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Finance of America Companies (FOA), which controls the outgoing brands Finance of America Reverse (FAR) and American Advisors Group (AAG), recorded a net loss under generally accepted accounting principles (GAAP) of $16 million in Q1 2024 and an adjusted net loss of $7 million for the quarter, according to a recently released earnings report.
Total revenues at the company dropped sharply from $276 million in Q4 2023 to $75 million in Q1 2024. Company leaders, however, expressed confidence in their strategic positioning following the completion of the corporate integration of AAG and the recently announced sunsetting of the FAR and AAG brands under the FOA brand, which is expected to go into effect later this year.
CEO Graham Fleming said during the earnings call that the company “is well positioned to return to sustained profitability,” particularly due to its leadership position in the reverse mortgage space and a reduced adjusted net loss compared to Q4 2023.
“These results were driven primarily by an improvement in operating performance compared to recent quarters as margin improved and remained strong through the quarter,” Fleming said. “On an adjusted basis, in the first quarter, we recognized a net loss of $7 million or $0.03 per fully diluted share. This is a 65% improvement from the net loss of $20 million or $0.09 per fully diluted share in the fourth quarter.”
Higher revenues and lower costs helped to drive this improvement, he explained, and loan origination revenue went up despite a slight loss in volume.
“During the quarter, reverse volumes were down only 3% to the prior quarter as previously guided,” he said. “However, improved margins led to a $5 million increase in revenue in our originations platform. Our net balance-sheet markup due to outside factors was minimal for the quarter as spread tightening and home price appreciation improvements offset an increase in interest rates.”
The company is eyeing a 10% increase in origination volume for Q2 2024, estimating the volume from April through June at somewhere between $465 million and $500 million, Fleming said.
FOA President Kristen Sieffert provided an operational update for the company, saying that “much of our previously communicated work to streamline our operations is now behind us and the integration of AAG’s platform is complete.”
Early this year, the company finalized its transition plans to bring both FAR and AAG personnel onto a single loan origination system (LOS), which Sieffert said was the “last step in the full integration process.” Completing it now allows the company to continue with the next phase of its “go-to-market strategy,” which the brand unification will help to facilitate.
A unified brand will serve to “optimize and maximize” the company’s resources and reach, including the discontinuation of the AAG and FAR brands, which are expected to take place in early Q3 2024. Modernizing the company’s digital capabilities is also a priority, she said, and there has been interest in the company’s wholesale partnerships program from “traditional mortgage lenders and servicers,” with a focus on FOA’s proprietary second-lien product within the “HomeSafe” product catalog.
“In March, we expanded the reach of this product through a leading broker-facing platform and approved the product to be offered through our principal agent channel, giving partners more flexibility in how they bring the product to market,” Sieffert said. “Following the launch of the most recent loan origination system, we’ve seen interest in the product grow to over 6% of our overall submission volume.”
The company’s retirement solutions division produced “strong top-line revenues” of $46 million in Q1 2024, according to chief financial officer Matt Engel.
“As expected, funded volumes were modestly down from the fourth quarter as we completed the LOS consolidation,” Engel said. “However, revenue margins for the segment equated to 10.8% or a 17% increase over the fourth quarter. This is due to spread tightening across our suite of products, leading to improved margins. Expenses decreased from the prior quarter as the company continues to align our infrastructure to our current business model.”
Engel also addressed high-yield debt on the company’s balance sheet that is currently scheduled to mature in November 2025.
“We are moving proactively to review our options and holding productive conversations with the necessary parties to identify an optimal path forward,” Engel said. “While it is premature to discuss specifics, we are encouraged by the early conversations.”
In a Q&A session following the main segment of the call, FOA leaders were asked about products that seem to be garnering the most demand from consumers. Sieffert quickly pointed to HomeSafe Second.
“With the HECM product and the regular HomeSafe product, as the rates rise, the LTVs are compressed a little bit. We don’t have that dynamic on the HomeSafe Second,” Sieffert said. “And so it’s freeing up more capital for people to access the cash that they need.
”We see that as one of the bigger growth opportunities for us — especially in conversations with larger traditional mortgage bankers and servicers that have portfolios of products — that borrowers are looking for different solutions that the traditional products just aren’t filling the needs right now.”
Engel also alluded to a potential securitization of HomeSafe products in the range of $300 million in future quarters.
Source: housingwire.com
Though a promissory note and a mortgage work together to create a legally binding loan agreement, each has its own distinct purpose in finalizing a real estate transaction. When you sign a promissory note, you’re agreeing to pay back the loan amount under specific loan terms. When you sign a mortgage, you’re acknowledging that if you default on that loan, the lender can get its money back by foreclosing on the property.
These separate contracts have important roles in your purchase, so before you sign on the dotted line, read on for an explanation of how each one works.
If you’re borrowing money to buy real estate, you’ll likely be asked to sign both a promissory note and a mortgage at your closing. And in the blur of paperwork, it may seem as though they’re pretty much the same thing.
They aren’t. Here’s a look at the role each document has in finalizing a home loan agreement.
You can think of a promissory note as a formal and really specific IOU. It’s the borrower’s promise to repay the loan by a predetermined date, and it typically details the terms of the loan, including the loan amount, the interest rate, the length of the loan, and monthly payments (all the factors you would see in an online mortgage calculator).
If you sign the promissory note, sometimes referred to as a mortgage note, you are obligated to pay back the loan under these terms.
A mortgage is the contract you sign with the lender that states that the property you’re purchasing serves as the security, or collateral, for the loan. It contains a legal description of the property and usually notes that you’re responsible for things like maintenance and for carrying homeowners insurance.
The mortgage doesn’t obligate you or anyone who signs it to repay the loan, but it does allow the lender to take the property as collateral if you don’t make your payments or if you otherwise fail to follow through on the terms of the loan. If you default, the lender can proceed with a mortgage foreclosure and then sell the home to recover its money.
Recommended: What Are the Different Types of Home Mortgage?
Because the paperwork a borrower completes and signs for a real estate loan is often referred to, in general, as the “mortgage,” it can be easy to lose sight of the different purposes of the mortgage and promissory note. So here’s a quick breakdown of some of their similarities and differences.
• Both documents establish a legally binding contract that ensures the lender is protected if the borrower defaults on the loan.
• Some of the terms of the promissory note may also be listed in the mortgage, including the length of the loan and the amount due. (The interest rate and monthly payment usually aren’t included on the mortgage, however, and won’t be a part of the public record.)
• Both are important documents that you should read (and understand) before signing.
• Each document has a distinct purpose and legal implication. A signed promissory note serves as the borrower’s promise to repay the home loan. A signed mortgage secures the note to the property and says you agree the lender can foreclose on your property if you default on the terms of the loan.
• Each document contains different pieces of information. While the promissory note lists more details about the loan terms, including the interest rate and repayment schedule, the mortgage has more details about the borrower’s obligations and the lender’s rights.
• There’s also a difference in where each document is kept after the closing. The lender holds onto the promissory note until the loan is paid off. (After that it can serve as the borrower’s “receipt,” proving the loan is paid — so it’s important to make sure you keep it in a safe place when you receive it.) The mortgage becomes part of the county land records to provide a traceable chain of ownership.
• Each document confers a different obligation on those who sign it. Anyone who signs the promissory note can be held personally liable for the borrowed money and could face legal consequences if they fail to make their payments. If, for example, the lender forecloses on the home and sells it, but the sale doesn’t cover the amount you owe, you may be responsible for paying the difference, depending on state laws. However, if you sign only the mortgage document and not the promissory note, the lender can’t hold you legally responsible for paying back the loan; you’re only giving the lender permission to foreclose on the property if the loan isn’t repaid.
How Promissory Notes and Mortgages Compare |
||
---|---|---|
Promissory Note | Mortgage | |
Protects the lender if the borrower defaults | x | x |
Outlines terms of the loan agreement | x | x (with limits) |
Establishes borrower’s legal promise to repay loan | x | |
Establishes lender can foreclose upon default | x | |
Is held by the lender until loan is paid | x | |
Is filed in county records | x | |
Should be read and understood before signing | x | x |
You should be prepared to provide and sign several documents during the homebuying process — first on the front end, when you’re applying for a loan, and again later, when it’s time to close on the property.
The person who’s in charge of your closing can give you a complete list of what you’ll need to bring with you and the paperwork you’ll be asked to sign, but here are a few of the documents you can expect to see:
The Closing Disclosure lays out the final terms of the loan, including all closing costs, and provides information about who is paying and who is receiving money at closing. Lenders are required to send buyers a copy of their Closing Disclosure at least three business days before closing so there’s time to review it and clear up any potential discrepancies. You should bring it with you to your closing to be sure your costs remain the same as you expected or that any necessary changes were made.
The promissory note is the document that states that you legally agree to repay your home loan. It provides important details about the loan, including the amount owed, interest rate, dates when the payments will be due, length of the loan, and where payments should be sent.
This document gives your lender the right to foreclose on your property if you fail to live up to the repayment terms you agreed to. It also will outline your responsibilities and rights as a borrower.
(Your state may use a deed of trust vs. a mortgage as part of the home loan process. A deed of trust states that a neutral third party — usually the title company — may hold legal title to the home until the borrower pays off the loan.)
This form explains the specific charges you may have to pay into an escrow account each month as part of your mortgage agreement, such as money to cover property taxes and insurance.
This document transfers ownership of the property from the seller to the buyer.
You’ll only see this form if you’re refinancing your home loan (it doesn’t apply if you’re purchasing the property). It states your right to cancel the loan within three business days and explains how that process works.
Recommended: What Is Mortgage Underwriting?
Though people tend to think of the term “mortgage” as describing everything that has to do with their home loan, there are actually two separate documents that form the legal agreement between a buyer and a lender and outline their responsibilities.
It’s important to understand the differences between these two distinct pieces of paperwork — the promissory note and the mortgage — before you see them at your closing. You’ll also want to carefully review them — and all the forms you see — before you sign for your loan.
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Usually, yes. But you might have a promissory note without a mortgage if you’re using an unsecured loan from a family member, a friend, or the seller.
A promissory note is part of a formal loan agreement. It contains a promise from the borrower to repay a specific amount of money to the lender under designated terms.
The promissory note helps formalize the terms of a real estate loan, including the length of the loan, the interest rate, how and when payments should be made, and what happens if the borrower defaults.
No. A promissory note obligates the borrower to repay the loan, but it does not “collateralize,” or secure, the loan to the property.
Photo credit: iStock/nortonrsx
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Source: sofi.com
Top U.S. loan officer Timothy Potempa has departed Dallas-based multichannel lender OneTrust Home Loans to join E Mortgage Capital, bringing his team of about 40 people and more than $300 million in annual production to the company headquartered in California.
“I’ve been in the industry since I was 18, so this year will be 22 years, and I’ve only been in five companies,” Potempa said in an interview. “The transition just became along the lines of the team’s ability to have a product suite and technology.”
According to Scotsman Guide, Potempa was the No. 7 loan officer in the country last year with a mortgage production volume of $326.5 million. His portfolio is concentrated on purchase loans (98% of the total volume in 2023) for first-time homebuyers. Potempa mainly focuses on the government lending space, which represents 60% of his total volume, he said.
Potempa had a joint venture with OneTrust from March 2022 to March 2024. But according to him, the firm has invested in new construction, land, and condominiums in a challenging mortgage market.
A representative at OneTrust declined to comment on Potempa’s departure.
OneTrust has had some recent leadership changes. In February, it announced the hiring of James Hecht, former head of production and executive vice president for national retail lending at Newrez, as its CEO. Co-founders Josh Erskine and Shane Erskine pivoted to the respective roles of CEO and president at Warp Speed Holdings.
Potempa brought his team of 38 professionals — including processors, business development staff, support staff and about 15 loan officers — to E Mortgage on March 25. He expects the group to close about $400 million in mortgages this year, representing about 15% of the company’s total.
“The beginning of the year started a little slower, and that’s just because we’re transitioning to a new company,” Potempa said. “The goal is $400 million this year and then $500 million for next year.”
E Mortgage charges Potempa’s team an upfront fee of $595 per funded loan, and he’s responsible for marketing, lead generation and other costs. Migrating to the new company will allow him to explore the wholesale side of the industry for the first time.
Before OneTrust, he worked at Wells Fargo, Nova Home Loans and Fairway Independent Mortgage Corp.
“With retail, you’re under a mortgage banker; you know the product set because you’re all in-house,” he said. “In wholesale, you can shop and sell the loan to a multitude of investors. Right now, we have 200 different investors.”
Regarding the macro landscape, Potempa said that higher mortgage rates and elevated costs related to homeownership are impacting affordability. On Wednesday, his team’s 30-year rate on a U.S. Department of Veterans Affairs (VA) loan for borrowers with no points and a 660 credit score was 6.25%, while conventional mortgages were at a 6.75% rate.
In this context, borrowers getting mortgages are “somebody in their mid-30s who has been saving, or move-up buyers for work, divorce or whatever reason,” Potempa said. His team is “still getting 300 to 400 leads a day from people raising their hands wanting to inquire about buying a house,” he added.
Source: housingwire.com
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Higher rates benefit those who can save, but for borrowers falling rates would reduce bills on credit cards, home equity loans and other forms of debt.
American households who were hoping interest rates would soon decline will have to wait a bit longer.
The Federal Reserve kept its benchmark interest rate unchanged on Wednesday, noting that progress on cooling inflation had stalled.
The central bank has raised its key interest rate to 5.33 percent from near zero in a series of increases between March 2022 and last summer, and they’ve remained unchanged since then. The goal was to tamp down inflation, which has cooled considerably, but is still higher than the Fed would like, suggesting that interest rates could remain high for longer than previously expected.
For people with money stashed away in higher-yielding savings accounts, a continuation of elevated rates translates into more interest earnings. But for people saddled with high cost credit card debt, or aspiring homeowners who have been sidelined by higher interest rates, a lower-rate environment can’t come soon enough.
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Source: nytimes.com
Average mortgage rates were mostly up versus last week, according to rates data compiled by Bankrate. Rates for 30-year fixed, 5/1 ARMs, and jumbo loans moved higher, while 15-year fixed mortgage rates fell.
At the beginning of the year, many experts predicted multiple rate cuts in 2024, but that’s now changed. The movement of fixed mortgage rates parallels the 10-year Treasury yield, which moves as investor appetite fluctuates with the state of the economy, inflation and Federal Reserve decisions. At the close of the latest Fed meeting on May 1, policymakers held firm and opted not to cut rates.
“It is apparent the Fed has all but given up on multiple rate cuts in the near future,” says Ken Johnson of Florida State University. “This is not good for long-term mortgage rates. A hawkish Fed drives up the yield on 10-year Treasurys, which drives up mortgage rates.”
Whether mortgage rates move up or down, though, it’s difficult to time the market. Often, the decision to buy a home comes down to what you need. Depending on your situation, it might make sense to take a higher rate now and refinance later. This way you can start building equity, rather than hoping for a future of more favorable rates and home prices that might not materialize.
Rates as of May 6, 2024.
These rates are marketplace averages based on the assumptions here. Actual rates available within the site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Monday, May 6th, 2024 at 7:30 a.m. ET.
The average rate you’ll pay for a 30-year fixed mortgage today is 7.34 percent, an increase of 2 basis points since the same time last week. Last month on the 6th, the average rate on a 30-year fixed mortgage was lower, at 7.02 percent.
At the current average rate, you’ll pay $688.29 per month in principal and interest for every $100,000 you borrow. Compared to last week, that’s $1.36 higher.
The average rate for a 15-year fixed mortgage is 6.74 percent, down 1 basis point over the last seven days.
Monthly payments on a 15-year fixed mortgage at that rate will cost $884 per $100,000 borrowed. Yes, that payment is much bigger than it would be on a 30-year mortgage, but it comes with some big advantages: You’ll save thousands of dollars over the life of the loan in total interest paid and build equity much more quickly.
The average rate on a 5/1 ARM is 6.74 percent, adding 4 basis points since the same time last week.
Adjustable-rate mortgages, or ARMs, are mortgage terms that come with a floating interest rate. To put it another way, the interest rate will change at regular intervals, unlike fixed-rate mortgages. These loan types are best for people who expect to refinance or sell before the first or second adjustment. Rates could be substantially higher when the loan first adjusts, and thereafter.
While borrowers shunned ARMs during the pandemic days of super-low rates, this type of loan has made a comeback as mortgage rates have risen.
Monthly payments on a 5/1 ARM at 6.74 percent would cost about $648 for each $100,000 borrowed over the initial five years, but could increase by hundreds of dollars afterward, depending on the loan’s terms.
The average rate for the benchmark jumbo mortgage is 7.41 percent, an increase of 4 basis points from a week ago. This time a month ago, the average rate for jumbo mortgages was lesser at 7.20 percent.
At today’s average rate, you’ll pay principal and interest of $693.06 for every $100,000 you borrow. That’s up $2.73 from what it would have been last week.
The average 30-year fixed-refinance rate is 7.34 percent, up 1 basis point since the same time last week. A month ago, the average rate on a 30-year fixed refinance was lower at 6.97 percent.
At the current average rate, you’ll pay $688.29 per month in principal and interest for every $100,000 you borrow. That’s an increase of $0.68 over what you would have paid last week.
If and when the Fed cuts interest rates depends on incoming economic data, such as the rate of inflation and the jobs market.
The rates on 30-year mortgages mostly follow the 10-year Treasury yield, which shifts with economic conditions, while the cost of variable-rate home loans more directly mirror the Fed’s moves.
“The Fed announcement [on May 1] of a slower run-off of Treasurys from its balance sheet should help keep a lid on mortgage rates and we may see brief declines,” says Greg McBride, CFA, Bankrate chief financial analyst. “But the focus will quickly shift back to inflation and until we start seeing better inflation numbers, the risk in mortgage rates remains to the upside.”
Broader economic factors, such as inflation and employment, affect the Fed’s decisions on rate changes, but your rate is also affected by your personal finances. Depending on your credit score, down payment, debts and income, you could be quoted a rate that’s higher or lower than the trend.
Mortgage rates adjust daily, but it appears that, for now, they will remain above the historical lows of recent years. If you’re shopping for a mortgage, it might be wise to lock your rate when you find an affordable loan. If your house-hunt is taking longer than anticipated, revisit your budget so you’ll know exactly how much house you can afford at prevailing market rates.
Keep in mind: You could save thousands over the life of your mortgage by getting at least three loan offers, according to Freddie Mac research. You don’t have to stick with your bank or credit union, either. There are many types of mortgage lenders, including online-only and local, smaller shops.
“All too often, some [homebuyers] take the path of least resistance when seeking a mortgage, in part because the process of buying a home can be stressful, complicated and time-consuming,” says Mark Hamrick, senior economic analyst for Bankrate. “But when we’re talking about the potential of saving a lot of money, seeking the best deal on a mortgage has an excellent return on investment. Why leave that money on the table when all it takes is a bit more effort to shop around for the best rate, or lowest cost, on a mortgage?”
Bankrate displays two sets of rate averages that are produced from two surveys we conduct: one daily (“overnight averages”) and the other weekly (“Bankrate Monitor averages”).
The rates on this page represent our overnight averages. For these averages, APRs and rates are based on no existing relationship or automatic payments.
Learn more about Bankrate’s rate averages, editorial guidelines and how we make money.
Source: bankrate.com
Still, mortgage professionals on the ground continue to note an elevated pace of application and homebuying activity with borrowers seemingly accustomed to the high-rate environment of recent times. Mortgage rates in the US have risen for the fourth consecutive week, reaching an average of 7.17% for 30-year fixed loans.https://t.co/7m4K777J6b — Mortgage Professional America Magazine (@MPAMagazineUS) … [Read more…]
There haven’t been many appealing options for borrowers in the last two years.
With inflation problematic, interest rates were elevated to help rein it in. And while that caused inflation to drop from a decades-high in June 2022, interest rates have been stuck at their highest level in 23 years. On Wednesday, the Federal Reserve elected to maintain that level, keeping the benchmark interest rate range unchanged between 5.25% and 5.50%. This has resulted in higher borrowing costs for everything from mortgages and auto loans to personal loans and credit cards.
One alternative that has remained cost-effective, however, has been home equity. By tapping into their equity via a home equity loan or home equity line of credit (HELOC), homeowners have gained access to large sums of money, often at much lower interest rates compared to the alternatives. But an even lower interest rate is always preferable, leading some to wonder if home equity loan rates will drop further this month. Below, we’ll break down what to expect now.
See what home equity loan rate you could secure online today.
While the Federal Reserve kept interest rates unchanged this week, the implication that higher rates may be staying high for longer was clear. Even absent a formal increase in rates, rates on borrowing products like home equity loans and HELOCs may rise slightly if lenders believe that a rate hike is imminent.
So not only is it unlikely for home equity loan rates to fall in May — they may actually rise. That possibility could become more pronounced if the next inflation report, scheduled to be released on May 15, shows inflation rising yet again. If that happens, an interest rate hike becomes more likely — and rates on home equity products could rise.
Against this backdrop, then, homeowners may want to be proactive. Home equity loan rates are fixed (unlike HELOCs, which are variable). So by pursuing a home equity loan today, owners can lock in today’s low rate before it potentially rises further. And, if rates somehow drop in the months to come, owners could refinance their loan then. What they shouldn’t do, however, is rate for a better rate climate. Instead, get started now and lock in the lowest rate you can find.
Explore your home equity loan options here to learn more.
A lower interest rate isn’t the only selling point for home equity loans now. Here are two other reasons why you may want to pursue this option today:
Home equity loan rates are unlikely to fall in May and they could even rise as the month goes on. But because of that likelihood, and because of the low rate borrowers can secure now, it may be beneficial to act promptly. Combined with beneficial features like access to large sums of money and potential tax deductions for qualifying uses, a home equity loan can be your go-to credit option now. As with all financial products, however, be sure to weigh the pros and cons of this unique loan, as you could risk losing your home in the process if you can’t pay back what you borrow.
Source: cbsnews.com
Rates have been in retreat as bond market investors who fund most mortgage loans react to the latest economic news and scaleback in tightening by Fed policymakers.
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Mortgage rates retreated for the third day in a row Friday as the latest numbers from the Labor Department showed employers added fewer jobs than expected in April, pushing unemployment closer to 4 percent, a level not seen in more than two years.
The U.S. economy added 175,000 jobs in April, down from 315,000 in March and the most anemic growth since October 2023. Economists had expected April employment growth of 240,000 jobs.
The report came on the heels of Wednesday’s announcement by Federal Reserve policymakers that they intend to slow the pace of “quantitative tightening” — an unwinding of the central bank’s $7 trillion balance sheet — to $40 billion a month, less than half the pace envisioned two years ago.
Change in employment, by month. Red bars are the latest forecast, including revisions to previous estimates for February and March. Source: U.S. Bureau of Labor Statistics.
“This report is nothing like bad enough to trigger a wholesale rethink at the Fed, but things will be different if the July numbers are weaker still, as we expect,” economists at Pantheon Macroeconomics said in a note to clients. “The downshift in payroll growth has come exactly when the [National Federation of Independent Business] suggested it would, and the signal for the future is unambiguous.”
Futures markets tracked by the CME FedWatch Tool last week predicted that the odds were against the Fed making more than one 25-basis point rate cut this year. On Friday, investors had repositioned their bets in line with expectations that there’s a 61 percent chance of two or more Fed rate cuts by the end of the year, with the first move now expected in September rather than December.
Pantheon economists are sticking to their forecast that the central bank will bring the federal funds rate down by a full percentage point, starting in September.
“Businesses — especially small firms — are responding to the lagged effect of the huge increase in interest rates and the tightening in lending standards, which have made working capital much more expensive and harder to obtain,” Pantheon economists said. “At the margin, this is depressing hiring and lowering the bar to layoffs.”
Unemployment, which dipped below 4 percent in February 2022, is once again flirting with that level, hitting 3.9 percent in April, up half a percentage point from a year ago.
The Fed doesn’t have direct control over long-term rates, but bond market investors who fund most mortgage loans are reacting to this week’s news.
Yields on 10-year Treasurys, which often predict trends in mortgage rates, fell 7 basis points Friday to 4.50 percent, a 25-basis point drop from the 2024 high of 4.75 percent registered on April 25.
Surveys of lenders by Mortgage News Daily showed rates for 30-year fixed-rate loans dropping for a third day in a row Friday, to 7.28 percent, down 24 basis points from a 2024 high of 7.52 percent, also registered on April 25.
Data tracked by Optimal Blue, which lags by one day, showed borrowers were locking in rates on 30-year fixed-rate mortgages Thursday at an average rate of 7.21 percent, down 6 basis points from the 2024 high of 7.27 percent recorded on April 25.
Borrowers taking out jumbo loans have seen spreads over conventional mortgages widen as higher interest rates and defaults on commercial loans weigh on regional banks that are often the source of those loans.
The rates published by Mortgage News Daily (MND) are higher than those reported by Optimal Blue because MND’s rate index is adjusted to account for points that borrowers often pay to get a lower rate. Optimal Blue uses actual rates provided to borrowers for rate locks, whether they paid points or not.
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Source: inman.com
Our writers and editors used an in-house natural language generation platform to assist with portions of this article, allowing them to focus on adding information that is uniquely helpful. The article was reviewed, fact-checked and edited by our editorial staff prior to publication.
Buying a home doesn’t necessarily require a large down payment. The conventional wisdom is that you need 20 percent down, but in reality, you don’t have to save that much. In fact, there are no-down payment mortgage options. Here’s what you need to know about these types of loans.
A no-down payment mortgage is a home loan that allows you to finance 100 percent of the home’s purchase price without having to put any money down at closing. Zero-down mortgages can be particularly beneficial for those buying a home for the first time or with limited savings.
The easiest way to avoid a down payment is to qualify for one of the two no-down payment mortgage programs backed by the government: a USDA or a VA loan.
The U.S. Department of Agriculture (USDA) backs USDA home loans, a mortgage guarantee program for those buying a home in designated rural areas. There are many areas you might not consider “rural” that do qualify under USDA guidelines, so be sure to check your eligibility on the USDA website. USDA loans don’t require a down payment, but borrowers must meet credit and income requirements to qualify.
Although there’s no down payment with a USDA loan, there is an upfront guarantee fee of 1 percent of the principal loan amount, as well as an annual fee of 0.35 percent, which borrowers can roll into the cost of the mortgage. While you won’t pay any money initially if you choose to roll these fees into the loan, keep in mind that it adds to the total balance and will accrue interest over the loan term, which means you’ll pay more overall.
If you’re a military service member, veteran or surviving spouse, you could be eligible for a VA loan guaranteed by the U.S. Department of Veterans Affairs (VA) with no money down. There is no mortgage insurance requirement with this loan. However, like a USDA loan, you do have to pay an upfront funding fee, which can be rolled into the mortgage. The funding fee ranges from 1.25 percent to 3.3 percent of the loan amount. You can reduce the funding fee by making a down payment.
Another perk: VA loan lenders often offer more competitive rates for these products, which helps you save money over the life of the loan.
Compare: Current VA loan rates
In addition to government-backed loans, you might be able to explore:
If you don’t qualify for one of the no-money-down home loan options, you might still be able to buy a home with the next best thing: a low-down payment mortgage.
Insured by the Federal Housing Administration (FHA), an FHA loan requires only 3.5 percent down with a credit score as low as 580. (If you have a credit score between 500 and 579, you might be able to qualify with a higher down payment of 10 percent.) It’s a popular option for homebuyers with less-than-perfect credit and not a lot of savings. Like other government-insured programs, FHA loans are offered by private mortgage lenders, so you might also have to meet a lender’s criteria to qualify. Additionally, you’ll have to pay for FHA mortgage insurance, which adds to your monthly payment and the cost of the loan. You’ll pay these premiums for as long as you have the mortgage, in most cases.
Compare: Current FHA loan rates
Available through many mortgage lenders, the HomeReady program is a conventional loan backed by Fannie Mae. The down payment requirement on a HomeReady loan is just 3 percent. While you’ll have to pay mortgage insurance to compensate for the low down payment, it’s often at a lower price tag compared to other conventional loans.
Backed by Freddie Mac, Home Possible is a similar mortgage program to HomeReady, with a 3 percent down payment and mortgage insurance requirements.
Freddie Mac also offers a 3 percent down mortgage option for first-time homebuyers who qualify through its HomeOne program. The main difference between this loan program and Freddie’s Home Possible mortgage is that a HomeOne mortgage does not impose income limits.
Some lenders are now offering mortgage programs for borrowers who qualify that only require a 1 percent down payment. Some examples include Rocket Mortgage’s ONE+ program and United Wholesale Mortgage’s Conventional 1% Down program. For these programs, the lender pays 2 percent of the required 3 percent down payment for a HomeReady or Home Possible loan — or up to a maximum contribution that varies by lender and loan size — and you only need to provide the remaining 1 percent.
A Conventional 97 mortgage is another Fannie and Freddie program that only requires a 3 percent down payment. You might pay more for private mortgage insurance (PMI) with this type of loan, but your payment depends on your financial profile. You can also request to cancel PMI when you reach 20 percent equity in your home.
The Good Neighbor Next Door (GNND) program is for borrowers who work in select public service professions — teachers, firefighters, law enforcement and emergency medical technicians — and are planning to buy a home in a qualifying area.
The program, sponsored by the U.S. Department of Housing and Urban Development (HUD), provides a discount of up to 50 percent on a home with a down payment of just $100. The borrower must qualify for a first mortgage, and the discounted portion of the home comes in the form of another loan. If the borrower continues to meet program requirements, the second mortgage won’t have to be repaid.
The ability to buy a home with no or very little money down can be appealing, but there are drawbacks, too.
Deciding whether to go for a no-down payment mortgage depends largely on your financial circumstances and goals. Here are a couple of scenarios when a zero-down mortgage might be a good idea:
The Department of Veteran Affairs and the U.S. Department of Agriculture DA don’t set a minimum credit score requirement for, respectively, their no-money-down VA and USDA loans. However, most lenders offering these loans do, and they’d want them to be at least in the “fair” range: 620 for VA loans, 640 for USDA loans. Because you’re not bringing any cash to the table, and financing virtually all of your mortgage, the lender has to be extra-reassured that you pay your debts fully and on time.
Source: bankrate.com
While mortgage rates remain higher than they were during the housing market’s booming pandemic years, Moody’s Ratings has predicted them to finally start declining over the next few years in a new report.
Exactly a week ago, the Federal Home Loan Mortgage Corporation, better known as Freddie Mac, reported that the average rate for a 30-year-fixed mortgage—the most popular among U.S. borrowers—had reached 7.1 percent, a record high for this year so far.
Read more: How to Find the Right Mortgage for You
Moody’s Ratings’ experts believe mortgage rates will come down—just not as quickly as homebuyers might wish for. The financial research company is currently estimating that mortgage rates will remain higher “than the extremely low levels during the decade of aggressive central bank stimulus that preceded the past two years” in the coming months, but will likely reach around 6 percent or somewhat less by the end of 2025.
This is good news for aspiring homebuyers who have been squeezed out of the market by skyrocketing home prices and high mortgage rates, which climbed as a direct consequence of the Federal Reserve’s aggressive rate-hiking campaign to combat the rise of inflation last year.
While most analysts expect the central bank to lower interest rates this year, the Federal Reserve has so far failed to do so, as the latest data on the cost of living show that inflation remains higher than expected at 3.48 percent in March. The Federal Reserve does not directly set mortgage rates, but any rise in interest rates impacts new mortgage lending.
Read more: Compare Low Rates With the Best Mortgage Lenders
Higher mortgage rates led to a drop in demand in late summer 2022 due to the unaffordability of buying a home for many Americans; but the price correction that followed this slide in demand was rather modest. In spring 2023, prices started climbing back up across the country, as the supply of homes remained low.
While the historic shortage of homes in the U.S. can primarily be traced back to the fact that the country has under-built following the bursting of the housing bubble and the financial crisis of 2007-2008, high mortgage rates have also caused many homeowners to hold on to their homes instead of putting them on the market.
“Many U.S. homeowners have low fixed-rate mortgages that they are reticent to give up, which is constraining existing property listings and sales,” Moody’s wrote in the report.
Faced with a growing demand for new constructions and mortgage interest rate buydowns, the company’s experts expect home prices to avoid significant decline in the coming months, sliding by a moderate 5 percent this year after falling 6.6 percent in 2023.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Source: newsweek.com