when indexes are lower. But this is an imperfect relationship
Oil prices increased to $81.35 from $80.62 a barrel. (Bad for mortgage rates*.) Energy prices play a prominent role in creating inflation and also point to future economic activity
Goldprices inched down to $2,159 from $2,162 an ounce. (Neutral for mortgage rates*.) It is generally better for rates when gold prices rise and worse when they fall. Because gold tends to rise when investors worry about the economy.
CNN Business Fear & Greed index — nudged up to 75 from 71 out of 100. (Bad for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So, lower readings are often better than higher ones
*A movement of less than $20 on gold prices or 40 cents on oil ones is a change of 1% or less. So we only count meaningful differences as good or bad for mortgage rates.
Caveats about markets and rates
Before the pandemic, post-pandemic upheavals, and war in Ukraine, you could look at the above figures and make a pretty good guess about what would happen to mortgage rates that day. But that’s no longer the case. We still make daily calls. And are usually right. But our record for accuracy won’t achieve its former high levels until things settle down.
So, use markets only as a rough guide. Because they have to be exceptionally strong or weak to rely on them. But, with that caveat, mortgage rates today look likely to hold close to steady. However, be aware that “intraday swings” (when rates change speed or direction during the day) are a common feature right now.
Find your lowest rate. Start here
What’s driving mortgage rates today?
The Fed
The Federal Reserve’s rate-setting body (the Federal Open Market Committee or FOMC) begins a two-day meeting tomorrow. And a flurry of events is scheduled for the following afternoon.
Almost nobody expects an announcement of a cut in general interest rates on Wednesday. But events that afternoon include:
2 p.m. Eastern — Rate announcement and report publications
2 p.m. Eastern — Summary of Economic Projects publication. This occurs only quarterly and includes a dot plot
These FOMC documents and the news conference may provide new insights into how the Fed’s thinking on future cuts to general interest rates is evolving. So, markets globally will be paying the closest attention to every word written and uttered.
And there is huge potential for Wednesday’s Fed events to move mortgage rates.
I covered this in last Saturday’s weekend edition. And I’ll brief you in more detail again on Wednesday morning so you’ll know what to look out for.
Other influences on mortgage rates this week
Most of the economic reports on this week’s calendar are unlikely to affect mortgage rates. It’s not impossible. But they cover areas of the economy that rarely interest the bond investors who largely determine those rates.
Today’s lone report is a good example. It’s the home builder confidence index for February, which came in as expected. I don’t recall the last time that had a perceptible influence on mortgage rates. And the same goes for tomorrow’s housing starts and building permits, also for February.
The two reports that might move mortgage rates this week are both March purchasing managers’ indexes (PMIs) from S&P. One covers the services sector and the other manufacturing.
They’re both expected to show purchasing activity slowing modestly. But I’ll brief you more fully on what to expect on Wednesday.
Friday has no scheduled economic reports. However, three Fed speakers, including Chair Jerome Powell, have speaking engagements that day. Those could be an opportunity to reinforce messages communicated on Wednesday and to correct any misunderstandings. So, they could have an impact on mortgage rates.
Don’t forget you can always learn more about what’s driving mortgage rates in the most recent weekend edition of this daily report. These provide a more detailed analysis of what’s happening. They are published each Saturday morning soon after 10 a.m. (ET) and include a preview of the following week.
Recent trends
According to Freddie Mac’s archives, the weekly all-time lowest rate for 30-year, fixed-rate mortgages was set on Jan. 7, 2021, when it stood at 2.65%. The weekly all-time high was 18.63% on Sep. 10, 1981.
Freddie’s Mar. 14 report put that same weekly average at 6.74% down from the previous week’s 6.88%. But note that Freddie’s data are almost always out of date by the time it announces its weekly figures.
Expert forecasts for mortgage rates
Looking further ahead, Fannie Mae and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.
And here are their rate forecasts for the four quarters of 2024 (Q1/24, Q2/24 Q3/24 and Q4/24).
The numbers in the table below are for 30-year, fixed-rate mortgages. Fannie’s were updated on Feb. 12 and the MBA’s on Feb. 20.
Forecaster
Q1/24
Q2/24
Q3/24
Q4/24
Fannie Mae
6.5%
6.3%
6.1%
5.9%
MBA
6.9%
6.6%
6.3%
6.1%
Of course, given so many unknowables, both these forecasts might be even more speculative than usual. And their past record for accuracy hasn’t been wildly impressive.
Important notes on today’s mortgage rates
Here are some things you need to know:
Typically, mortgage rates go up when the economy’s doing well and down when it’s in trouble. But there are exceptions. Read ‘How mortgage rates are determined and why you should care’
Only “top-tier” borrowers (with stellar credit scores, big down payments, and very healthy finances) get the ultralow mortgage rates you’ll see advertised
Lenders vary. Yours may or may not follow the crowd when it comes to daily rate movements — though they all usually follow the broader trend over time
When daily rate changes are small, some lenders will adjust closing costs and leave their rate cards the same
Refinance rates are typically close to those for purchases.
A lot is going on at the moment. And nobody can claim to know with certainty what will happen to mortgage rates in the coming hours, days, weeks or months.
Find your lowest mortgage rate today
You should comparison shop widely, no matter what sort of mortgage you want. Federal regulator the Consumer Financial Protection Bureau found in May 2023:
“Mortgage borrowers are paying around $100 a month more depending on which lender they choose, for the same type of loan and the same consumer characteristics (such as credit score and down payment).”
In other words, over the lifetime of a 30-year loan, homebuyers who don’t bother to get quotes from multiple lenders risk losing an average of $36,000. What could you do with that sort of money?
Verify your new rate
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.
How your mortgage interest rate is determined
Mortgage and refinance rates vary a lot depending on each borrower’s unique situation.
Factors that determine your mortgage interest rate include:
Overall strength of the economy — A strong economy usually means higher rates, while a weaker one can push current mortgage rates down to promote borrowing
Lender capacity — When a lender is very busy, it will increase rates to deter new business and give its loan officers some breathing room
Property type (condo, single-family, town house, etc.) — A primary residence, meaning a home you plan to live in full time, will have a lower interest rate. Investment properties, second homes, and vacation homes have higher mortgage rates
Loan-to-value ratio (determined by your down payment) — Your loan-to-value ratio (LTV) compares your loan amount to the value of the home. A lower LTV, meaning a bigger down payment, gets you a lower mortgage rate
Debt-To-Income ratio — This number compares your total monthly debts to your pretax income. The more debt you currently have, the less room you’ll have in your budget for a mortgage payment
Loan term — Loans with a shorter term (like a 15-year mortgage) typically have lower rates than a 30-year loan term
Borrower’s credit score — Typically the higher your credit score is, the lower your mortgage rate, and vice versa
Mortgage discount points — Borrowers have the option to buy discount points or ‘mortgage points’ at closing. These let you pay money upfront to lower your interest rate
Remember, every mortgage lender weighs these factors a little differently.
To find the best rate for your situation, you’ll want to get personalized estimates from a few different lenders.
Verify your new rate. Start here
Are refinance rates the same as mortgage rates?
Rates for a home purchase and mortgage refinance are often similar.
However, some lenders will charge more for a refinance under certain circumstances.
Typically when rates fall, homeowners rush to refinance. They see an opportunity to lock in a lower rate and payment for the rest of their loan.
This creates a tidal wave of new work for mortgage lenders.
Unfortunately, some lenders don’t have the capacity or crew to process a large number of refinance loan applications.
In this case, a lender might raise its rates to deter new business and give loan officers time to process loans currently in the pipeline.
Also, cashing out equity can result in a higher rate when refinancing.
Cash-out refinances pose a greater risk for mortgage lenders, so they’re often priced higher than new home purchases and rate-term refinances.
Check your refinance rates today. Start here
How to get the lowest mortgage or refinance rate
Since rates can vary, always shop around when buying a house or refinancing a mortgage.
Comparison shopping can potentially save thousands, even tens of thousands of dollars over the life of your loan.
Here are a few tips to keep in mind:
1. Get multiple quotes
Many borrowers make the mistake of accepting the first mortgage or refinance offer they receive.
Some simply go with the bank they use for checking and savings since that can seem easiest.
However, your bank might not offer the best mortgage deal for you. And if you’re refinancing, your financial situation may have changed enough that your current lender is no longer your best bet.
So get multiple quotes from at least three different lenders to find the right one for you.
2. Compare Loan Estimates
When shopping for a mortgage or refinance, lenders will provide a Loan Estimate that breaks down important costs associated with the loan.
You’ll want to read these Loan Estimates carefully and compare costs and fees line-by-line, including:
Interest rate
Annual percentage rate (APR)
Monthly mortgage payment
Loan origination fees
Rate lock fees
Closing costs
Remember, the lowest interest rate isn’t always the best deal.
Annual percentage rate (APR) can help you compare the ‘real’ cost of two loans. It estimates your total yearly cost including interest and fees.
Also, pay close attention to your closing costs.
Some lenders may bring their rates down by charging more upfront via discount points. These can add thousands to your out-of-pocket costs.
3. Negotiate your mortgage rate
You can also negotiate your mortgage rate to get a better deal.
Let’s say you get loan estimates from two lenders. Lender A offers the better rate, but you prefer your loan terms from Lender B. Talk to Lender B and see if they can beat the former’s pricing.
You might be surprised to find that a lender is willing to give you a lower interest rate in order to keep your business.
And if they’re not, keep shopping — there’s a good chance someone will.
Fixed-rate mortgage vs. adjustable-rate mortgage: Which is right for you?
Mortgage borrowers can choose between a fixed-rate mortgage and an adjustable-rate mortgage (ARM).
Fixed-rate mortgages (FRMs) have interest rates that never change unless you decide to refinance. This results in predictable monthly payments and stability over the life of your loan.
Adjustable-rate loans have a low interest rate that’s fixed for a set number of years (typically five or seven). After the initial fixed-rate period, the interest rate adjusts every year based on market conditions.
With each rate adjustment, a borrower’s mortgage rate can either increase, decrease, or stay the same. These loans are unpredictable since monthly payments can change each year.
Adjustable-rate mortgages are fitting for borrowers who expect to move before their first rate adjustment, or who can afford a higher future payment.
In most other cases, a fixed-rate mortgage is typically the safer and better choice.
Remember, if rates drop sharply, you are free to refinance and lock in a lower rate and payment later on.
How your credit score affects your mortgage rate
You don’t need a high credit score to qualify for a home purchase or refinance, but your credit score will affect your rate.
This is because credit history determines risk level.
Historically speaking, borrowers with higher credit scores are less likely to default on their mortgages, so they qualify for lower rates.
So, for the best rate, aim for a credit score of 720 or higher.
Mortgage programs that don’t require a high score include:
Conventional home loans — minimum 620 credit score
FHA loans — minimum 500 credit score (with a 10% down payment) or 580 (with a 3.5% down payment)
VA loans — no minimum credit score, but 620 is common
USDA loans — minimum 640 credit score
Ideally, you want to check your credit report and score at least 6 months before applying for a mortgage. This gives you time to sort out any errors and make sure your score is as high as possible.
If you’re ready to apply now, it’s still worth checking so you have a good idea of what loan programs you might qualify for and how your score will affect your rate.
You can get your credit report from AnnualCreditReport.com and your score from MyFico.com.
How big of a down payment do I need?
Nowadays, mortgage programs don’t require the conventional 20 percent down.
Indeed, first-time home buyers put only 6 percent down on average.
Down payment minimums vary depending on the loan program. For example:
Conventional home loans require a down payment between 3% and 5%
FHA loans require 3.5% down
VA and USDA loans allow zero down payment
Jumbo loans typically require at least 5% to 10% down
Keep in mind, a higher down payment reduces your risk as a borrower and helps you negotiate a better mortgage rate.
If you are able to make a 20 percent down payment, you can avoid paying for mortgage insurance.
This is an added cost paid by the borrower, which protects their lender in case of default or foreclosure.
But a big down payment is not required.
For many people, it makes sense to make a smaller down payment in order to buy a house sooner and start building home equity.
Verify your new rate. Start here
Choosing the right type of home loan
No two mortgage loans are alike, so it’s important to know your options and choose the right type of mortgage.
The five main types of mortgages include:
Fixed-rate mortgage (FRM)
Your interest rate remains the same over the life of the loan. This is a good option for borrowers who expect to live in their homes long-term.
The most popular loan option is the 30-year mortgage, but 15- and 20-year terms are also commonly available.
Adjustable-rate mortgage (ARM)
Adjustable-rate loans have a fixed interest rate for the first few years. Then, your mortgage rate resets every year.
Your rate and payment can rise or fall annually depending on how the broader interest rate trends.
ARMs are ideal for borrowers who expect to move prior to their first rate adjustment (usually in 5 or 7 years).
For those who plan to stay in their home long-term, a fixed-rate mortgage is typically recommended.
Jumbo mortgage
A jumbo loan is a mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.
In 2023, the conforming loan limit is $726,200 in most areas.
Jumbo loans are perfect for borrowers who need a larger loan to purchase a high-priced property, especially in big cities with high real estate values.
FHA mortgage
A government loan backed by the Federal Housing Administration for low- to moderate-income borrowers. FHA loans feature low credit score and down payment requirements.
VA mortgage
A government loan backed by the Department of Veterans Affairs. To be eligible, you must be active-duty military, a veteran, a Reservist or National Guard service member, or an eligible spouse.
VA loans allow no down payment and have exceptionally low mortgage rates.
USDA mortgage
USDA loans are a government program backed by the U.S. Department of Agriculture. They offer a no-down-payment solution for borrowers who purchase real estate in an eligible rural area. To qualify, your income must be at or below the local median.
Bank statement loan
Borrowers can qualify for a mortgage without tax returns, using their personal or business bank account as evidence of their financial circumstances. This is an option for self-employed or seasonally-employed borrowers.
Portfolio/Non-QM loan
These are mortgages that lenders don’t sell on the secondary mortgage market. And this gives lenders the flexibility to set their own guidelines.
Non-QM loans may have lower credit score requirements or offer low-down-payment options without mortgage insurance.
Choosing the right mortgage lender
The lender or loan program that’s right for one person might not be right for another.
Explore your options and then pick a loan based on your credit score, down payment, and financial goals, as well as local home prices.
Whether you’re getting a mortgage for a home purchase or a refinance, always shop around and compare rates and terms.
Typically, it only takes a few hours to get quotes from multiple lenders. And it could save you thousands in the long run.
Time to make a move? Let us find the right mortgage for you
Current mortgage rates methodology
We receive current mortgage rates each day from a network of mortgage lenders that offer home purchase and refinance loans. Those mortgage rates shown here are based on sample borrower profiles that vary by loan type. See our full loan assumptions here.
For Moriello, she previously explained why it’s fairly easy for existing clients — including forward mortgage borrowers — already served by the company to be flagged as potential reverse mortgage customers once they reach the age of eligibility. For the HECM program, a company professional could look into their customer relationship management (CRM) software and see when a client could potentially qualify for a reverse mortgage.
“Any loan officer can run a report in their own database to calculate when someone’s date of birth hits that prime age [for a reverse mortgage],” Moriello said.
While some may think that certain technology tools are either forward-specific or reverse-specific, Moriello says that the tools at her company are often interchangeable by forward and reverse professionals.
Still, there are advantages to being a lender that is active in both forward and reverse, she explained.
“I feel like, as a loan officer that can look at all products and decide to show the client what different products — like a home equity line, a forward mortgage or a reverse mortgage — can do for them, it gives me the unique opportunity to present all products to them at the same time,” she explained. “[It helps me] give them an understanding about how each product would serve them.”
2024 HECM limit
On Jan. 1, the limit for HECM loans was increased to $1,149,825 by the Federal Housing Administration (FHA). Loan originators who have spoken with RMD on the topic generally find the increase welcome, but they do not feel that the higher limit is a “game-changer” when it comes to new business this year.
Moriello thinks it could be potentially beneficial overall.
“It’s absolutely a consideration,” she said. “I’m in the Northeast, so the higher the dollar amount, the better. I had a conversation [with a borrower] where we were talking through the benefits of taking out a HECM line of credit [for] future planning, [including] the growth rate tied to the HECM line credit.”
Still, despite the potential utility of a higher HECM limit, there are still some product gaps that the proprietary market could serve for people with higher-value homes, she said.
“When I sat down with this borrower, I realized I’ve got to run both the HECM and the proprietary for this client due to the value of the home,” she said. “I wish that we had a proprietary product that had more of a growth-rate line-of-credit option more similar to the HECM.”
Receptivity of referral partners, clients
When asked about openness to reverse mortgages from business referral partners and borrowers, Moriello explained that getting a curt “no thanks” is still common. But for those who might find a benefit in a reverse mortgage, they’re more open of late to explore the possibility.
“More often than not, these high-level professionals are looking for options for their clients,” she said, “whether those options are to help them buy a new home, to live a better life with more assets in retirement, or to help them get a non-taxable stream of cash flow to help them in retirement. They’re looking at opportunities.”
Certain longstanding issues have not gone away, including a perception by some financial planners that makes them feel reverse mortgages are not an option that can even be explored, let alone discussed. But modern classes of financial planners generally seem to be more open to conversations, based on Moriello’s conversations.
“These financial planners are much higher caliber and quality than I’ve ever seen before, but yet the understanding of the compliance behind it causes them to have to take a step back,” she said. “And sometimes they feel they can’t even talk about a reverse mortgage. It’s not as often as it used to be, which is a good thing.”
Spending speed
As for what’s fueling these greater levels of openness, Moriello said it could come from a lot of places, but the speed with which clients are burning through money today is a clear possibility.
“I know from what I can see, it is absolutely tied to how fast people are going through money,” she said. “I can absolutely see that these professionals are worried that their folks are going to run out of money.
“We were just talking here in the office about our own electric bills, which have effectively doubled in our area. That’s one thing when you’re still working, but what happens when you’re on a fixed income?”
That puts far more pressure on fixed-income retirees, which could lead to conversations about tapping into home equity, she said.
“What that means is folks need to take more money out of retirement than they ever have before, and the financial professionals are looking at understanding that. So, they’re looking at options to help them extend the life of their assets so that they can continue to live well in retirement.”
Are you eligible for the zero-down USDA home loan?
What if you could secure a USDA home loan that allows you to buy a house with no down payment, competitive mortgage rates, and reduced mortgage insurance costs?
It might sound like a dream, but it’s entirely possible with the USDA mortgage program. Designed to assist low- and moderate-income Americans in becoming homeowners, USDA loans provide incredibly affordable financing options for eligible buyers.
Essentially, USDA mortgages empower individuals to transition from renting to owning, even when they thought homeownership was out of reach.
Verify your USDA loan eligibility. Start here
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>Related: How to buy a house with $0 down: First-time home buyer
What is a USDA loan?
USDA loans are mortgages backed by the U.S. Department of Agriculture as part of its Rural Development Guaranteed Housing Loan program. The USDA offers financing with no down payment, reduced mortgage insurance, and below-market mortgage rates.
Verify your USDA loan eligibility. Start here
The USDA mortgage program is intended for home buyers with low-to-average household incomes. In order to qualify, you must also purchase a home in a “rural area” as the USDA defines it. Those who are eligible can use a USDA mortgage to buy a home or refinance one they already own.
USDA loans offer nearly unbeatable benefits for qualified borrowers. So if this program sounds like a good fit for you, it’s worth getting in touch with a participating lender to find out if you’re eligible.
How do USDA loans work?
The U.S. Department of Agriculture insures USDA loans. Thanks to government guarantees and subsidies, lenders can offer 100% financing and below-market interest rates without taking on too much risk.
Verify your USDA loan eligibility. Start here
Although the USDA backs this program, it typically isn’t the one lending money. Instead, private lenders are authorized to offer USDA loans. That means you can get a USDA mortgage from many mainstream banks, mortgage lenders, and credit unions.
The application process for a USDA mortgage works just like any other home loan. You’ll compare rates and choose a lender, complete an application (often online), provide financial documents, wait for the lender’s approval, and then set a closing day.
The only exception is for very low-income borrowers, who may qualify for a USDA Direct home loan. In this case, you’d go straight to the Department of Agriculture to apply rather than to a private lender.
Types of USDA loans
For eligible individuals and families looking to buy, build, or renovate a home in a rural area, the USDA offers three main mortgage loan types. The loan programs are as follows:.
Verify your USDA loan eligibility. Start here
USDA Guaranteed Loans
Approved private lenders, such as banks and mortgage companies, provide USDA loan guarantees to qualified borrowers. A USDA guaranteed loan is one in which the government backs a portion of the loan, lowering the lender’s risk and allowing them to offer more favorable terms to the borrower. These loans frequently have low interest rates, no down payment, and more lenient credit requirements. The property must be in an eligible rural area as the USDA defines it, and borrowers must meet household income requirements that vary depending on location and household size.
USDA Direct Loans
The USDA also offers the Single Family Housing Direct loan through the Section 502 Direct Loan Program. These loans are meant to help low-income families buy, build, or fix up small homes in rural areas. The USDA, rather than private lenders, provides funding for direct loans as opposed to guaranteed loans. These loans have favorable terms, such as low interest rates (as low as 1% with payment assistance) and long repayment periods (up to 38 years for eligible applicants). Income, creditworthiness, and the property’s location in an eligible rural area determine eligibility for direct loans.
USDA Home Improvement Loan
The USDA’s Single Family Housing Repair Loans and Grants program, also known as the Section 504 program, provides financing for home improvements. This program provides low-interest, fixed-rate loans and grants to low-income rural homeowners for necessary home repairs, improvements, and modifications that make their homes safer, more energy-efficient, and more accessible. However, if you’re looking for one, you might have a difficult time finding this type of USDA home loan. They are not widely available from lenders.
USDA loan eligibility requirements
To be eligible for a USDA home loan, you’ll need to meet a number of requirements that vary depending on whether you are applying for a USDA loan guarantee or a USDA direct loan.
Verify your USDA loan eligibility. Start here
Some general requirements, however, apply to all USDA loans, specifically those based on both buyer and property eligibility.
USDA loan property requirements
Eligible rural area
The USDA defines an eligible area in rural America as having a population of 20,000 or fewer. To check if the property you’re considering falls within these designated areas, the USDA’s eligibility site provides all the necessary information. We also provide a USDA eligibility map below.
Single-family primary residence
USDA loans are exclusively available for primary residences. Neither investment properties nor second homes are eligible for this program.
Meet safety standards
The property must adhere to the USDA’s minimum property requirements, which focus on safety, structural integrity, and adequate access to utilities and services.
USDA loan borrower requirements
Income limits
You must meet USDA monthly income limits, meaning your household income can’t exceed 115% of the area median income. Conforming to USDA income eligibility requirements ensures the program is accessible to those it’s intended to serve.
Stable income
Applicants are required to demonstrate a stable and dependable income, typically for at least 24 months, before applying. This helps ensure borrowers can maintain their loan payments.
Creditworthiness
Although USDA loans are known for their flexible credit requirements, creditworthiness is still important. Lenders usually seek a minimum credit score of 640 for guaranteed loans, with USDA Direct Loans potentially having more lenient criteria.
Debt-to-income ratio
Your monthly debt, including future mortgage payments, generally should not exceed 41% of your gross monthly income. However, lenders may make exceptions based on credit score and available cash reserves.
Citizenship status
Applicants need to be U.S. citizens, U.S. non-citizen nationals, or qualified aliens with a valid Social Security number to qualify for a USDA loan.
USDA loan eligibility map
The USDA eligibility map is a valuable online resource for potential borrowers. It helps them identify if a property is situated in an area of rural America that qualifies for USDA home loans.
Verify your USDA loan eligibility. Start here
Users can enter a specific address or explore areas of the map to see if they qualify for USDA guaranteed loans or direct loans by using this interactive map.
1 Source: USDAloans.com, based on Housing Assistance Council data
USDA loan rates
Compared to other home loan programs, USDA mortgage interest rates are some of the lowest available.
Check your USDA loan rates. Start here
The VA loan, specifically tailored for veterans and service members, stands alongside the USDA loan as one of the few government-backed loan programs offering competitively low rates. Due in large part to the security that government subsidies and guarantees provide, both the USDA and VA programs are able to offer interest rates below the market average.
Other mortgage programs, like the FHA loan and conventional loan, can have rates around 0.5%–0.75% higher than USDA rates on average. That said, mortgage rates are personal. Getting a USDA loan doesn’t necessarily mean your rate will be “below-market” or match the USDA loan rates advertised.
How to get the best USDA mortgage rates
Strengthening your financial standing is essential for obtaining the best USDA loan rates. Here are some helpful techniques for improving your personal finances:
Boost your credit score.Improving your credit score is an important step toward getting the best USDA loan rates. Taking steps to improve your credit score before applying for a USDA loan often proves beneficial.
Consider a down payment. While a down payment is not required for USDA loans, it can demonstrate to the lender your commitment to repaying the loan. This could also help lenders find your application more appealing.
Minimize existing debt.Lowering your debt-to-income ratio (DTI) by paying off existing high-interest debts can make you more appealing to lenders. It demonstrates that you are capable of handling your loan and making payments on time.
Shop around for lenders.Exploring loan options with multiple participating lenders is a smart move that can save you thousands of dollars over the life of the loan. Comparing their interest rates, fees, closing costs, and loan terms can help you identify the most appealing offer. It’s possible that first-time home buyers will find better options than what USDA loans can offer.
USDA loan costs
When it comes to financing a home purchase with a USDA loan, it’s not just the mortgage rate that you need to consider. You’ll be responsible for various fees and costs, which can add up over time. Understanding these costs upfront can help you make a more informed decision and plan your budget accordingly.
Here’s a breakdown of the expenses you can expect:.
USDA mortgage insurance
The USDA guarantees its mortgage loans, meaning it offers protection to approved mortgage lenders in case borrowers default. But the program is partially self-funded. To keep this loan program running, the USDA charges homeowner-paid mortgage insurance premiums.
Verify your USDA loan eligibility. Start here
Upfront guarantee fee
One of the first costs you’ll encounter is the upfront guarantee fee. This fee is a percentage of the loan amount and is required by the USDA to secure the loan. It’s usually around 1% but can vary. You can either pay this fee upfront or roll it into the loan balance.
Annual guarantee fee
Unlike conventional loans that may not require mortgage insurance, USDA loans come with a monthly mortgage insurance premium. You can expect to pay a 0.35% annual guarantee fee based on the remaining principal balance each year.
The annual fee is broken into 12 installments and included in your regular mortgage payment.
As a real-life example, a home buyer with a $100,000 loan size would have a $1,000 upfront mortgage insurance cost plus a monthly payment of $29.17 for the annual mortgage insurance. USDA upfront mortgage insurance is not paid in cash. It’s added to your loan balance, so you pay it over time.
Inspection fees
Before the loan is approved, the property will need to be inspected to ensure it meets USDA property eligibility requirements. This inspection can cost anywhere from $300 to $500, depending on the location and size of the home.
Closing Costs
Closing costs are a mix of fees that include loan origination fees, appraisal fees, title search fees, and more. These costs can range from 2% to 5% of the home’s purchase price. Some of these costs can be rolled into the loan amount, but it’s best to be prepared to pay some of them out-of-pocket.
How to apply for a USDA home loan
Qualifying for a USDA home loan can be a great way to finance a home, especially if you’re looking to buy in a rural area. These loans offer attractive benefits like zero down payments and competitive interest rates.
However, the USDA loan approval process involves several steps and specific eligibility criteria. Here’s a guide on how to apply for a USDA home loan.
Check your USDA loan eligibility. Start here
Step 1: Check your eligibility
Before diving into the application process, it’s important to determine if you meet the USDA’s eligibility requirements. These typically include:
A minimum credit score of 640
A debt-to-income (DTI) ratio of up to 41%
Income limitations, which vary by location and household size
The property must be located in a USDA-eligible area
Step 2: Gather necessary documentation
You’ll need to provide various documents to prove your eligibility, including:
Proof of income eligibility (e.g., pay stubs, tax returns)
Employment verification
Credit history report
Personal identification (e.g., driver’s license, passport)
Step 3: Pre-Qualification
Contact a USDA-approved lender to get pre-qualified for a loan. During this qualifying process, the participating lender will review your financial situation to give you an estimate of how much you can borrow.
Check if you’re eligible for a USDA loan. Start here
Both pre-approval and pre-qualification can give you a better idea of your budget and show sellers that you are a serious buyer.
Step 4: Property search
Once pre-qualified, you can start looking for a property that meets USDA guidelines. Keep in mind that the home must be your primary residence and be located in an eligible rural area.
Working with a real estate agent who has experience with USDA loans can be a big advantage.
Step 5: USDA home loan application
After finding the right property, you’ll need to fill out the USDA loan application. Your lender will guide you through this process, which will include a more thorough review of your financial situation and the submission of additional documents.
Step 6: Property appraisal and inspection
The lender will arrange for an appraisal to ensure the property meets USDA standards. An inspection may also be required to identify any potential issues with the home.
Step 7: Loan approval and closing
Once the appraisal and inspection are complete and all documentation is verified, you’ll move on to the loan approval stage. If approved, you’ll proceed to closing, where you’ll sign all necessary paperwork and officially secure your USDA home loan.
With the loan secured and the keys in hand, you’re now ready to move into your new home!
By following these steps and working closely with a USDA-approved lender, you can navigate the USDA home loan process with confidence. Always remember to consult with your lender for the most accurate and personalized advice.
How do USDA loans compare to conventional loans?
USDA loans and conventional loans both have fixed terms and interest rates, but they’re different when it comes to down payments and fees.
Down payment
USDA loans don’t ask for a down payment, unlike conventional mortgages, which usually require a 3% down payment. FHA loans require a 3.5% down payment. VA loans, like USDA loans, also don’t require a down payment.
Home appraisal
Both USDA loans and conventional loans need an appraisal from an independent third party before the loan is approved.
The home appraisal for a conventional loan determines whether the loan amount and the home’s value match. If the loan amount doesn’t measure up to the market value of the home, the lender can’t get back their money just by selling the house. If you want to know more about the home’s condition, like the roof or appliances, you need to get a home inspector.
For a USDA loan, the appraisal does two things:
Just like with a conventional loan, it makes sure the home’s value is right for the loan amount.
It checks if the home meets USDA standards. This means the home should be ready to live in. For example, the roof and heating should work properly. The appraisal also looks at whether the well and septic systems follow USDA rules.
If you’re looking for a detailed report on the house, hiring a home inspector is still a good idea.
Fees
While conventional loans charge private mortgage insurance (PMI) when you make less than a 20% down payment, this isn’t the case with USDA loans. You don’t need PMI for USDA direct or guaranteed loans.
However, USDA guaranteed loans have a guarantee fee of 1% at closing and then an annual fee of 0.35% of the loan, added to your monthly payment. You can roll the initial fee into your loan amount.
Loan terms
The term for a USDA guaranteed loan is 30 years with a fixed rate. If you get a USDA direct loan, you can have up to 33 years to pay it back. If you’re a very low-income borrower, you might get up to 38 years to make it more affordable.
FAQ: USDA loans
Verify your USDA loan eligibility. Start here
What is the USDA Rural Housing Mortgage and who is eligible for it?
The USDA Rural Housing Mortgage, officially known as the Single Family Housing Guaranteed Loan Program, is a rural development loan aimed at helping single-family home buyers. It’s often referred to as a “Section 502” loan, based on the Housing Act of 1949 that created this program. Designed to stimulate growth in less-populated and low-income areas, this rural development loan is ideal for those looking to buy in eligible rural areas with the possibility of a zero-down payment.
What is the income limit for USDA home loans?
The income limit for USDA home loans is based on your area’s median income. To be eligible for a USDA loan, you can’t exceed the median income by more than 15 percent. For example, if the median salary in your city is $65,000 per year, you could qualify for a USDA loan with a salary of $74,750 or less.
Do USDA loans take longer to close?
USDA lenders have to send each loan file to the Department of Agriculture for approval before underwriting. This can add around two to three weeks to your loan processing time.
Can I do a cash-out refinance with the USDA program?
No, cash-out refinancing is not allowed in the USDA Rural Housing Program. Its loans are for home buying and rate-and-term refinances only.
What’s the maximum USDA mortgage loan size?
The USDA does not set loan limits, but your household income and debt-to-income ratio have a limit on the amount you can borrow. The USDA typically caps debt-to-income ratios at 41 percent. However, the program may be more lenient for borrowers with a credit score over 660 and stable employment or who show a demonstrated ability to save.
Where can I find a USDA loan lender, and what loan terms are available?
You can find a USDA loan lender by visiting the U.S. Department of Agriculture’s website, which maintains a list of approved lenders for the Rural Housing Program. The USDA Rural Housing loan offers a 30-year fixed-rate mortgage only, with no 15-year fixed option or adjustable-rate mortgage (ARM) program available.
Can I receive a gift or have the seller pay for my closing costs with a USDA loan?
Yes, USDA rural development loans allow both gifts from family members and non-family members for closing costs. Inform your loan officer as soon as possible if you’ll be using gifted funds, as it requires extra documentation and verification from the lender. Additionally, the USDA Rural Housing Program permits sellers to pay closing costs for buyers through seller concessions. These concessions may cover all or part of a purchase’s state and local government fees, lender costs, title charges, and various home and pest inspections.
Can I use the USDA loan for a vacation home, investment property, or working farm?
No, the USDA loan program is designed specifically for primary residences and cannot be used for vacation homes, investment properties, or working farms. The Rural Housing Program focuses on residential property financing.
Am I eligible for the USDA if I recently returned to work or am self-employed?
If you are a W-2 employee, you are eligible for USDA financing immediately, as there’s no job history requirement. However, if you have less than two years in a job, you may not be able to use your bonus income for qualification purposes. Self-employed individuals can also use the USDA Rural Housing Program. To verify your self-employment income, you will need to provide two years of federal tax returns, similar to the requirements for FHA and conventional financing.
Can I use the USDA loan program for home repairs, improvements, accessibility, and energy-efficiency upgrades?
Yes, the USDA loan program can be used for various purposes, including making eligible repairs and improvements to a home (such as replacing windows or appliances, preparing a site with trees, walks, and driveways, drawing fixed broadband service, and connecting utilities), permanently installing equipment to assist household members with physical disabilities, and purchasing and installing materials to improve a home’s energy efficiency (including windows, roofing, and solar panels).
Can a non-citizen qualify for a USDA loan?
Yes, along with U.S. citizens, legal permanent residents of the United States can also apply for a USDA loan.
Today’s USDA mortgage rates
USDA mortgage interest rates consistently rank among the lowest in the market, next to VA loans.
USDA loans can be particularly attractive to borrowers seeking optimal financial terms, especially in an environment with elevated interest rates. Prospective homebuyers who meet the criteria for a USDA loan may be able to secure a great deal right now.
To find out whether you qualify for one and what your rate is, consult with a trusted lender below.
Time to make a move? Let us find the right mortgage for you
1 Source: USDAloans.com, based on Housing Assistance Council data