Lately, some mortgage lenders have pitched “buy now, refinance for free” offers to get more home buyers to take the plunge.
The thinking is mortgage rates will be lower in the near future. And when that time comes, you won’t have to pay any lender fees.
This can even sway the decision to buy a home, assuming you’re on the fence about renting vs. buying because it feels too expensive today.
These offers sound like a win-win for the home buyer, as they’ll get a lower interest rate and avoid potentially thousands in closing costs.
But there are quite a few issues with this line of thinking that are worth discussing.
Nobody Knows If Mortgage Rates Will Rise or Fall
Last I checked, mortgage rate predictions have been a tough game. Prior to early 2022, mortgage rates defied the forecasts.
While most expected them to rise, they hit fresh all-time lows and stayed at those levels for much longer than expected.
Then the Fed announced an end to it Quantitative Easing (QE) program and the start of Quantitative Tightening (QT), which sent shockwaves through the mortgage market.
Accompanied by 11 Fed rate hikes, the 30-year fixed surged from around 3% in January 2022 to as high as 8% in October 2023.
Once again, no one expected this, and most predictions called for improvements in 2023 after a rough 2022.
Instead, mortgage rates climbed even higher, leading to the lowest mortgage demand in decades.
People stopped buying homes and virtually nobody refinanced their mortgage. Even worse, existing owners won’t sell because they don’t want to lose their ultra-low interest rate.
This so-called mortgage rate lock-in effect has stifled inventory, which was already low to begin with.
It also partially explains why home prices remain so high, in spite of much more expensive mortgage rates. There’s no supply.
To entice buyers, some real estate agents and mortgage lenders have pitched the phrase, marry the house, date the rate.
The logic is you can still buy your forever home today, while mortgage rates are high. But refinance that pesky high mortgage rate once they fall again.
Problem is they haven’t fallen. And those predictions didn’t pan out. At least not yet.
Speaking of, take a look at the 2024 mortgage rate predictions if you think they’ll be of any use.
Mortgage Rates Are About 1% Below Their Recent Peak
Over the past month and change, the 30-year fixed has come down about one percentage point.
It surpassed 8% in mid-October before falling precipitously, thanks to favorable economic data.
Several reports hinted at possible weakness in the economy, pushing bond yields down from their recent highs while mortgage rates followed.
At the same time, the Fed is expected to cut rates several times in 2024 as the economy cools.
The thought is inflation has peaked, and restrictive monetary policy can ease somewhat.
This is all good news for mortgage rates, which tend to fall when inflation is low, or when the economy is showing signs of weakness.
But there’s still no guarantee mortgage rates will come down. Nor is there a guarantee they’ll fall by an amount necessary to make a refinance worthwhile.
I don’t subscribe to a refinance rule of thumb, but generally you’d want an interest rate at least 1% below your current rate for it to be worth it.
Once you factor in the closing costs, you’ll need to realize some decent monthly payment savings to make it worthwhile. And to break even on those upfront costs.
These Refinance for Free Later Deals Have Some Issues
Will mortgage rates fall enough in the future to make the refinance work?
Will this lender still be in business and agree to the terms of the deal?
Will anything change that limits your ability to refinance (credit score, property value, etc.)
What if a different lender has a lower rate in the future?
Could this type of offer pressure you into buying a home today if you’re unsure or not ready?
To make a refinance more compelling, or at least easier to pencil, some mortgage lenders are offering a free one in the future if you use them for a home purchase loan.
It seems like a no-brainer. Why not take them up on the deal, right? Well, there are myriad issues with these types of offers.
For one, you have to use the same lender twice. And you have to use the lender offering the free refinance deal to begin with.
So their “refinance for free” deal might stop you from shopping your rate with other banks, lenders, brokers, etc.
The next problem is this lender might not even be in business once it comes time to refinance. Trust me, many lenders have closed their doors as business has dried up.
And if you do use them again in the future, you’ll need to hope they have the lowest rate compared to other lenders. What are the chances of that?
Then there is the pesky issue of mortgage rates. Remember, nobody is very good at predicting them.
Sure, they could drop. But they might not. Or they may not fall enough to make the refinance worthwhile.
At the same time, you’ll need to qualify for the refinance. What if home prices fall between now and then, and you’ve got negative equity to deal with?
Or something else comes up that limits your ability to refinance? Perhaps a lower FICO score, a gap in employment, etc.
Ultimately, you’re probably better off going with the lowest combination of rate and fees you come across today.
And if and when the time comes to refinance in the future, do the same exact thing. Look for the best deal in front of you.
There are simply too many variables and unknowns to bank on a free refinance in the future.
Many people want to buy a home but think it isn’t possible because they don’t have money to put toward a down payment. Traditionally, lenders require a 20% down payment toward your mortgage.
But a 20% down payment adds up to a lot of money. For example, if you plan to purchase a $150,000 home, you’d need to come up with a $30,000 down payment. Many people cannot afford this, but fortunately, the 20% rule is a lot less common than you might think.
Is a buying a house with no money down possible?
The National Association of Realtors (NAR) reports that 39% of non-owners believe they need a 20% down payment or more and 22% believe they need a 10% to 14% down payment.
But neither of these are true. Many mortgage lenders will let you buy a home by putting down as little as 3%. And some lenders will let you skip the down payment altogether.
NAR also found that 61% of first-time homebuyers made a down payment between zero and 6%. So, it’s safe to say that a 20% down payment isn’t the standard anymore. But unfortunately, many consumers choose not to pursue homeownership because they believe this down payment myth.
Weighing the Pros and Cons of No Down Payment Mortgages
Is there any reason to aim for 20% down when most home buyers buy with a down payment less than 20%? If you can afford it, yes, the 20% rule is still a wise choice.
The more money you put toward your mortgage, the less debt you’ll have to repay and the less your monthly payment will be. Plus, there are several drawbacks to putting down less than 20%:
Less favorable rates: If you pay less than 20%, lenders will probably see you as a risky investment. And they will take this into consideration when calculating your mortgage rates. In general, you can expect to pay a higher interest rate if you put down a smaller down payment.
Higher closing costs: Closing costs are based on the size of your mortgage. So, the smaller your down payment is, the higher your closing costs will be. However, you may be able to get around this if you live in a state where it’s typical for the seller to pay the closing costs.
Private mortgage insurance (PMI): Private mortgage insurance is a type of mortgage insurance designed for borrowers who make a down payment lower than 20%. It protects your mortgage lender in case you end up defaulting on your loan.
PMI can cost as much as 1% of your total monthly mortgage payment. So for a $150,000 mortgage, you’ll end up paying $150 per month.
However, this may not be that bad, especially if you have a less expensive mortgage. And once you reach 20% home equity, you can cancel your PMI and get rid of these extra payments.
Check Out Our Top Picks for 2023:
Best Mortgage Lenders
How to Buy a House With No Money Down
Fortunately, there are several lending programs that do not require a down payment. Here are five payment assistance programs that will help you buy a home with little to no down payment.
1. VA Loans
VA loans are a valuable option for eligible military veterans, active-duty service members, and certain surviving spouses. These government-backed loans offer several benefits, making homeownership more accessible and affordable through the use of a VA loan.
100% Financing and No Down Payment
One of the most significant advantages of VA loans is the 100% financing, meaning you won’t need to make a down payment when utilizing a VA loan. This can save borrowers a substantial amount of money upfront, making it easier to enter the housing market.
No Private Mortgage Insurance (PMI) Requirement
Unlike conventional loans that require PMI for down payments less than 20%, VA loans do not require PMI. This can save borrowers hundreds or even thousands of dollars per year in mortgage insurance premiums when using a VA loan.
VA Funding Fee
While VA loans offer numerous benefits, there is a one-time funding fee charged to help offset the costs of the program. The funding fee is 2.15% of the total loan amount for first-time users of VA loans and 3.3% for subsequent uses.
This fee can be financed into the VA loan, reducing the out-of-pocket expenses for the borrower. In some cases, borrowers may be exempt from the funding fee, such as those with service-connected disabilities.
Certificate of Eligibility
To apply for a VA loan, borrowers need to obtain a Certificate of Eligibility (COE) from the Department of Veterans Affairs. The COE verifies the borrower’s eligibility for the VA loan program based on their military service or, in some cases, the service of their spouse. The COE can be requested online through the Department of Veterans Affairs website, by mail, or through an approved lender.
Additional Benefits
VA loans also offer competitive interest rates, more lenient credit requirements, and flexible underwriting guidelines compared to conventional loans. Additionally, there are no prepayment penalties, allowing borrowers to pay off their VA loans early without incurring additional fees.
2. Navy Federal Credit Union
Navy Federal Credit Union’s loan program is similar to what the VA offers. It offers a zero down mortgage and no mortgage insurance. And Navy Federal’s funding fee is only 1.75%.
Navy Federal offers a 30-year loan and a 30-year jumbo loan. 30-year loans have a loan limit of $424,100 while jumbo loans are available up to $1 million. However, you will have to be a Navy Federal member to qualify.
3. USDA Loans
If you’re looking to move to a rural area, you might qualify for a USDA loan. The United States Department of Agriculture Housing Program was designed to aid rural development and is aimed at low-income families. USDA loans offer 100% financing with low interest rates.
Here are the eligibility requirements you must meet to qualify for a USDA loan:
When buying a home it must be within the USDA’s boundaries: Although this loan targets rural areas, some suburban areas may still qualify. You can look at this map on the U.S. Department of Agriculture’s website to see if your location falls within the USDA’s geographical boundaries.
Your household income can’t exceed a certain threshold: This applies to everyone living in the household, even if they won’t be listed on the mortgage. For instance, if you have a parent living with you who collects Social Security, this counts toward the gross income of all members of a household. The maximum household income varies by state and county so you can find out if you qualify here.
See also: Best Home Loans for Low-Income Borrowers
4. Lease-Option
A lease-option (also known as rent-to-own) allows you to rent a home with the option to buy it at a predetermined price after a certain period. A portion of your monthly rent may be applied toward the purchase price or down payment. This can be a solid option if you need more time to save for a down payment or improve your credit.
5. Seller Financing
In some cases, the seller may be willing to finance the property for you, allowing you to purchase the home without a traditional mortgage. This arrangement typically requires a contract outlining the terms of the loan, including the interest rate, payment schedule, and any potential penalties.
Seller financing can be a viable option if you have a strong relationship with the seller or if the seller is having difficulty selling the property.
6. Crowdfunding
Crowdfunding is a method where you raise money from multiple individuals, typically through online platforms. You can set up a campaign to raise funds for your down payment or even the entire purchase price. This method may work best if you have a strong network of friends, family, and supporters who are willing to contribute to your home-buying goal.
7. Shared Equity Agreements
Shared equity agreements involve partnering with an investor who provides a portion or all of the down payment in exchange for a percentage of ownership in the property. When the property is sold or refinanced, the investor receives a return on their investment based on the agreed-upon share of equity. This can be an attractive option if you can’t afford a down payment but are willing to share future appreciation in the home’s value.
8. Housing Assistance Programs
There are numerous local, state, and federal housing assistance programs that offer grants, low-interest loans, or other forms of financial support to help eligible individuals purchase a home with no money down. These programs often have specific requirements, such as income limits, property location, or first-time homebuyer status. Be sure to research and apply for any programs for which you might be eligible.
Low Down Payment Loans
If you’re unable to buy a house with no money down but can afford a small down payment, consider these low down payment options that can help make homeownership more accessible.
1. 97% LTV mortgages
97% LTV mortgages is a loan program that is offered to first-time homebuyers by Fannie Mae and Freddie Mac. They require a 3% minimum down payment and private mortgage insurance.
Here are the guidelines for the program:
You’ll need a credit score of at least 680
One of the borrowers must be a first-time homeowner
Manufactured housing isn’t permitted
Gifts, grants, and other funds may be used toward the down payment
2. Federal Housing Administration (FHA) Loans
The Federal Housing Administration (FHA) was established in 1934 to reduce the requirements to qualify for a mortgage. This government-backed mortgage program offers flexible requirements, making it an attractive option for first-time homebuyers.
Here are the guidelines you’ll need to meet to qualify for an FHA loan:
Credit Score Requirements
The minimum credit score required to qualify for an FHA loan is 500. The specific down payment requirements depend on your credit score:
If your credit score is between 500 and 579, you’ll need to make a 10% down payment.
If your credit score is 580 or higher, you’ll have to make a 3.5% down payment.
Seller Contributions
FHA loans allow sellers to contribute up to 6% of the closing costs. This can help reduce the upfront costs for the buyer and make it easier to afford the purchase.
Mortgage Insurance Requirements
Mortgage insurance is required for an FHA loan, protecting the lender in case the borrower defaults on the loan. However, once you build 20% equity in the home, you can refinance to a conventional loan to eliminate the mortgage insurance requirement.
Debt-to-Income Ratios
FHA loans accept high debt-to-income (DTI) ratios, allowing borrowers with significant existing debt to still qualify for a mortgage. The FHA typically requires a maximum DTI of 43%, but exceptions can be made for borrowers with compensating factors, such as substantial savings or a history of making large payments on time.
3. HomeReady Mortgage
The HomeReady mortgage is a Fannie Mae program designed for low-to-moderate-income borrowers. It requires a down payment as low as 3% and offers flexible underwriting guidelines, making it an attractive option for first-time homebuyers or those with limited credit history.
4. Home Possible Mortgage
Similar to the HomeReady mortgage, the Home Possible mortgage is a Freddie Mac program that allows for a down payment as low as 3%. It is designed to help low-to-moderate-income borrowers achieve homeownership and offers flexible underwriting guidelines.
5. State and Local Homebuyer Assistance Programs
Many state and local governments offer homebuyer and down payment assistance programs that provide grants or low-interest loans to help cover down payment and closing costs. These programs typically have income and property location requirements, so be sure to research and apply for any programs for which you might be eligible in your area.
Each of these low down payment mortgage options has its own set of eligibility requirements and potential benefits. Be sure to research and compare these options to determine which one best aligns with your financial situation and home-buying goals.
Preparing for Homeownership
Before jumping into the home buying process, it’s essential to prepare yourself financially and mentally. This section covers tips for improving credit scores, creating a budget, and managing debt to make the home buying process smoother.
Credit Score Improvement Tips
Improving your credit score involves checking your credit report for errors and disputing any inaccuracies. Ensure that you pay your bills on time and reduce outstanding debt as much as possible. Keep credit card balances low, avoid opening new credit accounts, and consider requesting a credit limit increase without increasing your spending.
Creating a Budget
Creating a budget requires tracking your income and expenses to understand your spending habits better. Categorize your expenses and set realistic limits for each category. Allocate funds for saving and investing, including a down payment and emergency fund, and regularly review and adjust your budget as needed.
Managing Debt
Managing your debt effectively involves prioritizing high-interest debt and paying more than the minimum payment. Consider debt consolidation or refinancing options to secure a lower interest rate. Avoid taking on new debt before applying for a mortgage and create a debt repayment plan that you can stick to.
Understanding the Total Cost of Homeownership
Understanding the total cost of homeownership means factoring in property taxes, insurance, maintenance, and utility costs. Estimate homeowners association (HOA) fees if applicable and consider the costs of furnishing and updating the home. Prepare for potential increases in expenses over time, such as property tax hikes.
How to Choose the Right Mortgage Option
With various mortgage options available, it’s crucial to select the one that suits your financial needs and long-term goals. This section discusses factors to consider when choosing a mortgage, such as loan term, interest rates, and mortgage insurance.
Fixed-Rate vs. Adjustable-Rate Mortgages
Fixed-rate mortgages have a consistent interest rate for the loan’s duration, providing stability and predictable monthly payments. In contrast, adjustable-rate mortgages (ARMs) have an initial fixed-rate period followed by periodic rate adjustments, which may result in lower initial payments but potential rate increases over time.
Mortgage Term: 15-Year vs. 30-Year
The mortgage term plays a crucial role in determining the overall cost of your mortgage. 15-year mortgages typically have lower interest rates and allow for faster equity buildup, but require higher monthly payments. 30-year mortgages offer lower monthly payments, but result in more interest paid over the loan’s lifetime.
Mortgage Insurance Considerations
PMI may be required for conventional loans with less than a 20% down payment. Loans backed by the federal government, such as FHA, VA, or USDA loans, may have different insurance requirements or fees.
Assessing Your Long-Term Goals
When choosing a mortgage option, consider how long you plan to live in the home and whether your financial situation or housing needs may change. Evaluate the potential for home value appreciation and the impact on your future financial goals.
Planning Your Next Steps
Assess Your Financial Situation
The amount of money you choose to put toward a down payment is a personal choice. If you feel ready for homeownership but know that a 20% down payment isn’t feasible for you, there are many options available to help you.
The best place to start is by looking at your monthly budget and seeing what you can realistically afford. Use a mortgage calculator to reverse engineer your goal and find your ideal home purchase. Consider factors like property taxes, insurance, and maintenance costs, as well as any debts you currently have.
Get Pre-Approved
Get pre-approved for a mortgage before you start house hunting. This will give you an idea of how much you can afford, and it will show sellers and real estate agents that you’re a serious buyer.
To get pre-approved, you’ll need to provide your lender with documentation such as pay stubs, bank statements, and tax returns. They’ll then assess your credit score and financial history to determine how much they’re willing to lend you.
Shop Around for the Best Mortgage
Shop around for the best mortgage rates and terms. Don’t just settle for the first lender you come across. Compare different lenders and loan programs to find the best fit for your financial situation. Look for competitive interest rates, low fees, and flexible repayment terms.
Work with a Knowledgeable Real Estate Agent
A good real estate agent can help you find a home that fits your needs and budget. They’ll also guide you through the home buying process, making it less stressful and ensuring you don’t make any costly mistakes.
Attend First-Time Homebuyer Classes
Consider attending first-time homebuyer classes or workshops. Many local organizations and government agencies offer educational resources for first-time homebuyers. These classes can help you understand the ins and outs of the home buying process and give you the knowledge you need to make informed decisions.
Save for Unexpected Expenses
Even if you’re able to buy a home with no money down, it’s a good idea to have some savings set aside for unexpected expenses. These might include moving costs, home repairs, or furnishing your new home.
Build an Emergency Fund
In addition to saving for unexpected expenses, it’s also important to have an emergency fund in place. This should be enough to cover three to six months’ worth of living expenses in case you lose your job or face another financial emergency.
Be Patient and Stay Disciplined
Home buying is a complex process, and it can take time to find the right home and secure financing. Stay focused on your goals, be disciplined with your spending, and remember that homeownership is a long-term investment.
Conclusion
Buying a home with no money down is possible, but it may not be the best choice for everyone. Consider your financial situation, your long-term goals, and the various mortgage options available to you before deciding on a zero down payment mortgage. With careful planning and preparation, you can make your dream of homeownership a reality, even if you don’t have a large down payment saved up.
The GI Bill offers numerous benefits for veterans, active-duty service members, and their families however it does not offer its own home loan program.
But military borrowers have access to the VA home loan program through the U.S. Department of Veterans Affairs, a mortgage program designed to help make homeownership more accessible.
The VA home loan program offers significant benefits, particularly when compared to other home loan programs, including:
No down payment requirement
No private mortgage insurance (PMI)
Competitive interest rates
Flexible qualifying requirements
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Is there a GI home loan program?
While there is technically no home loan program including the GI Bill benefits, military home buyers who qualify for the GI Bill also likely qualify for the VA home loan program, which offers mortgages to eligible veterans, service members and their families.
Benefits of a VA home loan
A VA loan’s most significant benefit is that it requires zero down payment. Where other programs might require anywhere from 3 to 20 percent of the loan amount upfront, a VA loan will have no down payment at all, which can represent immediate savings.
Other VA loan benefits include:
Competitively low interest rates
No private mortgage insurance
Flexible qualifying requirements
Capped closing costs
Loans are assumable
No loan limits
Can be used multiple times
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VA loan eligibility & requirements 2024
VA service eligibility requirements
VA loans are intended for active-duty service members, veterans, and their families (including surviving spouses).
That means, there are service requirements that borrowers must meet to qualify.
Generally, eligible borrowers will have one or more of the following:
90 consecutive days of active service during wartime
181 days of active service during peacetime
6 years of service in the National Guard or Reserves
A spouse who died in the line of duty or due to a service-connected disability or injury
Servicemen will demonstrate their qualifying military background with a Certificate of Eligibility (COE), a document that indicates the specifics of their military service and the total amount of their entitlement.
Borrowers can request a COE directly from the VA, or a VA lender can help you request it.
VA financial eligibility
The VA doesn’t set qualifying financial thresholds for its borrowers. These requirements will be set by the individual private lender issuing the VA loan. That means the minimums required to qualify will vary somewhat from lender to lender, and military borrowers may even be in a position to shop around if they are having difficulty qualifying.
That said, VA borrowers can generally expect to need a score of 640 or greater and a debt-to-income (DTI) ratio of 41 percent or less.
VA loan property requirements
In addition to qualifying requirements for the borrower, the VA sets requirements for the property that is being purchased with a VA loan. This is intended to ensure that the VA program is being used to get military borrowers into homes that are suitable primary residences — both safe and structurally sound.
The VA lender will order a VA appraisal — not to be confused with a home inspection — which will ensure the home meets the VA’s livability standards. Learn more about the VA Minimum Property Requirements (MPRs) here.
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Types of VA home loans
VA loans can be used to purchase or refinance a house. The types of loans available through the VA program include:
VA Purchase Loans: These can be used to purchase a primary residence, including a multi-unit property of up to four units, a VA-approved condo or townhouse, or a manufactured home.
VA Streamline Refinance: Also sometimes known as a VA Interest Rate Reduction Refinance Loan (IRRRL), these refinance loans are intended to help existing VA homeowners quickly and affordably lower their interest rate or improve their loan terms.
Native American Direct Loans: These VA loans are specifically for veterans of Native American descent and can be used to buy, build, renovate, or refinance properties on federal trust lands.
VA Cash-out Refinance Loans: These VA loans allow homeowners to convert their home equity into cash by replacing an existing home loan with a larger one and giving the borrower a lump sum of cash. VA cash-out refinance can be one option for converting a non-VA home loan to a VA loan.
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What is the VA funding fee?
The VA funding fee is a percentage of the loan amount paid at closing. This money enables the VA home loan program to be self-sustaining and for the Department of Veterans Affairs to guarantee future VA loans.
The amount of the funding fee is variable and typically costs between 0.5 and 3.3 percent of the loan amount. The exact amount is determined by the nature of the borrower’s military service, the size of the down payment, the type of loan, and the number of times the borrower has used the VA loan program.
While the VA funding fee can be a significant upfront cost, it is a cost that is generally offset by the other savings that the VA loan program offers.
Finally, the VA funding fee can be financed into the overall loan amount and paid over time.
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GI loan FAQ
How much is a typical GI home loan?
While there is no GI home loan, the VA home loan program has no limits. That means borrowers with full entitlement can get a loan amount for as much as they like — provided they can qualify for it financially with a mortgage lender.
What are the benefits of a VA home loan?
The VA home loan is a product intended to help veterans, active-duty service members, reservists, and even some of their family members, to purchase a home.How much house can I afford as a veteran? The amount of house that a borrower can afford with a VA home loan will depend on their budget, the interest rate they qualify for, and the size of down payment they can afford to make.
What is a Certificate of Eligibility (COE)?
The Certificate of Eligibility (COE) is a document that indicates the details of someone’s service with the armed forces and the amount of VA entitlement that is available to them. Lenders use the COE to confirm a borrower meets the VA service requirements.
Can I get a COE as the spouse of a veteran?
In some cases, a spouse may be able to get a COE, such as when the service member is missing in action, a prisoner of war, or has died in the line of service or from a service-related injury/disability.
Can I get a COE for a VA direct or VA-backed home?
COEs are required for all VA loans, including Native American Direct loans, or VA-based purchase or refinance loans.
How much is the funding fee?
The VA funding fee is typically between 0.5 and 3.3 percent of the total loan amount, depending on whether the borrower is purchasing or refinancing, whether or not they are a first-time borrower, how many times they have used the VA loan program, the size of their down payment, and the nature of their military service.
Are World War II vets eligible for the VA home loan program?
Yes, WWII veterans are eligible for the VA home loan program. Service members with 90 days of consecutive active service during wartime, including in Korea, Vietnam, and Iraq, are eligible for the VA loan program.
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Military home loans: The bottom line
While the GI Bill doesn’t offer a home loan benefit, the VA home loan program is a wonderful resource for service members looking to purchase or refinance a home.
Time to make a move? Let us find the right mortgage for you
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The interest rate on a 30-year fixed-rate mortgage is 6.875% as of December 6, which is unchanged from yesterday. Additionally, the interest rate on a 15-year fixed-rate mortgage is 5.875%, which is 0.500 percentage points lower than yesterday.
With mortgage rates changing daily, it’s a good idea to check today’s rate before applying for a loan. It’s also important to compare different lenders’ current interest rates, terms and fees to ensure you get the best deal.
Rates last updated on December 6, 2023. These rates are based on the assumptions shown here. Actual rates may vary. Credible, a personal finance marketplace, has 5,000 Trustpilot reviews with an average star rating of 4.7 (out of a possible 5.0).
How do mortgage rates work?
When you take out a mortgage loan to purchase a home, you’re borrowing money from a lender. In order for that lender to make a profit and reduce risk to itself, it will charge interest on the principal — that is, the amount you borrowed.
Expressed as a percentage, a mortgage interest rate is essentially the cost of borrowing money. It can vary based on several factors, such as your credit score, debt-to-income ratio (DTI), down payment, loan amount, and repayment term.
After getting a mortgage, you’ll typically receive an amortization schedule, which shows your payment schedule over the life of the loan. It also indicates how much of each payment goes toward the principal balance versus the interest.
Near the beginning of the loan term, you’ll spend more money on interest and less on the principal balance. As you approach the end of the repayment term, you’ll pay more toward the principal and less toward interest.
Your mortgage interest rate can be either fixed or adjustable. With a fixed-rate mortgage, the rate will be consistent for the duration of the loan. With an adjustable-rate mortgage (ARM), the interest rate can fluctuate with the market.
Keep in mind that a mortgage’s interest rate is not the same as its annual percentage rate (APR). This is because an APR includes both the interest rate and any other lender fees or charges.
Mortgage rates change frequently — sometimes on a daily basis. Inflation plays a significant role in these fluctuations. Interest rates tend to rise in periods of high inflation, whereas they tend to drop or remain roughly the same in times of low inflation. Other factors, like the economic climate, demand, and inventory can also impact the current average mortgage rates.
To find great mortgage rates, start by using Credible’s secured website, which can show you current mortgage rates from multiple lenders without affecting your credit score. You can also use Credible’s mortgage calculator to estimate your monthly mortgage payments.
What determines the mortgage rate?
Mortgage lenders typically determine the interest rate on a case-by-case basis. Generally, they reserve the lowest rates for low-risk borrowers — that is, those with a higher credit score, income, and down payment amount. Here are some other personal factors that may determine your mortgage rate:
Location of the home
Price of the home
Your credit score and credit history
Loan term
Loan type (e.g., conventional or FHA)
Interest rate type (fixed or adjustable)
Down payment amount
Loan-to-value (LTV) ratio
DTI
Other indirect factors that may determine the mortgage rate include:
Current economic conditions
Rate of inflation
Market conditions
Housing construction supply, demand, and costs
Consumer spending
Stock market
10-year Treasury yields
Federal Reserve policies
Current employment rate
How to compare mortgage rates
Along with certain economic and personal factors, the lender you choose can also affect your mortgage rate. Some lenders have higher average mortgage rates than others, regardless of your credit or financial situation. That’s why it’s important to compare lenders and loan offers.
Here are some of the best ways to compare mortgage rates and ensure you get the best one:
Shop around for lenders: Compare several lenders to find the best rates and lowest fees. Even if the rate is only lower by a few basis points, it could still save you thousands of dollars over the life of the loan.
Get several loan estimates: A loan estimate comes with a more personalized rate and fees based on factors like income, employment, and the property’s location. Review and compare loan estimates from several lenders.
Get pre-approved for a mortgage: Pre-approval doesn’t guarantee you’ll get a loan, but it can give you a better idea of what you qualify for and at what interest rate. You’ll need to complete an application and undergo a hard credit check.
Consider a mortgage rate lock: A mortgage rate lock lets you lock in the current mortgage rate for a certain amount of time — often between 30 and 90 days. During this time, you can continue shopping around for a home without worrying about the rate changing.
Choose between an adjustable- and fixed-rate mortgage: The interest rate type can affect how much you pay over time, so consider your options carefully.
One other way to compare mortgage rates is with a mortgage calculator. Use a calculator to determine your monthly payment amount and the total cost of the loan. Just remember, certain fees like homeowners insurance or taxes might not be included in the calculations.
Here’s a simple example of what a 15-year fixed-rate mortgage might look like versus a 30-year fixed-rate mortgage:
15-year fixed-rate
Loan amount: $300,000
Interest rate: 6.29%
Monthly payment: $2,579
Total interest charges: $164,186
Total loan amount: $464,186
30-year fixed-rate
Loan amount: $300,000
Interest rate: 6.89%
Monthly payment: $1,974
Total interest charges: $410,566
Total loan amount: $710,565
Pros and cons of mortgages
If you’re thinking about taking out a mortgage, here are some benefits to consider:
Predictable monthly payments: Fixed-rate mortgage loans come with a set interest rate that doesn’t change over the life of the loan. This means more consistent monthly payments.
Potentially low interest rates: With good credit and a high down payment, you could get a competitive interest rate. Adjustable-rate mortgages may also come with a lower initial interest rate than fixed-rate loans.
Tax benefits: Having a mortgage could make you eligible for certain tax benefits, such as a mortgage interest deduction.
Potential asset: Real estate is often considered an asset. As you pay down your loan, you can also build home equity, which you can use for other things like debt consolidation or home improvement projects.
Credit score boost: With on-time payments, you can build your credit score.
And here are some of the biggest downsides of getting a mortgage:
Expensive fees and interest: You could end up paying thousands of dollars in interest and other fees over the life of the loan. You will also be responsible for maintenance, property taxes, and homeowners insurance.
Long-term debt: Taking out a mortgage is a major financial commitment. Typical loan terms are 10, 15, 20, and 30 years.
Potential rate changes: If you get an adjustable rate, the interest rate could increase.
How to qualify for a mortgage
Requirements vary by lender, but here are the typical steps to qualify for a mortgage:
Have steady employment and income: You’ll need to provide proof of income when applying for a home loan. This may include money from your regular job, alimony, military benefits, commissions, or Social Security payments. You may also need to provide proof of at least two years’ worth of employment at your current company.
Review any assets: Lenders consider your assets when deciding whether to lend you money. Common assets include money in your bank account or investment accounts.
Know your DTI: Your DTI is the percentage of your gross monthly income that goes toward your monthly debts — like installment loans, lines of credit, or rent. The lower your DTI, the better your approval odds.
Check your credit score: To get the best mortgage rate possible, you’ll need to have good credit. However, each loan type has a different credit score requirement. For example, you’ll need a credit score of 580 or higher to qualify for an FHA loan with a 3.5% down payment.
Know the property type: During the loan application process, you may need to specify whether the home you want to buy is your primary residence. Lenders often view a primary residence as less risky, so they may have more lenient requirements than if you were to get a secondary or investment property.
Choose the loan type: Many types of mortgage loans exist, including conventional loans, VA loans, USDA loans, FHA loans, and jumbo loans. Consider your options and pick the best one for your needs.
Prepare for upfront and closing costs: Depending on the loan type, you may need to make a down payment. The exact amount depends on the loan type and lender. A USDA loan, for example, has no minimum down payment requirement for eligible buyers. With a conventional loan, you’ll need to put down 20% to avoid private mortgage insurance (PMI). You may also be responsible for paying any closing costs when signing for the loan.
How to apply for a mortgage
Here are the basic steps to apply for a mortgage, and what you can typically expect during the process:
Choose a lender: Compare several lenders to see the types of loans they offer, their average mortgage rates, repayment terms, and fees. Also, check if they offer any down payment assistance programs or closing cost credits.
Get pre-approved: Complete the pre-approval process to boost your chances of getting your dream home. You’ll need identifying documents, as well as documents verifying your employment, income, assets, and debts.
Submit a formal application: Complete your chosen lender’s application process — either in person or online — and upload any required documents.
Wait for the lender to process your loan: It can take some time for the lender to review your application and make a decision. In some cases, they may request additional information about your finances, assets, or liabilities. Provide this information as soon as possible to prevent delays.
Complete the closing process: If approved for a loan, you’ll receive a closing disclosure with information about the loan and any closing costs. Review it, pay the down payment and closing costs, and sign the final loan documents. Some lenders have an online closing process, while others require you to go in person. If you are not approved, you can talk to your lender to get more information and determine how you can remedy any issues.
How to refinance a mortgage
Refinancing your mortgage lets you trade your current loan for a new one. It does not mean taking out a second loan. You will also still be responsible for making payments on the refinanced loan.
You might want to refinance your mortgage if you:
Want a lower interest rate or different rate type
Are looking for a shorter repayment term so you can pay off the loan sooner
Need a smaller monthly payment
Want to remove the PMI from your loan
Need to use the equity for things like home improvement or debt consolidation (cash-out refinancing)
The refinancing process is similar to the process you follow for the original loan. Here are the basic steps:
Choose the type of refinancing you want.
Compare lenders for the best rates.
Complete the application process.
Wait for the lender to review your application.
Provide supporting documentation (if requested).
Complete the home appraisal.
Proceed to closing, review the loan documents, and pay any closing costs.
FAQ
What is a rate lock?
Interest rates on mortgages fluctuate all the time, but a rate lock allows you to lock in your current rate for a set amount of time. This ensures you get the rate you want as you complete the homebuying process.
What are mortgage points?
Mortgage points are a type of prepaid interest that you can pay upfront — often as part of your closing costs — for a lower overall interest rate. This can lower your APR and monthly payments.
What are closing costs?
Closing costs are the fees you, as the buyer, need to pay before getting a loan. Common fees include attorney fees, home appraisal fees, origination fees, and application fees.
If you’re trying to find the right mortgage rate, consider using Credible. You can use Credible’s free online toolto easily compare multiple lenders and see prequalified rates in just a few minutes.
Lately, new home sales have surged as existing housing supply continues to be hard to come by.
This is partially because mortgage rates more than doubled in less than two years, effectively locking in existing homeowners.
With many of these homeowners unwilling to budge, home builders have gained a lot more market share.
After all, they need to move their inventory, and there isn’t a borrower living in the property with a low interest rate to worry about.
To boost sales in spite of high rates, many builders have offered impressive mortgage rate deals that everyday lenders just can’t seem to match. Does this mean there’s no need to look anywhere else?
Most Home Builders Have Their Own Financing Department
Despite being in the business of building homes, many home builders also operate financing divisions.
This means they are also fully-fledged mortgage lenders with the ability to offer home loans on the properties they sell.
And several of them are quite large. For example, D.R. Horton’s DHI Mortgage is a top-25 mortgage lender in the nation. The same goes for Lennar Mortgage.
Both companies originate tens of billions of dollars in mortgages annually to their home buyer customers.
On top of this, they also operate title/escrow companies and insurance agencies. This means a prospective home buyer can do one-stop shopping.
Convenience aside, these builder lenders are also able to offer aggressive financing offers that outside lenders often can’t beat.
So if you’re buying a new home, why look anywhere else?
It’s Wise to Speak with More Than One Mortgage Lender
Even if your home builder doubles as a lender, it’s always prudent to get more than a single mortgage rate quote.
There are studies that prove those who obtain 2-3 quotes (or even more) wind up with a lower rate and monthly savings for years to come.
So even if the home builder’s lender is offering you a spectacular deal, it’s still beneficial to shop your rate.
Sure, you might speak with a third-party lender (or two) and find that they just can’t come close. But if you don’t take the time to do that, you won’t know what else is out there.
In addition, having other quotes in hand allows you to negotiate your mortgage rate with the home builder.
If the builder knows you haven’t looked elsewhere, they might not offer you their lowest rate. With other offers in hand, their deal might get better.
You can also learn a thing or two by speaking to different lenders, mortgage brokers, and so on.
This can make you a more confident home buyer who knows the ins and outs of the process better than someone being led by just one company.
Home Builder Mortgage Rates Are Typically Hard to Beat
Now, from what I’ve seen lately, home builder mortgage rates are hard to beat. They’re buying down their rates aggressively to draw in buyers.
They’re also doing this out of necessity because home prices are so high. This allows more borrowers to qualify for a mortgage and keep their DTI ratio below maximum thresholds.
Remember, they have to move their inventory. Otherwise it sits and costs them money. At the same time, they don’t want to lower their prices.
If they sell homes for less, it could hurt appraised values on subsequent home sales. So it’s more beneficial for them to offer you a lower mortgage rate instead.
This allows them to keep the purchase price intact, while providing you monthly payment relief.
It’s a win-win for both home buyer and home seller. And it makes it very difficult for outside lenders to compete.
They’re able to sell the home more easily and win the loan at the same time.
Lately, home builders have offered both temporary and permanent buydowns, or even a combination of both.
For example, I’ve seen home builder lenders offer 30-year fixed rates as low as 5.5%, with a temporary 2-1 buydown for the first two years.
This means a home buyer gets a rate of 3.5% in year one, 4.5% in year two, and 5.5% for the remainder of the loan term.
Chances are an unaffiliated mortgage lender just won’t be able to compete.
Consider Using Credits from a Home Seller to Buy Down Your Rate
One strategy you can employ if you don’t want to buy a new home is to ask for a credit from the seller.
Known as seller concessions, these can be used to buy down the mortgage rate to something that resembles what new home builders are offering.
Instead of asking for a home price reduction, you can use these credits to pay discount points, which in turn lower the mortgage rate.
This is essentially what the home builder lenders are doing, and there’s really no reason it can’t be done on an existing home.
If you want to go a step further, you could also ask for a credit fro the real estate agent as well.
This may allow you to snag a lower mortgage rate and reduce your closing costs at the same time.
In the end, you might have a deal that resembles that of the builder’s, but on an existing home.
While home builders like to refer to existing homes as “used homes,” they are often located in more desirable, central locations. And they might be bigger too.
As such, it can be in your best interest to purchase a used home as opposed to a newly-built one.
So if the financing is holding you back, the use of seller concessions can make the deal pencil.
There Are Other Advantages to Using the Builder’s Mortgage Lender Beyond Price
While I’ve mostly focused on price, or mortgage rates specifically, there are other perks to using the builder’s captive lender.
For one, they are affiliated businesses, so communication should be strong. There should be a direct line between builder and lender throughout the loan process.
They should know each other’s timelines and processes in and out, which ostensibly means fewer hiccups and issues.
Conversely, an outside lender could have difficulty getting in touch with the builder to check status. And this could result in unnecessary delays and problems.
Of course, that’s how it’s supposed to work. In reality, this might not be the case given the many mixed reviews I’ve come across from builder lenders.
Despite their close relationship with the builder, somehow lots of customers still walk away upset. But this could just boil down to home buying being very emotional in general.
And it could be even worse when using an outside lender if the two companies don’t cooperate well.
In summary, if buying a new home you’ll likely be pushed to use their in-house lender. You are not required to do so. You can use any lender, bank, credit union, or broker you choose.
But there are certainly perks, including mortgage rate specials (the #1 reason to use them) and perhaps the convenience of one-stop shopping.
However, even if you like what the builder’s lender has to offer, you should still take the time to speak with outside lenders and gather additional quotes.
Pros and Cons of Using the Home Builder’s Lender
The Pros
The convenience of one-stop shopping
Get your new home and mortgage all in one place
Affiliated lender might communicate better with the builder
Can offer special mortgage rates to home buyer customers
Mortgage process is short-lived, rate stays with you for decades potentially
Long rate locks that match the longer home buying/building process
Often operate their own title/escrow and insurance agencies as well
The Cons
Lots of mixed/negative reviews for home builder lenders
Mortgage rate specials are often limited to certain homes
May be enticed to buy in an area because the financing alone
Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.
The interest rate on a 30-year fixed-rate mortgage is 6.875% as of December 5, which is 0.250 percentage points higher than yesterday. Additionally, the interest rate on a 15-year fixed-rate mortgage is 6.375%, which is 0.500 percentage points higher than yesterday.
With mortgage rates changing daily, it’s a good idea to check today’s rate before applying for a loan. It’s also important to compare different lenders’ current interest rates, terms and fees to ensure you get the best deal.
Rates last updated on December 5, 2023. These rates are based on the assumptions shown here. Actual rates may vary. Credible, a personal finance marketplace, has 5,000 Trustpilot reviews with an average star rating of 4.7 (out of a possible 5.0).
How do mortgage rates work?
When you take out a mortgage loan to purchase a home, you’re borrowing money from a lender. In order for that lender to make a profit and reduce risk to itself, it will charge interest on the principal — that is, the amount you borrowed.
Expressed as a percentage, a mortgage interest rate is essentially the cost of borrowing money. It can vary based on several factors, such as your credit score, debt-to-income ratio (DTI), down payment, loan amount, and repayment term.
After getting a mortgage, you’ll typically receive an amortization schedule, which shows your payment schedule over the life of the loan. It also indicates how much of each payment goes toward the principal balance versus the interest.
Near the beginning of the loan term, you’ll spend more money on interest and less on the principal balance. As you approach the end of the repayment term, you’ll pay more toward the principal and less toward interest.
Your mortgage interest rate can be either fixed or adjustable. With a fixed-rate mortgage, the rate will be consistent for the duration of the loan. With an adjustable-rate mortgage (ARM), the interest rate can fluctuate with the market.
Keep in mind that a mortgage’s interest rate is not the same as its annual percentage rate (APR). This is because an APR includes both the interest rate and any other lender fees or charges.
Mortgage rates change frequently — sometimes on a daily basis. Inflation plays a significant role in these fluctuations. Interest rates tend to rise in periods of high inflation, whereas they tend to drop or remain roughly the same in times of low inflation. Other factors, like the economic climate, demand, and inventory can also impact the current average mortgage rates.
To find great mortgage rates, start by using Credible’s secured website, which can show you current mortgage rates from multiple lenders without affecting your credit score. You can also use Credible’s mortgage calculator to estimate your monthly mortgage payments.
What determines the mortgage rate?
Mortgage lenders typically determine the interest rate on a case-by-case basis. Generally, they reserve the lowest rates for low-risk borrowers — that is, those with a higher credit score, income, and down payment amount. Here are some other personal factors that may determine your mortgage rate:
Location of the home
Price of the home
Your credit score and credit history
Loan term
Loan type (e.g., conventional or FHA)
Interest rate type (fixed or adjustable)
Down payment amount
Loan-to-value (LTV) ratio
DTI
Other indirect factors that may determine the mortgage rate include:
Current economic conditions
Rate of inflation
Market conditions
Housing construction supply, demand, and costs
Consumer spending
Stock market
10-year Treasury yields
Federal Reserve policies
Current employment rate
How to compare mortgage rates
Along with certain economic and personal factors, the lender you choose can also affect your mortgage rate. Some lenders have higher average mortgage rates than others, regardless of your credit or financial situation. That’s why it’s important to compare lenders and loan offers.
Here are some of the best ways to compare mortgage rates and ensure you get the best one:
Shop around for lenders: Compare several lenders to find the best rates and lowest fees. Even if the rate is only lower by a few basis points, it could still save you thousands of dollars over the life of the loan.
Get several loan estimates: A loan estimate comes with a more personalized rate and fees based on factors like income, employment, and the property’s location. Review and compare loan estimates from several lenders.
Get pre-approved for a mortgage: Pre-approval doesn’t guarantee you’ll get a loan, but it can give you a better idea of what you qualify for and at what interest rate. You’ll need to complete an application and undergo a hard credit check.
Consider a mortgage rate lock: A mortgage rate lock lets you lock in the current mortgage rate for a certain amount of time — often between 30 and 90 days. During this time, you can continue shopping around for a home without worrying about the rate changing.
Choose between an adjustable- and fixed-rate mortgage: The interest rate type can affect how much you pay over time, so consider your options carefully.
One other way to compare mortgage rates is with a mortgage calculator. Use a calculator to determine your monthly payment amount and the total cost of the loan. Just remember, certain fees like homeowners insurance or taxes might not be included in the calculations.
Here’s a simple example of what a 15-year fixed-rate mortgage might look like versus a 30-year fixed-rate mortgage:
15-year fixed-rate
Loan amount: $300,000
Interest rate: 6.29%
Monthly payment: $2,579
Total interest charges: $164,186
Total loan amount: $464,186
30-year fixed-rate
Loan amount: $300,000
Interest rate: 6.89%
Monthly payment: $1,974
Total interest charges: $410,566
Total loan amount: $710,565
Pros and cons of mortgages
If you’re thinking about taking out a mortgage, here are some benefits to consider:
Predictable monthly payments: Fixed-rate mortgage loans come with a set interest rate that doesn’t change over the life of the loan. This means more consistent monthly payments.
Potentially low interest rates: With good credit and a high down payment, you could get a competitive interest rate. Adjustable-rate mortgages may also come with a lower initial interest rate than fixed-rate loans.
Tax benefits: Having a mortgage could make you eligible for certain tax benefits, such as a mortgage interest deduction.
Potential asset: Real estate is often considered an asset. As you pay down your loan, you can also build home equity, which you can use for other things like debt consolidation or home improvement projects.
Credit score boost: With on-time payments, you can build your credit score.
And here are some of the biggest downsides of getting a mortgage:
Expensive fees and interest: You could end up paying thousands of dollars in interest and other fees over the life of the loan. You will also be responsible for maintenance, property taxes, and homeowners insurance.
Long-term debt: Taking out a mortgage is a major financial commitment. Typical loan terms are 10, 15, 20, and 30 years.
Potential rate changes: If you get an adjustable rate, the interest rate could increase.
How to qualify for a mortgage
Requirements vary by lender, but here are the typical steps to qualify for a mortgage:
Have steady employment and income: You’ll need to provide proof of income when applying for a home loan. This may include money from your regular job, alimony, military benefits, commissions, or Social Security payments. You may also need to provide proof of at least two years’ worth of employment at your current company.
Review any assets: Lenders consider your assets when deciding whether to lend you money. Common assets include money in your bank account or investment accounts.
Know your DTI: Your DTI is the percentage of your gross monthly income that goes toward your monthly debts — like installment loans, lines of credit, or rent. The lower your DTI, the better your approval odds.
Check your credit score: To get the best mortgage rate possible, you’ll need to have good credit. However, each loan type has a different credit score requirement. For example, you’ll need a credit score of 580 or higher to qualify for an FHA loan with a 3.5% down payment.
Know the property type: During the loan application process, you may need to specify whether the home you want to buy is your primary residence. Lenders often view a primary residence as less risky, so they may have more lenient requirements than if you were to get a secondary or investment property.
Choose the loan type: Many types of mortgage loans exist, including conventional loans, VA loans, USDA loans, FHA loans, and jumbo loans. Consider your options and pick the best one for your needs.
Prepare for upfront and closing costs: Depending on the loan type, you may need to make a down payment. The exact amount depends on the loan type and lender. A USDA loan, for example, has no minimum down payment requirement for eligible buyers. With a conventional loan, you’ll need to put down 20% to avoid private mortgage insurance (PMI). You may also be responsible for paying any closing costs when signing for the loan.
How to apply for a mortgage
Here are the basic steps to apply for a mortgage, and what you can typically expect during the process:
Choose a lender: Compare several lenders to see the types of loans they offer, their average mortgage rates, repayment terms, and fees. Also, check if they offer any down payment assistance programs or closing cost credits.
Get pre-approved: Complete the pre-approval process to boost your chances of getting your dream home. You’ll need identifying documents, as well as documents verifying your employment, income, assets, and debts.
Submit a formal application: Complete your chosen lender’s application process — either in person or online — and upload any required documents.
Wait for the lender to process your loan: It can take some time for the lender to review your application and make a decision. In some cases, they may request additional information about your finances, assets, or liabilities. Provide this information as soon as possible to prevent delays.
Complete the closing process: If approved for a loan, you’ll receive a closing disclosure with information about the loan and any closing costs. Review it, pay the down payment and closing costs, and sign the final loan documents. Some lenders have an online closing process, while others require you to go in person. If you are not approved, you can talk to your lender to get more information and determine how you can remedy any issues.
How to refinance a mortgage
Refinancing your mortgage lets you trade your current loan for a new one. It does not mean taking out a second loan. You will also still be responsible for making payments on the refinanced loan.
You might want to refinance your mortgage if you:
Want a lower interest rate or different rate type
Are looking for a shorter repayment term so you can pay off the loan sooner
Need a smaller monthly payment
Want to remove the PMI from your loan
Need to use the equity for things like home improvement or debt consolidation (cash-out refinancing)
The refinancing process is similar to the process you follow for the original loan. Here are the basic steps:
Choose the type of refinancing you want.
Compare lenders for the best rates.
Complete the application process.
Wait for the lender to review your application.
Provide supporting documentation (if requested).
Complete the home appraisal.
Proceed to closing, review the loan documents, and pay any closing costs.
FAQ
What is a rate lock?
Interest rates on mortgages fluctuate all the time, but a rate lock allows you to lock in your current rate for a set amount of time. This ensures you get the rate you want as you complete the homebuying process.
What are mortgage points?
Mortgage points are a type of prepaid interest that you can pay upfront — often as part of your closing costs — for a lower overall interest rate. This can lower your APR and monthly payments.
What are closing costs?
Closing costs are the fees you, as the buyer, need to pay before getting a loan. Common fees include attorney fees, home appraisal fees, origination fees, and application fees.
If you’re trying to find the right mortgage rate, consider using Credible. You can use Credible’s free online toolto easily compare multiple lenders and see prequalified rates in just a few minutes.
A new week, a new 1% down mortgage product, the latest coming from Fort Washington, Pennsylvania based lender Newrez.
Call it a sign of the times, with housing affordability the worst it has been in decades thanks to high home prices and elevated mortgage rates.
Known as “RezSource,” the new program relies upon a 2% lender contribution to minimize out-of-pocket costs.
It takes a standard 3% down payment mortgage backed by Freddie Mac and whittles it down to just 1%.
And it’s available to both low-income borrowers and first-time home buyers. Read on to learn more.
RezSource 1% Down Offers Up to $5,000 in Lender Contributions
Similar to other programs, the latest 1% down mortgage from Newrez includes a 2% lender contribution.
This means the borrower winds up with a mortgage set at 97% LTV, the maximum allowed for a conforming loan backed by the likes of Fannie Mae or Freddie Mac.
The end result is less money required from the borrower, an equity cushion, and potentially easier qualification.
The maximum dollar amount of the lender contribution is $5,000, which is determined by the lesser of 2% of the appraised value or purchase price.
My understanding is this 2% doesn’t need to be paid back as it is a credit to the borrower.
For example, someone buying a $250,000 property would be able to maximize the credit while only needing $2,500 via their own contribution.
And even this 1% can come from a variety of flexible sources, whether it’s gift funds from family member, or homebuyer assistance from an eligible non-profit or government agency.
Taken together, they’d come to the table with $7,500 (only $2,500 from their own sources), resulting in a 3% down payment.
This is enough to qualify for Freddie Mac Home Possible, which comes with reduced mortgage insurance premiums and reduced or waived pricing adjustments.
Who Qualifies for RezSource?
Owner-occupied home buyers purchasing a primary residence
Income must be at/below area median limit
Can be a first-time buyer or repeat buyer
Loan must be a 30-year fixed-rate product
Minimum loan amount of $25,000 ($10k in Michigan)
In order to qualify for RezSource, you need to meet the general requirements of Freddie Mac Home Possible.
Most importantly, this includes an income that is no more than 80% of the Area Median Income (AMI) based on where the property is located, which you can look up here.
The property must also be an owner-occupied, primary residence. But 1-4 unit properties, condos, co-ops, and even manufactured homes are eligible with certain restrictions.
If all occupying borrowers are first-time buyers, homebuyer education is required for at least one borrower.
It’s unclear what the minimum FICO score requirement is, though it’s likely 620 or higher.
In terms of loan type, the Newrez program only allows for 30-year fixed rate loans, and the minimum loan amount is $25,000 in all states but Michigan ($10,000).
Is RezSource a Game Changer?
Ultimately, this new offering from Newrez is all about the 2% lender contribution.
The main perk is that the lender is chipping in 2% of the purchase price on your behalf, which is certainly a plus. Who doesn’t like free money?
But beyond that, you still need to qualify for the monthly payment, and keep your DTI ratio below maximum allowable limits.
So this product might be best served for the borrower who has sufficient income, but is perhaps a little light in the asset department.
Note that other lenders offer 1% down mortgages as well, including the 1% Down Payment program offered by Zillow Home Loans.
There’s also Guaranteed Rate OneDown, which comes with $1,000 in closing cost assistance, and Guild Mortgage’s 1% Down Payment Advantage, which includes a temporary rate buydown.
The nation’s top lender, UWM, also offers a similar 1% down program with a 2% grant, as does Rocket Mortgage ONE+.
In other words, many 1% down mortgage programs exist and you’ll need to compare and contrast the pros and cons of each.
Things to look for include maximum lender contribution, max area median income allowed, and additional perks, like closing cost credits and PMI waivers.
And as always, you’ll need to compare mortgage rates from the different lenders, which will also add up over time via your monthly payment.
An ideal combo should include the largest lender contribution, a low mortgage rate, and limited closing costs.
Homeowners usually refinance to save money. If you can reduce your interest rate by 1% or more, that could be enough incentive to refinance. Yet given elevated rates, you probably won’t be able to secure a significantly lower rate than your current one. That doesn’t mean a refi isn’t a good idea for other reasons, like changing your term length or home loan type.
Both 15-year fixed and 30-year fixed refinances saw their mean rates trail off this week. The average rate on 10-year fixed refinance also slumped.
Millions of homeowners refinanced when mortgage rates hit record lows at the start of the pandemic. However, in today’s high-rate environment, most refinance demand is for cash-out refinances to help consolidate debt or fund other major expenses, according to Matt Graham of Mortgage News Daily. For those considering a refinance, Graham recommends getting in touch with a loan originator, keeping an eye on daily rate changes and making a game plan to capitalize on the next big drop in rates.
About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.
Refinance rates for homeowners
Many homeowners are facing the same disadvantages as everyone else in the housing market right now: elevated mortgage rates, limited available inventory and expensive homes.
If you decide to refinance, make sure to compare rates, fees and the annual percentage rate — which reflects the total cost of borrowing — from different lenders to find the best deal. Here’s a table with the average refinance rates reported by lenders across the country. We track refinance rate trends using information collected by Bankrate:
Today’s refinance interest rates
Product
Rate
A week ago
Change
30-year fixed refi
7.69%
7.74%
-0.05
15-year fixed refi
6.95%
7.05%
-0.10
10-year fixed refi
6.97%
7.11%
-0.14
Rates as of Dec. 1, 2023.
Where refinance rates are headed
In early November, a dip in mortgage rates motivated some prospective buyers to come off the sidelines and apply for home loans. Refinance applications also picked up slightly over the last few weeks, but they still remain well below historical averages, according to the Mortgage Bankers Association. Experts predict that both purchasing and refinancing activity won’t come back into full swing for a while.
“High interest rates and house prices have dampened demand, particularly in the refinancing market, which is currently at a standstill,” said Carlos Garriga, senior vice president and research director at the St. Louis Federal Reserve.
Mortgage rates surged steadily throughout much of 2022 and 2023 as the Federal Reserve carried out aggressive interest rate hikes to slow inflation. With inflation now going down, the Fed has held off on further rate hikes to evaluate the impact on price growth and the labor market.
It’s widely expected the Fed will hold interest rates steady until mid-2024, which can help mortgage rates stabilize. Once the central bank begins to actually cut rates, there should be more sustained downward movement.
“It’s very difficult to forecast movements in the mortgage rate, but we expect significantly less rate volatility in the coming year relative to 2022,” said Matthew Walsh, housing economist for Moody’s Analytics.
Even if rates return to 7% — a considerable decline from recent peaks — it could still be hard for homeowners to find many compelling or profitable reasons to refinance, said Keith Gumbinger, vice president of the mortgage site HSH.com.
Instead of a traditional rate-and-term refinance, homeowners might instead opt for a cash-out refinance, which allows them to tap into their home equity with a lower interest rate than other types of borrowing, according to Logan Mohtashami, lead analyst at HousingWire. “This would make sense only if it benefits the homeowner with a lower total cost of living because credit card interest rates are so high,” said Mohtashami.
How to find personalized refinance rates
The rates advertised online often require specific conditions for eligibility. Your personal interest rate will be influenced by market conditions as well as your specific credit history, financial profile and application. Having a high credit score, a low credit utilization ratio and a history of consistent and on-time payments will generally help you get the best interest rates. To get the best refinance rates, make your application as strong as possible by getting your finances in order, using credit responsibly and monitoring your credit regularly. And don’t forget to speak with multiple lenders and shop around.
Refinancing can be a great move if you get a good rate or can pay off your loan sooner, but consider whether it’s the right choice for you at the moment.
30-year fixed-rate refinance
The average 30-year fixed refinance rate right now is 7.69%, a decrease of 5 basis points compared to one week ago. (A basis point is equivalent to 0.01%.) A 30-year fixed refinance will typically have lower monthly payments than a 15-year or 10-year refinance so it can be a good option if you’re having trouble making your monthly payments. However, a 30-year refinance loan will take you longer to pay off and will typically cost you more in interest over the long term.
15-year fixed-rate refinance
For 15-year fixed refinances, the average rate is currently at 6.95%, a decrease of 10 basis points compared to one week ago. Though a 15-year fixed refinance will most likely raise your monthly payment compared to a 30-year loan, you’ll save more money over time because you’re paying off your loan quicker. Also, 15-year refinance rates are typically lower than 30-year refinance rates, which will help you save more in the long run.
10-year fixed-rate refinance
The current average interest rate for a 10-year refinance is 6.97%, a decrease of 14 basis points compared to one week ago. A 10-year refinance typically has the lowest interest rate but the highest monthly payment of all refinance terms. A 10-year refinance can help you pay off your house much quicker and save on interest, but make sure you can afford the steeper monthly payment.
Is now a good time to refinance?
Generally, it’s a good idea to refinance if you can get a lower interest rate than your current interest rate, or if you need to change your loan term. When deciding whether to refinance, consider other factors, including how long you plan to stay in your current home, the length of your loan and the amount of your monthly payment. And don’t forget to factor in fees and closing costs, which can add up.
With mortgage refinance rates at current heights, the number of refinancing applicants has shrunk. If you bought your house when interest rates were lower than today, there is little financial benefit to refinancing your mortgage. However, homeowners can’t time the market. Regardless of where rates are headed, decide if refinancing makes sense based on your financial situation and goals.
Mortgage rates have risen to their highest levels in more than 20 years, making it harder to afford a home. And yet, out of necessity or desire, hundreds of thousands of people buy homes every month.
With the 30-year fixed rate topping 7%, NerdWallet asked real estate agents and mortgage loan officers for advice on how home buyers can stretch their homebuying dollars in this time of high interest rates. Here are nine tactics that they suggested.
1. Ask the seller to reduce the mortgage rate
Temporary mortgage rate buydowns have become commonplace since rates surged in early 2022. With a temporary rate buydown, the seller pays a portion of the buyer’s interest payments upfront. This reduces the house payments for the first one, two or three years of ownership.
“This is a common strategy for new-home builders, but it can also be used in the purchase of resale homes,” said John Bianchi, executive vice president for loanDepot. (All sources in this story commented via email.) “Negotiating a temporary buydown with the seller can help soften the blow of high interest rates, reducing your monthly payment for one to three years.”
In one typical setup, the seller’s payment effectively cuts the buyer’s interest rate by 2 percentage points in the first year, and by 1 percentage point in the second year. After that, the buyer pays the full interest rate. This is known as a 2-1 buydown.
Another option is to reduce the mortgage rate permanently, using discount points. One discount point equals 1% of the loan amount; each point typically reduces the interest rate by around 0.25 percentage point.
“Home buyers have an opportunity to get a seller to pay for these methods to lower their interest rate,” said Chuck Vander Stelt, a real estate agent in Valparaiso, Indiana. “Some home buyers should seriously consider offering a more generous price to the seller in exchange for a large closing cost concession and then use those funds to buy down the interest rate as much as possible.”
2. Use part of your down payment to pay down debt
When you apply for a mortgage, the lender considers your total debt payments for the house, car, student loans and credit cards. Sometimes it makes sense to divert some of your intended down payment money to cut the higher-rate debt first, said David Kuiper, vice president and senior mortgage banker for Dart Bank in western Michigan.
“While the mortgage payment will be slightly higher, the total debt/payments is lower, making the proposed purchase more affordable,” Kuiper said.
3. Use home buyer assistance programs
State and local governments sponsor an abundance of programs to make homes affordable for home buyers, especially first-timers. Some programs offer down payment assistance and help with closing costs. Others offer favorable interest rates or tax credits.
Details differ from state to state. Some programs are targeted to certain counties, cities or neighborhoods. Others are intended for specific groups of people, such as teachers, first responders or renters who live in public housing. Some programs have income limits.
4. Ask the seller to finance the purchase
You can give the seller an IOU for part of the home’s value and make monthly payments directly to the seller at an interest rate that’s lower than you could get from a bank. This arrangement is called “seller financing” and has its roots in the early 1980s, when mortgage rates zoomed as high as 18%.
You might wonder why a seller would agree to such a deal. “They will often do this in order to get the price they want,” said Janie Coffey, who leads the Coffey Team with eXp Realty in St. Augustine, Florida. The seller gets full price while you get a break on the interest rate.
Seller financing usually has an end date: Within three, five or 10 years, the buyer must get a mortgage from a lender to pay off the amount owed to the seller. Coffey explained that the type of seller open to this arrangement often has paid off the mortgage “and is OK to wait for their big payoff.”
Seller financing is complex. Use an experienced real estate attorney to draw up the contract.
5. Don’t wait for a rate you like better
“If the right house comes along and the payment is affordable (even if you don’t like the interest rate), you should buy the house,” Kuiper said.
You often hear that you should buy now and refinance someday, after interest rates fall. That’s not Kuiper’s point. His point was this: If mortgage rates fall, more buyers will rush into the market. They’ll make competitive offers and drive home prices higher, “essentially wiping out any advantage of the lower interest rate.”
6. Don’t get distracted by things you don’t need
Some sellers want flexibility about the closing date, would prefer the buyer to make repairs, and are scared of accepting an offer from a buyer who ends up failing to qualify for the mortgage.
Vander Stelt advises staying focused on price with these hassle-avoidant sellers, while being flexible on the rest of the offer on the house. “Do this by offering the best terms you can, including buying the home as-is, a closing date and possession that works best for the seller, and illustrating how strong of a candidate you are to get your mortgage approved,” he said.
You can demonstrate that you’re a strong mortgage candidate by showing a preapproval letter and by sharing financial information, such as account balances that prove you have the cash for the down payment.
7. Buy a house that needs work
Buying a fixer-upper is an old-fashioned, time-tested way to save money. “If you can be patient, it’s worth buying a home that needs work and slowly fixing it up over time or taking a renovation loan to acquire the home and do the work upfront,” said Brian Koss, regional sales director for Movement Mortgage, in Danvers, Massachusetts.
8. Build a house or buy a brand-new one
“Building a new home can provide more certainty around how long you will have to wait to move in, it can provide more cost certainty, and it can save you money in the short and long term by avoiding costly remodels, appliance repairs and unexpected repairs of older parts of the home,” said Jeffrey Ruben, president of WSFS Mortgage in the Greater Philadelphia area.
Buying a new home in a development has some of the same advantages. And today’s buyers have good reason to shop for new construction because there’s a shortage of existing homes for resale.
9. Rent out part of the house
Coffey suggested using an old strategy with a trendy name — house hacking — “buying a property like a duplex, where you live in one unit and rent out the other,” she said.
If you buy a duplex, triplex or quadplex, and you live in one unit, you can include the expected rental income for the others when qualifying for a loan. In some cases, you can qualify for a mortgage using expected rental income from an accessory dwelling unit, such as a basement apartment or a tiny house in the backyard.
If you buy a home today, you’re stuck with high mortgage rates for the time being. But by employing some creativity, you might find a way to afford homeownership.
Are you considering refinancing your mortgage, but hesitant about the high cost of closing? A no-closing-cost refinance may be the solution for you.
In this article, we’ll explain what a no-closing-cost refinance is, how it works, and the benefits and drawbacks of this type of mortgage refinance. We’ll also go over the qualifications and the process of getting a no-closing-cost refinance, so you can decide if it’s the right choice for you.
What is a no-closing-cost refinance?
In short, it’s a mortgage loan that offers homeowners the option to refinance their mortgage without having to pay initial fees to lenders.
Closing costs usually pay for lender fees as well as loan origination fees, third-party expenditures, appraisal fees, and underwriting and processing costs. Refinance lenders also take on costs that originate from third parties, including escrow and title costs.
With a no-closing-cost refinance, you potentially save money on closing costs, lower your monthly payment, and build equity in your home faster.
It’s certainly tempting and may be the right choice for certain types of borrowers. However, those closing costs saved are costs added to the loan amount that you’ll eventually have to pay back.
How does a no-closing-cost refinance work?
The application process for a no-closing-cost refinance is similar to that of a traditional refinance. You’ll need to provide financial information and documentation to the lender, and they will run a credit check. Once the mortgage lender approves your application, the refinance process can begin.
You may be wondering how the lender makes money on a no-closing-cost refinance. The lender recoups their costs by charging a slightly higher interest rate on the loan. This way, they can potentially make more money in the long run, even though you don’t pay any closing costs up front.
Pros and Cons of No Closing Costs
Having no upfront closing costs comes with a range of both advantages and disadvantages. The idea of skipping the closing costs and fees upfront may be appealing, or even right for you.
However, it’s still important to consider the various ways it may affect your financial situation next month, next year, and next decade. Here are some pros and cons:
Pros
Upfront savings: The most immediate benefit of a no-closing-cost refinance is the elimination of substantial upfront fees. This can be particularly advantageous for homeowners who may not have the liquid assets to cover these costs at the time of refinancing. It allows for the conservation of cash that could be used for other pressing financial needs or opportunities.
Simplified financing: This type of refinance simplifies the financial burden for homeowners. It removes the hurdle of saving for and managing large, one-time closing costs. This is especially helpful for those with limited disposable income or those facing unexpected financial challenges.
Quicker break-even point: For homeowners planning to move or refinance again in the short term, a no-closing-cost refinance can be financially advantageous. By not paying closing costs upfront, they can reach a break-even point more quickly, especially if they sell the home or refinance before the added costs accrue significantly.
Cons
Increased long-term cost: While there’s an immediate saving on closing costs, this type of refinance often results in a higher interest rate or a larger loan balance. Over time, this can lead to significantly higher interest payments. Homeowners should carefully consider the long-term financial implications, such as how the increased loan balance or rate will impact the total interest paid over the life of the no-closing-cost loan.
Higher monthly payments: Due to the higher interest rate associated with a no-closing-cost refinance, homeowners might face higher monthly payments. This increase can strain monthly budgets, especially for those who are already managing tight finances.
Reduced home equity: Rolling closing costs into the loan balance can reduce the amount of equity a homeowner has in their property. This is a critical consideration for those who may need to leverage home equity in the future for other financial goals or emergencies.
How to Qualify for a No-Closing-Cost Refinance
When it comes to qualifying for a no-closing-cost refinance, the eligibility requirements are similar to those of a traditional refinance. Your lender will look at your credit score, income, and debt-to-income ratio to determine if you qualify.
To improve your chances of being approved for a no-closing-cost refinance, and potentially lower your monthly payment, it’s a good idea to make sure your credit score is as high as possible. You should also have a solid income and a low debt-to-income ratio, which lenders assess to determine your ability to manage the monthly payment. Additionally, having a good track record of paying your bills on time can also help.
Once you have determined that you are eligible for a no-closing-cost refinance, you need to compare different options to determine which one will be the most cost-effective for you in the long run. Be sure to consider the interest rate, fees, and overall costs of each option before making a decision.
Finding Lenders Offering No Closing Cost Refinance
When considering a no-closing-cost refinance, finding the right lender is a crucial step. Different lenders offer varying terms and rates, so it’s important to conduct thorough research to find the best option for your financial situation. Here’s a guide on how to find and compare lenders for a no-closing-cost refinance:
Start with your current lender: Your existing mortgage lender is a good starting point. They may offer competitive refinance options to retain your business. Ask about their no-closing-cost refinance options and compare these with what you might find elsewhere.
Research online: Many lenders provide details of their refinance products online. Use mortgage comparison websites to gather information on various lenders’ offerings. These platforms often allow you to compare rates, terms, and fees side by side.
Check with local banks and credit unions: Local financial institutions sometimes offer better terms to members or local residents. Visit or call your local banks and credit unions to inquire about their no-closing-cost refinance options.
Consult mortgage brokers: Mortgage brokers have access to various lending sources and can often find deals that may not be widely advertised. They can help you navigate through different offers and identify the most cost-effective option.
Consider online lenders: Online mortgage lenders can be a viable option as they often have lower overhead costs, potentially translating to better terms or lower rates. However, ensure you research their reputation and customer service record.
Understanding the Details of No-Closing-Cost Refinancing
Before you get excited about not paying anything upfront, sit down with your lender to discuss all the details. Be sure to keep an eye out for the following details:
Some loans are not actually “no cost”
Some loans solely cover lender fees, while others may cover all expenses, including third-party costs
Home loans differ from lender to lender, so it’s important to shop around
Lenders may pay different interest rates and costs on your behalf. Find out all the details before you commit.
Consider all the costs: title and appraisal, lender fees, credit report fees, escrow, home inspections, mortgage points and other third-party fees
Is a no-closing-cost refinance right for you?
Deciding on a no-closing-cost refinance requires weighing your immediate financial needs against the long-term effects on your mortgage. This option is attractive for its low initial fees, but understanding its overall impact is essential. For those planning to move or sell their home shortly, saving on upfront costs can offer immediate financial relief. It’s an appealing choice if staying in your current home isn’t part of your long-term plan.
However, a no-closing-cost refinance usually translates to a higher loan amount or increased interest rate, affecting the total cost over time. If you’re several years into your mortgage, like 10 years into a 30-year loan, the added expense from higher interest rates can surpass the benefits of initial savings.
Before deciding, it’s important to calculate how this choice will affect your monthly payment and compare the overall costs with those of a traditional refinance. Shopping around for the best deal is crucial to align this financial decision with your overall goals.
A Closer Look at No-Closing-Cost Mortgage Deals
Now that you understand the positives and negatives of selecting a no-closing-cost refinance, here’s an example of how these loans may play out in a lending setting:
For example, you may be charged $4,500 in closing costs, the average cost for homeowners today. If you choose to pay this out of pocket, the $4,500 cost will remain static as a one-time charge.
On the other hand, if you skip those fees, that sum will be rolled into your mortgage bills each month over the duration of that loan. Over 30 years at 4.125% interest, the borrower will eventually pay a total of $7,851.
Meanwhile, over the course of five years, the borrower will wind up paying $6,000 after initially skipping the $4,500 closing fee.
Whether this is worth it or not is entirely up to you. If you’re planning to sell your home within the next couple of years, the immediate savings may be worth it for you to pay a bit more over two years.
You can take that saved money to invest in repairs, remodels, realtor fees, and other associated costs that accompany selling a home. Moving a home quickly on and off the market can save you other costs that make this type of loan right for you.
How to Spot a Bad No-Closing-Cost Refinance Deal
No-closing-cost loans are each different from one lender to another. By seeking different opinions and home equity options, you can ensure that you’re getting a good deal. Here are a few warning signs to look out for:
The loan is called “no cost” but it turns out you’ll have to pay for appraisals, title fees, escrow, property taxes, insurance, and prepaid interest.
The loan is called a “no lenders fee loan,” which means the bank will only cover just that—lenders fees, and nothing else.
Carrying out a refinance through a mortgage broker, who then adds on a lender credit, further increases your interest rate.
A bank uses “bundles” that tack on closing costs on top of the cost of the loan. These bundles further increase the size of the loan, as well as the interest rate, leading to a higher monthly payment over time.
Be aware of potential red flags and take your time when considering any type of home loan. This is especially true if the terms of the loan are unclear, and you are feeling pressured to make a decision before fully understanding the details of the loan. It’s always better to be cautious and well-informed before making a commitment.
5 Tips for Negotiating No-Closing-Cost Refinances
Negotiating the terms of your no-closing-cost refinance is crucial in securing a favorable deal. Focus on these effective strategies:
Conduct thorough market research: Understand the current market rates and terms from various lenders. This knowledge positions you as an informed borrower, giving you an edge in negotiations.
Leverage your creditworthiness: If you have a strong credit history, use this as a bargaining chip. Lenders may offer better terms to borrowers who present lower credit risks.
Discuss customization options: Each borrower’s situation is unique. Talk to your lender about tailoring the refinance terms to suit your specific financial needs and goals, especially if you plan to stay in your home for a long time or move soon.
Be prepared to walk away: If the terms offered don’t align with your needs, be ready to explore other options. Showing your willingness to consider other lenders can motivate your current lender to offer better terms.
Review the final offer thoroughly: Ensure that all negotiated terms are clearly included in the final offer. A careful review before agreeing can save you from unexpected terms or conditions.
By applying these strategies, you can effectively negotiate and secure a no-closing-cost refinance that aligns with your financial objectives. Remember, your aim in negotiation is not just to lower costs, but to find a deal that supports your overall financial strategy.
Frequently Asked Questions
What are the average closing costs for a refinance?
The average closing costs for a refinance can vary depending on the location, property type, and loan type. Typically, closing costs for a refinance can range from 2% to 5% of the loan amount.
For example, on a $200,000 loan, the closing costs can be anywhere from $4,000 to $10,000. These costs include the loan origination fee, appraisal fee, title search and insurance, and other miscellaneous fees.
Can you negotiate closing costs on a refinance?
Yes, it is possible to negotiate closing costs on a refinance. While some costs, such as the appraisal fee or title search, are set by third-party providers and cannot be negotiated, other costs such as the origination fee or lender’s title insurance can be negotiated with your lender.
Here are a few strategies to negotiate closing costs on a refinance:
Shop around: Compare offers from multiple lenders and negotiate with them to see if they can lower or waive certain fees.
Timing: Closing costs tend to be lower during slow periods for the housing market.
Ask for a credit: Some lenders may offer a credit towards closing costs in exchange for a slightly higher interest rate.
Be prepared to walk away: If a lender is not willing to negotiate closing costs, it may be best to look for another lender that is more willing to work with you.
When would a no-closing-cost refinance be a bad idea?
A no-closing-cost refinance may not be the best idea in certain situations. Here are a few reasons why a no-closing-cost refinance may not be a good idea:
Short-term ownership: If you don’t plan to keep your home for a long time, you may not be in the house long enough to recoup the costs of the refinance.
Not enough equity: If you don’t have enough equity in your home, you may not be able to qualify for a no-closing-cost refinance.
Higher interest rate: If the interest rate is higher than the rate you already have, it typically does not make sense to refinance.
Limited budget: if you’re tight on budget, and the higher interest rate on the no-closing-cost refinance will put you in a difficult financial situation, then it’s not a good idea.