Interest-only mortgages let you pay just the accruing interest on your loan for an introductory period — but they come with high payments once that period ends.
These loans mainly benefit those planning to move or anticipating a big income increase within a decade.
Since the Great Recession, interest-only mortgages have been hard to find due to their high risk.
An interest-only mortgage allows you to pay only the interest on your loan for a set period. This type of mortgage can help you more easily afford the payments in the short term — but not without some drawbacks. Here’s what to know.
What is an interest-only mortgage?
An interest-only mortgage is a home loan that allows borrowers to make interest-only payments for a set amount of time, typically between seven and 10 years, at the start of a 30-year term. After this introductory period ends, the borrower pays principal and interest for the remainder of the loan at a variable interest rate.
In the early 2000s, homebuyers gave in to the instant gratification of mortgages that allowed them to make interest-only payments at the start of the loan, so long as they took on supersized payments over the long term. This was one of the risky practices that contributed to the housing crisis in 2007, leading to the Great Recession. In the end, many people lost their homes.
Some lenders still offer interest-only mortgages today — often as an adjustable-rate loan — but with much stricter eligibility requirements. They are now considered non-qualified mortgages (non-QM loans) because they don’t meet the backing criteria for Fannie Mae, Freddie Mac or the other government entities that insure and repurchase mortgages. Simply put: an interest-only mortgage is a riskier product.
How do interest-only mortgages work?
With an interest-only loan, you’ll pay interest at a fixed or adjustable rate during the interest-only period. The interest rates are comparable with what you might find with a conventional loan, but because you’re not paying any principal, the initial payments are much lower. However, they may still include property taxes, homeowners insurance and possibly private mortgage insurance (PMI).
Even though you’re only required to pay the interest at first, you still have the option of paying down the principal during the loan’s introductory period.
At the end of the initial period, borrowers must repay the principal either in one balloon payment at a set date, which can be very large, or in monthly payments (that also include interest) for the remainder of the term. These payments of principal and interest are going to be larger than the interest-only ones. And, because your principal payments are being amortized over only 20 years instead of 30, those payments will be higher than those of someone with a traditional 30-year loan.
You can refinance after the interest-only period is over, although fees will likely apply.
Example of an interest-only mortgage
Say you obtain a 30-year interest-only loan for $330,000, with an initial rate of 5.1 percent and an interest-only term of seven years. During the interest-only period, you’d pay roughly $1,403 per month.
After this initial phase, with our interest-only loan example, the payment would rise to $2,033 per month — assuming your rate doesn’t change. Many interest-only loans convert to an adjustable rate, so if rates rise in the future, yours will, too (and vice versa).
With a 30-year fixed-rate mortgage for the same amount, you’d pay $1,882 per month. This includes principal and interest, and also accounts for the higher rate on this type of loan — in this case, 5.54 percent.
With both the traditional fixed-rate option and our interest-only loan example, you’d pay a total of about $677,000, with around $347,000 of those payments going toward interest. As you can see, however, you’d ultimately have a higher monthly payment with an interest-only loan. If your interest-only loan requires a balloon payment instead, you’d be on the hook for several hundred thousand dollars.
How to qualify for an interest-only mortgage
Interest-only loans have been harder to come by since the housing crisis of the mid-2000s. Fewer lenders offer them, and banks have set stricter requirements to qualify.
Banks generally only offer an interest-only mortgage to a well-qualified borrower. You’ll likely need:
A credit score of 700 or more
A debt-to-income (DTI) ratio of 43 percent of less
A down payment of 20 percent or more
Solid proof of future earning potential
Ample assets
Should you consider an interest-only mortgage?
The best candidates for an interest-only mortgage are borrowers who have full confidence they’ll be able to cover the higher monthly payments when they arise. This kind of home loan might be right for you if:
You’re in graduate school and want to keep repayments low for now — but anticipate having a high-paying job in future
You have a trust that will start releasing assets at a future date
You flip houses and need to keep expenses down during the remodel
You expect to move before the end of the introductory period
Interest-only loans can be a prudent personal finance strategy under certain circumstances, but they’re not a good idea for everyone. Here are some pros and cons:
Pros of interest-only mortgages
You get more house for your money. You can enjoy a larger home for less money while you save up for a larger mortgage. That’s assuming you have a sound plan in place for when those larger payments eventually kick in. Bankrate’s affordability calculator can help you estimate how much house you can afford.
Interest-only payments are smaller than conventional mortgage payments. The initial monthly payments on interest-only loans tend to be significantly lower than payments on conventional loans, and the interest rate may be fixed during the first part of the loan. Bankrate’s interest-only mortgage calculator can help you determine what your monthly payment would be.
You kick higher payments down the road. You can delay making large mortgage payments or avoid them entirely if you plan to move out of your home before the introductory period ends.
If interest rates are high now, you can avoid them. If rates are anticipated to be lower in the future, you can keep your monthly payments relatively affordable and then reap the benefits of lower rates by the time the interest-only period ends.
Cons of interest-only mortgages
You won’t build home equity. As long as you’re only paying interest, you’re not building equity in your home. And if your home’s value depreciates, you could end up upside-down on your mortgage or risk negative amortization.
You might get an unaffordable payment after the interest-only period. You could encounter serious sticker shock when the interest-only period ends, and your monthly payments suddenly double or triple, or if you have to make a sizable balloon payment at the end of the initial period.
You’ll be at the mercy of market interest rates. If rates have risen since the loan originated, when the intro period ends, you may have a payment much higher than you want.
If your income changes, the home may be unaffordable down the road. Your anticipated future income might not match your expectations, saddling you with more house than you can afford.
Alternatives to an interest-only mortgage
Before you take on this kind of loan, ask yourself: what is an interest-only mortgage going to do for you? Make sure you think long-term.
If you want to avoid this higher-risk form of home financing, you can explore other types of mortgages. Many adjustable-rate mortgages also have a long, low-interest introductory rate period — and, since the payments include some principal, you’ll be building equity during it.
If you’re drawn to interest-only loans because of the low monthly payment, explore government-backed loans like one from the Federal Housing Administration (FHA). These can give you more affordable payments without the future jump that comes with an interest-only mortgage.
Can I change to an interest-only mortgage?
It is possible to refinance a traditional mortgage to an interest-only loan, and borrowers might consider this option as a way to free up money to put toward short-term investments or an unexpected expense. So, how do interest-only loans work as a refi? You would meet the same scrutiny and requirements as you would if applying for a first-time interest-only loan.
The same eligibility criteria for refinancing also apply, and some lenders may raise the bar since it is a higher-risk loan.
In any refinance, you will need to receive a home appraisal and pay closing costs and fees. Refinancing can cost 3 percent to 6 percent of the home’s total amount. In addition, if you have less than 20 percent equity in your home, you will be required to pay PMI.
If you’re in the market for a home, here are today’s mortgage rates compared to last week’s.
Loan term
Today’s Rate
Last week
Change
30-year mortgage rate
6.90%
7.11%
-0.21
15-year fixed rate
6.49%
6.65%
-0.16
30-year jumbo mortgage rate
7.04%
7.21%
-0.17
30-year mortgage refinance rate
6.84%
7.05%
-0.22
Average rates offered by lenders nationwide as of March 12, 2024. We use rates collected by Bankrate to track daily mortgage rate trends.
Mortgage rates change every day. Experts recommend shopping around to make sure you’re getting the lowest rate. By entering your information below, you can get a custom quote from one of CNET’s partner lenders.
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.
Mortgage terms and types
When picking a mortgage, consider the loan term, or payment schedule. The most common mortgage terms are 15 and 30 years, although 10-, 20- and 40-year mortgages also exist. You’ll also need to choose between a fixed-rate mortgage, where the interest rate is set for the duration of the loan, and an adjustable-rate mortgage. With an adjustable-rate mortgage, the interest rate is only fixed for a certain amount of time (commonly five, seven or 10 years), after which the rate adjusts annually based on the market’s current interest rate. Fixed-rate mortgages offer more stability and are a better option if you plan to live in a home in the long term, but adjustable-rate mortgages may offer lower interest rates upfront.
30-year fixed-rate mortgages
The 30-year fixed-mortgage rate average is 6.90%, which is a decrease of 21 basis points from one week ago. (A basis point is equivalent to 0.01%.) A 30-year fixed mortgage is the most common loan term. It will often have a higher interest rate than a 15-year mortgage, but you’ll have a lower monthly payment.
15-year fixed-rate mortgages
The average rate for a 15-year, fixed mortgage is 6.49%, which is a decrease of 16 basis points from the same time last week. Though you’ll have a bigger monthly payment than a 30-year fixed mortgage, a 15-year loan usually comes with a lower interest rate, allowing you to pay less interest in the long run and pay off your mortgage sooner.
5/1 adjustable-rate mortgages
A 5/1 ARM has an average rate of 6.46%, a decrease of 22 basis points compared to last week. You’ll typically get a lower introductory interest rate with a 5/1 ARM in the first five years of the mortgage. But you could pay more after that period, depending on how the rate adjusts annually. If you plan to sell or refinance your house within five years, an ARM could be a good option.
Mortgage rate trends
High inflation and the Federal Reserve’s aggressive interest rate hikes drove up mortgage rates over the last several years. Toward the end of last year, however, the Fed announced that interest rate cuts were on the table for 2024. That projection led to a significant drop in mortgage rates, pushing them into the 6% range. Since early February, however, mortgage rates have climbed back above 7% in response to strong economic data.
30-year fixed mortgage: 6.90%
15-year fixed mortgage: 6.49%
5/1 adjustable-rate mortgage: 6.46%
Mortgage rate forecasts from experts
Experts say interest rate cuts from the Fed will allow mortgage rates to ease, though the first cut won’t likely come until May or June, depending on how quickly inflation decelerates.
“We are expecting mortgage rates to fall to around 6.5% by the end of this year, but there’s still a lot of volatility I think we might see,” said Daryl Fairweather, chief economist at Redfin. “It’s possible that rates might go up before they go down again, so that’s why we’re still being conservative with rates being around 6.5%.”
Each month brings a new set of inflation and labor data that can change how investors and the market respond and what direction mortgage rates go, said Odeta Kushi, deputy chief economist at First American Financial Corporation. “Ongoing inflation deceleration, a slowing economy and even geopolitical uncertainty can contribute to lower mortgage rates. On the other hand, data that signals upside risk to inflation may result in higher rates,” Kushi said.
While mortgage forecasters base their projections on different data, most experts and market watchers predict rates will move toward 6% or lower by the end of 2024. Here’s a look at where some major housing authorities expect average mortgage rates to land.
What influences mortgage rates?
While it’s important to monitor mortgage rates if you’re shopping for a home, remember that no one has a crystal ball. It’s impossible to time the mortgage market, and rates will always have some level of volatility because so many factors are at play.
“Mortgage rates tend to follow long-date Treasury yields, a function of current inflation and economic growth as well as expectations about future economic conditions,” says Orphe Divounguy, senior macroeconomist at Zillow Home Loans.
Here are the factors that influence the average rates on home loans.
Federal Reserve monetary policy: The nation’s central bank doesn’t set interest rates, but when it adjusts the federal funds rate, mortgages tend to go in the same direction.
Inflation: Mortgage rates tend to increase during high inflation. Lenders usually set higher interest rates on loans to compensate for the loss of purchasing power.
The bond market: Mortgage lenders often use long-term bond yields, like the 10-Year Treasury, as a benchmark to set interest rates on home loans. When yields rise, mortgage rates typically increase.
Geopolitical events: World events, such as elections, pandemics or economic crises, can also affect home loan rates, particularly when global financial markets face uncertainty.
Other economic factors: The bond market, employment data, investor confidence and housing market trends, such as supply and demand, can also affect the direction of mortgage rates.
Calculate your monthly mortgage payment
Getting a mortgage should always depend on your financial situation and long-term goals. The most important thing is to make a budget and try to stay within your means. CNET’s mortgage calculator below can help homebuyers prepare for monthly mortgage payments.
How to find the best mortgage rates
Though mortgage rates and home prices are high, the housing market won’t be unaffordable forever. It’s always a good time to save for a down payment and improve your credit score to help you secure a competitive mortgage rate when the time is right.
Save for a bigger down payment: Though a 20% down payment isn’t required, a larger upfront payment means taking out a smaller mortgage, which will help you save in interest.
Boost your credit score: You can qualify for a conventional mortgage with a 620 credit score, but a higher score of at least 740 will get you better rates.
Pay off debt: Experts recommend a debt-to-income ratio of 36% or less to help you qualify for the best rates. Not carrying other debt will put you in a better position to handle your monthly payments.
Research loans and assistance: Government-sponsored loans have more flexible borrowing requirements than conventional loans. Some government-sponsored or private programs can also help with your down payment and closing costs.
Shop around for lenders: Researching and comparing multiple loan offers from different lenders can help you secure the lowest mortgage rate for your situation.
Are you eligible for the zero-down USDA home loan?
What if you could secure a USDA home loan that allows you to buy a house with no down payment, competitive mortgage rates, and reduced mortgage insurance costs?
It might sound like a dream, but it’s entirely possible with the USDA mortgage program. Designed to assist low- and moderate-income Americans in becoming homeowners, USDA loans provide incredibly affordable financing options for eligible buyers.
Essentially, USDA mortgages empower individuals to transition from renting to owning, even when they thought homeownership was out of reach.
Verify your USDA loan eligibility. Start here
In this article (Skip to…)
>Related: How to buy a house with $0 down: First-time home buyer
What is a USDA loan?
USDA loans are mortgages backed by the U.S. Department of Agriculture as part of its Rural Development Guaranteed Housing Loan program. The USDA offers financing with no down payment, reduced mortgage insurance, and below-market mortgage rates.
Verify your USDA loan eligibility. Start here
The USDA mortgage program is intended for home buyers with low-to-average household incomes. In order to qualify, you must also purchase a home in a “rural area” as the USDA defines it. Those who are eligible can use a USDA mortgage to buy a home or refinance one they already own.
USDA loans offer nearly unbeatable benefits for qualified borrowers. So if this program sounds like a good fit for you, it’s worth getting in touch with a participating lender to find out if you’re eligible.
How do USDA loans work?
The U.S. Department of Agriculture insures USDA loans. Thanks to government guarantees and subsidies, lenders can offer 100% financing and below-market interest rates without taking on too much risk.
Verify your USDA loan eligibility. Start here
Although the USDA backs this program, it typically isn’t the one lending money. Instead, private lenders are authorized to offer USDA loans. That means you can get a USDA mortgage from many mainstream banks, mortgage lenders, and credit unions.
The application process for a USDA mortgage works just like any other home loan. You’ll compare rates and choose a lender, complete an application (often online), provide financial documents, wait for the lender’s approval, and then set a closing day.
The only exception is for very low-income borrowers, who may qualify for a USDA Direct home loan. In this case, you’d go straight to the Department of Agriculture to apply rather than to a private lender.
Types of USDA loans
For eligible individuals and families looking to buy, build, or renovate a home in a rural area, the USDA offers three main mortgage loan types. The loan programs are as follows:.
Verify your USDA loan eligibility. Start here
USDA Guaranteed Loans
Approved private lenders, such as banks and mortgage companies, provide USDA loan guarantees to qualified borrowers. A USDA guaranteed loan is one in which the government backs a portion of the loan, lowering the lender’s risk and allowing them to offer more favorable terms to the borrower. These loans frequently have low interest rates, no down payment, and more lenient credit requirements. The property must be in an eligible rural area as the USDA defines it, and borrowers must meet household income requirements that vary depending on location and household size.
USDA Direct Loans
The USDA also offers the Single Family Housing Direct loan through the Section 502 Direct Loan Program. These loans are meant to help low-income families buy, build, or fix up small homes in rural areas. The USDA, rather than private lenders, provides funding for direct loans as opposed to guaranteed loans. These loans have favorable terms, such as low interest rates (as low as 1% with payment assistance) and long repayment periods (up to 38 years for eligible applicants). Income, creditworthiness, and the property’s location in an eligible rural area determine eligibility for direct loans.
USDA Home Improvement Loan
The USDA’s Single Family Housing Repair Loans and Grants program, also known as the Section 504 program, provides financing for home improvements. This program provides low-interest, fixed-rate loans and grants to low-income rural homeowners for necessary home repairs, improvements, and modifications that make their homes safer, more energy-efficient, and more accessible. However, if you’re looking for one, you might have a difficult time finding this type of USDA home loan. They are not widely available from lenders.
USDA loan eligibility requirements
To be eligible for a USDA home loan, you’ll need to meet a number of requirements that vary depending on whether you are applying for a USDA loan guarantee or a USDA direct loan.
Verify your USDA loan eligibility. Start here
Some general requirements, however, apply to all USDA loans, specifically those based on both buyer and property eligibility.
USDA loan property requirements
Eligible rural area
The USDA defines an eligible area in rural America as having a population of 20,000 or fewer. To check if the property you’re considering falls within these designated areas, the USDA’s eligibility site provides all the necessary information. We also provide a USDA eligibility map below.
Single-family primary residence
USDA loans are exclusively available for primary residences. Neither investment properties nor second homes are eligible for this program.
Meet safety standards
The property must adhere to the USDA’s minimum property requirements, which focus on safety, structural integrity, and adequate access to utilities and services.
USDA loan borrower requirements
Income limits
You must meet USDA monthly income limits, meaning your household income can’t exceed 115% of the area median income. Conforming to USDA income eligibility requirements ensures the program is accessible to those it’s intended to serve.
Stable income
Applicants are required to demonstrate a stable and dependable income, typically for at least 24 months, before applying. This helps ensure borrowers can maintain their loan payments.
Creditworthiness
Although USDA loans are known for their flexible credit requirements, creditworthiness is still important. Lenders usually seek a minimum credit score of 640 for guaranteed loans, with USDA Direct Loans potentially having more lenient criteria.
Debt-to-income ratio
Your monthly debt, including future mortgage payments, generally should not exceed 41% of your gross monthly income. However, lenders may make exceptions based on credit score and available cash reserves.
Citizenship status
Applicants need to be U.S. citizens, U.S. non-citizen nationals, or qualified aliens with a valid Social Security number to qualify for a USDA loan.
USDA loan eligibility map
The USDA eligibility map is a valuable online resource for potential borrowers. It helps them identify if a property is situated in an area of rural America that qualifies for USDA home loans.
Verify your USDA loan eligibility. Start here
Users can enter a specific address or explore areas of the map to see if they qualify for USDA guaranteed loans or direct loans by using this interactive map.
1 Source: USDAloans.com, based on Housing Assistance Council data
USDA loan rates
Compared to other home loan programs, USDA mortgage interest rates are some of the lowest available.
Check your USDA loan rates. Start here
The VA loan, specifically tailored for veterans and service members, stands alongside the USDA loan as one of the few government-backed loan programs offering competitively low rates. Due in large part to the security that government subsidies and guarantees provide, both the USDA and VA programs are able to offer interest rates below the market average.
Other mortgage programs, like the FHA loan and conventional loan, can have rates around 0.5%–0.75% higher than USDA rates on average. That said, mortgage rates are personal. Getting a USDA loan doesn’t necessarily mean your rate will be “below-market” or match the USDA loan rates advertised.
How to get the best USDA mortgage rates
Strengthening your financial standing is essential for obtaining the best USDA loan rates. Here are some helpful techniques for improving your personal finances:
Boost your credit score.Improving your credit score is an important step toward getting the best USDA loan rates. Taking steps to improve your credit score before applying for a USDA loan often proves beneficial.
Consider a down payment. While a down payment is not required for USDA loans, it can demonstrate to the lender your commitment to repaying the loan. This could also help lenders find your application more appealing.
Minimize existing debt.Lowering your debt-to-income ratio (DTI) by paying off existing high-interest debts can make you more appealing to lenders. It demonstrates that you are capable of handling your loan and making payments on time.
Shop around for lenders.Exploring loan options with multiple participating lenders is a smart move that can save you thousands of dollars over the life of the loan. Comparing their interest rates, fees, closing costs, and loan terms can help you identify the most appealing offer. It’s possible that first-time home buyers will find better options than what USDA loans can offer.
USDA loan costs
When it comes to financing a home purchase with a USDA loan, it’s not just the mortgage rate that you need to consider. You’ll be responsible for various fees and costs, which can add up over time. Understanding these costs upfront can help you make a more informed decision and plan your budget accordingly.
Here’s a breakdown of the expenses you can expect:.
USDA mortgage insurance
The USDA guarantees its mortgage loans, meaning it offers protection to approved mortgage lenders in case borrowers default. But the program is partially self-funded. To keep this loan program running, the USDA charges homeowner-paid mortgage insurance premiums.
Verify your USDA loan eligibility. Start here
Upfront guarantee fee
One of the first costs you’ll encounter is the upfront guarantee fee. This fee is a percentage of the loan amount and is required by the USDA to secure the loan. It’s usually around 1% but can vary. You can either pay this fee upfront or roll it into the loan balance.
Annual guarantee fee
Unlike conventional loans that may not require mortgage insurance, USDA loans come with a monthly mortgage insurance premium. You can expect to pay a 0.35% annual guarantee fee based on the remaining principal balance each year.
The annual fee is broken into 12 installments and included in your regular mortgage payment.
As a real-life example, a home buyer with a $100,000 loan size would have a $1,000 upfront mortgage insurance cost plus a monthly payment of $29.17 for the annual mortgage insurance. USDA upfront mortgage insurance is not paid in cash. It’s added to your loan balance, so you pay it over time.
Inspection fees
Before the loan is approved, the property will need to be inspected to ensure it meets USDA property eligibility requirements. This inspection can cost anywhere from $300 to $500, depending on the location and size of the home.
Closing Costs
Closing costs are a mix of fees that include loan origination fees, appraisal fees, title search fees, and more. These costs can range from 2% to 5% of the home’s purchase price. Some of these costs can be rolled into the loan amount, but it’s best to be prepared to pay some of them out-of-pocket.
How to apply for a USDA home loan
Qualifying for a USDA home loan can be a great way to finance a home, especially if you’re looking to buy in a rural area. These loans offer attractive benefits like zero down payments and competitive interest rates.
However, the USDA loan approval process involves several steps and specific eligibility criteria. Here’s a guide on how to apply for a USDA home loan.
Check your USDA loan eligibility. Start here
Step 1: Check your eligibility
Before diving into the application process, it’s important to determine if you meet the USDA’s eligibility requirements. These typically include:
A minimum credit score of 640
A debt-to-income (DTI) ratio of up to 41%
Income limitations, which vary by location and household size
The property must be located in a USDA-eligible area
Step 2: Gather necessary documentation
You’ll need to provide various documents to prove your eligibility, including:
Proof of income eligibility (e.g., pay stubs, tax returns)
Employment verification
Credit history report
Personal identification (e.g., driver’s license, passport)
Step 3: Pre-Qualification
Contact a USDA-approved lender to get pre-qualified for a loan. During this qualifying process, the participating lender will review your financial situation to give you an estimate of how much you can borrow.
Check if you’re eligible for a USDA loan. Start here
Both pre-approval and pre-qualification can give you a better idea of your budget and show sellers that you are a serious buyer.
Step 4: Property search
Once pre-qualified, you can start looking for a property that meets USDA guidelines. Keep in mind that the home must be your primary residence and be located in an eligible rural area.
Working with a real estate agent who has experience with USDA loans can be a big advantage.
Step 5: USDA home loan application
After finding the right property, you’ll need to fill out the USDA loan application. Your lender will guide you through this process, which will include a more thorough review of your financial situation and the submission of additional documents.
Step 6: Property appraisal and inspection
The lender will arrange for an appraisal to ensure the property meets USDA standards. An inspection may also be required to identify any potential issues with the home.
Step 7: Loan approval and closing
Once the appraisal and inspection are complete and all documentation is verified, you’ll move on to the loan approval stage. If approved, you’ll proceed to closing, where you’ll sign all necessary paperwork and officially secure your USDA home loan.
With the loan secured and the keys in hand, you’re now ready to move into your new home!
By following these steps and working closely with a USDA-approved lender, you can navigate the USDA home loan process with confidence. Always remember to consult with your lender for the most accurate and personalized advice.
How do USDA loans compare to conventional loans?
USDA loans and conventional loans both have fixed terms and interest rates, but they’re different when it comes to down payments and fees.
Down payment
USDA loans don’t ask for a down payment, unlike conventional mortgages, which usually require a 3% down payment. FHA loans require a 3.5% down payment. VA loans, like USDA loans, also don’t require a down payment.
Home appraisal
Both USDA loans and conventional loans need an appraisal from an independent third party before the loan is approved.
The home appraisal for a conventional loan determines whether the loan amount and the home’s value match. If the loan amount doesn’t measure up to the market value of the home, the lender can’t get back their money just by selling the house. If you want to know more about the home’s condition, like the roof or appliances, you need to get a home inspector.
For a USDA loan, the appraisal does two things:
Just like with a conventional loan, it makes sure the home’s value is right for the loan amount.
It checks if the home meets USDA standards. This means the home should be ready to live in. For example, the roof and heating should work properly. The appraisal also looks at whether the well and septic systems follow USDA rules.
If you’re looking for a detailed report on the house, hiring a home inspector is still a good idea.
Fees
While conventional loans charge private mortgage insurance (PMI) when you make less than a 20% down payment, this isn’t the case with USDA loans. You don’t need PMI for USDA direct or guaranteed loans.
However, USDA guaranteed loans have a guarantee fee of 1% at closing and then an annual fee of 0.35% of the loan, added to your monthly payment. You can roll the initial fee into your loan amount.
Loan terms
The term for a USDA guaranteed loan is 30 years with a fixed rate. If you get a USDA direct loan, you can have up to 33 years to pay it back. If you’re a very low-income borrower, you might get up to 38 years to make it more affordable.
FAQ: USDA loans
Verify your USDA loan eligibility. Start here
What is the USDA Rural Housing Mortgage and who is eligible for it?
The USDA Rural Housing Mortgage, officially known as the Single Family Housing Guaranteed Loan Program, is a rural development loan aimed at helping single-family home buyers. It’s often referred to as a “Section 502” loan, based on the Housing Act of 1949 that created this program. Designed to stimulate growth in less-populated and low-income areas, this rural development loan is ideal for those looking to buy in eligible rural areas with the possibility of a zero-down payment.
What is the income limit for USDA home loans?
The income limit for USDA home loans is based on your area’s median income. To be eligible for a USDA loan, you can’t exceed the median income by more than 15 percent. For example, if the median salary in your city is $65,000 per year, you could qualify for a USDA loan with a salary of $74,750 or less.
Do USDA loans take longer to close?
USDA lenders have to send each loan file to the Department of Agriculture for approval before underwriting. This can add around two to three weeks to your loan processing time.
Can I do a cash-out refinance with the USDA program?
No, cash-out refinancing is not allowed in the USDA Rural Housing Program. Its loans are for home buying and rate-and-term refinances only.
What’s the maximum USDA mortgage loan size?
The USDA does not set loan limits, but your household income and debt-to-income ratio have a limit on the amount you can borrow. The USDA typically caps debt-to-income ratios at 41 percent. However, the program may be more lenient for borrowers with a credit score over 660 and stable employment or who show a demonstrated ability to save.
Where can I find a USDA loan lender, and what loan terms are available?
You can find a USDA loan lender by visiting the U.S. Department of Agriculture’s website, which maintains a list of approved lenders for the Rural Housing Program. The USDA Rural Housing loan offers a 30-year fixed-rate mortgage only, with no 15-year fixed option or adjustable-rate mortgage (ARM) program available.
Can I receive a gift or have the seller pay for my closing costs with a USDA loan?
Yes, USDA rural development loans allow both gifts from family members and non-family members for closing costs. Inform your loan officer as soon as possible if you’ll be using gifted funds, as it requires extra documentation and verification from the lender. Additionally, the USDA Rural Housing Program permits sellers to pay closing costs for buyers through seller concessions. These concessions may cover all or part of a purchase’s state and local government fees, lender costs, title charges, and various home and pest inspections.
Can I use the USDA loan for a vacation home, investment property, or working farm?
No, the USDA loan program is designed specifically for primary residences and cannot be used for vacation homes, investment properties, or working farms. The Rural Housing Program focuses on residential property financing.
Am I eligible for the USDA if I recently returned to work or am self-employed?
If you are a W-2 employee, you are eligible for USDA financing immediately, as there’s no job history requirement. However, if you have less than two years in a job, you may not be able to use your bonus income for qualification purposes. Self-employed individuals can also use the USDA Rural Housing Program. To verify your self-employment income, you will need to provide two years of federal tax returns, similar to the requirements for FHA and conventional financing.
Can I use the USDA loan program for home repairs, improvements, accessibility, and energy-efficiency upgrades?
Yes, the USDA loan program can be used for various purposes, including making eligible repairs and improvements to a home (such as replacing windows or appliances, preparing a site with trees, walks, and driveways, drawing fixed broadband service, and connecting utilities), permanently installing equipment to assist household members with physical disabilities, and purchasing and installing materials to improve a home’s energy efficiency (including windows, roofing, and solar panels).
Can a non-citizen qualify for a USDA loan?
Yes, along with U.S. citizens, legal permanent residents of the United States can also apply for a USDA loan.
Today’s USDA mortgage rates
USDA mortgage interest rates consistently rank among the lowest in the market, next to VA loans.
USDA loans can be particularly attractive to borrowers seeking optimal financial terms, especially in an environment with elevated interest rates. Prospective homebuyers who meet the criteria for a USDA loan may be able to secure a great deal right now.
To find out whether you qualify for one and what your rate is, consult with a trusted lender below.
Time to make a move? Let us find the right mortgage for you
1 Source: USDAloans.com, based on Housing Assistance Council data
Editor’s Note: Parts of this story were auto-populated using data from Curinos, a mortgage research firm that collects data from more than 250 lenders. For more details on how we compile daily mortgage data, check out our methodology here.
Mortgage rates remain above 7%, according to data from Curinos analyzed by MarketWatch Guides. The 30-year fixed-rate mortgage is 7.17% today, down-0.21 percentage points from last week.
With mortgage rates above 7% and home prices showing no signs of dropping, home affordability has continued to decline, according to the Mortgage Bankers Association (MBA). An MBA report published last week showed that the median monthly payment for new home purchases in the U.S. increased to $2,134 in January – up 4% from the month before.
Prospective home buyers may see rates drop more substantially this year, however. The Federal Reserve board previously indicated that it expects three rate cuts throughout 2024 and their next meeting is scheduled for March 19-20.
Here are today’s average mortgage rates:
30-year fixed mortgage rate: 7.17%
15-year fixed mortgage rate: 6.53%
5/6 ARM mortgage rate: 6.93%
Jumbo mortgage rate: 7.02%
Current Mortgage Rates
Product
Rate
Last Week
Change
30-Year Fixed Rate
7.17%
7.38%
-0.21
15-Year Fixed Rate
6.53%
6.72%
-0.19
5/6 ARM
6.93%
7.02%
-0.09
7/6 ARM
7.09%
7.23%
-0.14
10/6 ARM
7.24%
7.35%
-0.11
30-Year Fixed Rate Jumbo
7.02%
7.17%
-0.15
30-Year Fixed Rate FHA
6.96%
7.17%
-0.21
30-Year Fixed Rate VA
6.98%
7.16%
-0.18
Disclaimer: The rates above are based on data from Curinos, LLC. All rate data is accurate as of Friday, March 08, 2024. Actual rates may vary.
>> View historical mortgage rate trends
Mortgage Rates for Home Purchase
30-year fixed-rate mortgages are down, -0.21
The average 30-year fixed-mortgage rate is 7.17%. Since the same time last week, the rate is down, changing -0.21 percentage points.
At the current average rate, you’ll pay $676.76 per month in principal and interest for every $100,000 you borrow. You’re paying less compared to last week when the average rate was 7.38%.
15-year fixed-rate mortgages are down, -0.19
The average rate you’ll pay for a 15-year fixed-mortgage is 6.53%, a decrease of-0.19 percentage points compared to last week.
Monthly payments on a 15-year fixed-mortgage at a rate of 6.53% will cost approximately $872.76 per $100,000 borrowed. With the rate of 6.72% last week, you would’ve paid $883.25 per month.
5/6 adjustable-rate mortgages are down, -0.09
The average rate on a 5/6 adjustable rate mortgage is 6.93%, a decrease of-0.09 percentage points over the last seven days.
Adjustable-rate mortgages, commonly referred to as ARMs, are mortgages with a fixed interest rate for a set period of time followed by a rate that adjusts on a regular basis. With a 5/6 ARM, the rate is fixed for the first 5 years and then adjusts every six months over the next 25 years.
Monthly payments on a 5/6 ARM at a rate of 6.93% will cost approximately $660.61 per $100,000 borrowed over the first 5 years of the loan.
Jumbo loan interest rates are down, -0.15
The average jumbo mortgage rate today is 7.02%, a decrease of-0.15 percentage points over the past week.
Jumbo loans are mortgages that exceed loan limits set by the Federal Housing Finance Agency (FHFA) and funding criteria of Freddie Mac and Fannie Mae. This generally means that the amount of money borrowed is higher than $726,200.
Product
Monthly P&I per $100,000
Last Week
Change
30-Year Fixed Rate
$676.76
$691.02
-$14.26
15-Year Fixed Rate
$872.76
$883.25
-$10.49
5/6 ARM
$660.61
$666.65
-$6.04
7/6 ARM
$671.36
$680.82
-$9.46
10/6 ARM
$681.50
$688.97
-$7.47
30-Year Fixed Rate Jumbo
$666.65
$676.76
-$10.11
30-Year Fixed Rate FHA
$662.62
$676.76
-$14.14
30-Year Fixed Rate VA
$663.96
$676.08
-$12.12
Note: Monthly payments on adjustable-rate mortgages are shown for the first five, seven and 10 years of the loan, respectively.
Factors That Affect Your Mortgage Rate
Mortgage rates change frequently based on the economic environment. Inflation, the federal funds rate, housing market conditions and other factors all play into how rates move from week-to-week and month-to-month.
But outside of macroeconomic trends, several other factors specific to the borrower will affect the mortgage interest rate. They include:
Financial situation: Mortgage lenders use past financial decisions of borrowers as a way to evaluate the risk of loaning money.
Loan amount and structure: The amount of money that bank or mortgage lender loans and its structure (including both the term and whether its a fixed-rate or adjustable-rate).
Location: Mortgage rates vary by where you are buying a home. Areas with more lenders, and thus more competition, may have lower rates. Foreclosure laws can also impact a lender’s risk, affecting rates.
Whether borrowers are first-time homebuyers: Oftentimes first-time homebuyer programs will offer new homeowners lower rates.
Lenders: Banks, credit unions and online lenders all may offer slightly different rates depending on their internal determination.
How To Shop for the Best Mortgage Rate
Comparison shopping for a mortgage can be overwhelming, but it’s shown to be worth the effort. Homeowners may be able to save between $600 and $1,200 annually by shopping around for the best rate, researchers found in a recent study by Freddie Mac. That’s why we put together steps on how to shop for the best mortgage rate.
1. Check credit scores and credit reports
A borrower’s credit situation will likely determine the type of mortgage they can pursue, as well as their rate. Conventional loans are typically only offered to borrowers with a credit score of 620 or higher, while FHA loans may be the best option for borrowers with a FICO score between 500 and 619. Additionally, individuals with higher credit scores are more likely to be offered a lower mortgage interest rate.
Mortgage lenders often review scores from the three major credit bureaus: Equifax, Experian and TransUnion. By viewing your scores ahead of lenders considering you for a loan, you can check for errors and even work to improve your score by paying down balances and limiting new credit cards and loans.
2. Know the options
There are four standard mortgage programs: conventional, FHA, VA and USDA. To get the best mortgage rate and increase your odds of approval, it’s important for potential borrowers to do their research and apply for the mortgage program that best fits their financial situation.
The table below describes each program, highlighting minimum credit score and down payment requirements.
Though conventional mortgages are most common, borrowers will also need to consider their repayment plan and term. Rates can be either fixed or adjustable and terms can range from 10 to 30 years, though most homeowners opt for a 15- or 30-year mortgage.
3. Compare quotes across multiple lenders
Shopping around for a mortgage goes beyond comparing rates online. We recommend reaching out to lenders directly to see the “real” rate as figures listed online may not be representative of a borrower’s particular situation. While most experts recommend getting quotes from three to five lenders, there is no limit on the number of mortgage companies you can apply with. In many cases, lenders will allow borrowers to prequalify for a mortgage and receive a tentative loan offer with no impact to their credit score.
After gathering your loan documents – including proof of income, assets and credit – borrowers may also apply for pre-approval. Pre-approval will let them know where they stand with lenders and may also improve negotiating power with home sellers.
4. Review loan estimates
To fully understand which lender is offering the cheapest loan overall, take a look at the loan estimate provided by each lender. A loan estimate will list not only the mortgage rate, but also a borrower’s annual percentage rate (APR), which includes the interest rate and other lender fees such as closing costs and discount points.
By comparing loan estimates across lenders, borrowers can see the full breakdown of their possible costs. One lender may offer lower interest rates, but higher fees and vice versa. Looking at the loan’s APR can give you a good apples-to-apples comparison between lenders that takes into account both rates and fees.
5. Consider negotiating with lenders on rates
Mortgage lenders want to do business. This means that borrowers may use competing offers as leverage to adjust fees and interest rates. Many lenders may not lower their offered rate by much, but even a few basis points may save borrowers more than they might think in the long run. For instance, the difference between 6.8% and 7.0% on a 30-year, fixed-rate $100,000 mortgage is roughly $5,000 over the life of the loan.
Expert Forecasts for Mortgage Rates
Mortgage rates have cooled significantly over the past several months. After the 30-year fixed-rate mortgage hit 8% last October, it ended 2023 closer to 7%. In fact, the average for Q4 2023 was 7.3%.
Analysts with Fannie Mae and the Mortgage Bankers Association (MBA) both project that rates will fall going into 2024 and throughout next year.
Fannie Mae economists expect rates to drop more quickly, falling below 6% by Q4 2024. Meanwhile, the MBA’s forecast for Q4 2024 is 6.1% and 5.9% for Q1 2025.
More Mortgage Resources
Methodology
Every weekday, MarketWatch Guides provides readers with the latest rates on 11 different types of mortgages. Data for these daily averages comes from Curinos, LLC, a leading provider of mortgage research that collects data from more than 250 lenders. For more details on how we compile daily mortgage data, check out our comprehensive methodology here. Editor’s Note: Before making significant financial decisions, consider reviewing your options with someone you trust, such as a financial adviser, credit counselor or financial professional, since every person’s situation and needs are different.
In anticipation of Tuesday’s inflation reading, mortgage rates eased compared to last week.
HousingWire’s Mortgage Rate Center showed the average 30-year fixed rate for conventional loans at 7.08% on Tuesday, down from 7.17% one week earlier. At the same time one year ago, the 30-year fixed rate averaged 6.83%. Meanwhile, the 15-year fixed rate averaged 6.46% on Tuesday, down from 6.5% one week earlier.
The relief in borrowing costs, however, may be short-lived as Tuesday’s strong inflation data is likely to reverse this trend. Consumer prices in February were up 3.2% from a year earlier, according to data released by the U.S. Bureau of Labor Statistics.
“The growth rate of inflation has fallen a lot, and the Fed is going to cut rates three times this year,” HousingWire lead analyst Logan Mohtashami said. “This makes bearish American citizens mad because people who don’t want rate cuts or want the Fed to hike rates want to see the Fed create a recession. You can understand their anger with the economy still in expansion mode.”
As long as the economy is expanding, rates will stay elevated. Only a pivot by the Fed or a softening of labor data could change the status quo, Mohtashami added.
Housing inventory
For-sale inventory has been rising for two years despite elevated mortgage rates. Inventory is now 21% higher than the same time last year. Mike Simonsen, founder and president of Altos Research, wrote on Monday that the available inventory of homes on the market will continue to climb until mortgage rates start to decline.
According to Simonsen, the Fed’s eventual commitment to cut rates, along with cooling inflation and job markets, are giving homeowners reasons to sell.
In the week ending March 8, there were just over 500,000 single-family homes on the market in the U.S, up 0.5% from the previous week and up 21% from one year ago. Additionally, there were 100,000 more single-family homes on the market than there were in March 2023.
“Unless mortgage rates fall from here, then by July, we could have 40% more homes on the market than a year ago,” Simonsen wrote.
Disparities in inventory levels have surfaced at a regional level, with Gulf Coast markets witnessing a resurgence in supply levels that have surpassed pre-pandemic benchmarks. Northeastern and Midwestern markets, meanwhile, have been slower to emerge from pandemic-induced troughs.
The available inventory of unsold homes on the market was slightly more than 500,000 last week, 21% higher than it was a year earlier.
If you’re like most people embarking on a home-buying journey, one of your first steps will be finding a mortgage lender. There’s a lot to consider when it comes to choosing the right one — everything from interest rates, loan types and fees to service and experience.
When comparing lenders, it’s worth taking your time and choosing carefully. Purchasing a home is a big step, and you want a knowledgeable lending partner by your side as you weigh your financing options and navigate the paperwork involved. A good mortgage lender is a valuable resource and can make the home-buying process easier and less stressful. Let’s take a look at the steps you can take to find the right lender fit for you.
How to Find a Mortgage Lender
There are several types of lenders you can look to for securing your home loan, with the most popular being direct lenders and mortgage brokers.
Direct lenders. Banks, credit unions and mortgage companies are considered direct lenders and handle the entire mortgage process from origination to closing.
Mortgage brokers. Mortgage brokers work independently with a variety of loan originators, including direct lenders, to help clients find a mortgage that fits their needs.
Which type of mortgage lender you choose depends on your personal preference, the type of loan you’re looking for and your financial situation. There are many factors to consider when comparing your options. While interest rates are certainly a big one, there are other things to think about, such as fees, loan products, the process and the lender’s experience and reputation.
Here are some tips for choosing the right lender and how to best set yourself up for mortgage success.
Starting the Loan Certification Process
When choosing a lender, look for one that offers a written letter or certification you can provide to sellers to let them know you are qualified. This gives you a clear picture of your buying power and can help you make a stronger offer on a home. When you work with a lender that provides this, you’re doing much of the legwork involved in obtaining a mortgage contract without actually finalizing it.
Choosing Pennymac as your lender gives you access to our unique BuyerReady Certification process. This certification gets you even closer to your new home by confirming precisely how much of a mortgage you will qualify for.
While a BuyerReady Certification does not guarantee a closing, it is a conditional approval based on the information you provide us through the formal loan process. You’ll have peace of mind knowing your borrowing limit and be able to show realtors and sellers that you’re serious about purchasing. To receive a Pennymac BuyerReady Certification, you’ll submit a mortgage application and financial documents, which a Pennymac Loan Expert will review.
Here are some of the benefits of having a BuyerReady Certification:
Shows sellers, realtors and lenders that you’re a serious homebuyer
Helps inform your decision-making in terms of how much you can spend on a home and the types of financing you’ll be able to qualify for
Gives you a competitive advantage over homebuyers who don’t have it
Important Mortgage Considerations
Whether you begin your hunt for the perfect lender and loan by visiting your local bank, searching online or surveying your family and friends, here are some key factors you’ll want to consider.
Interest Rates
Interest rates are among the most important factors to consider when comparing lenders. Your interest rate will determine how much you have to pay for your home loan, so take time to do the math when examining your options. Even a seemingly small difference between rates, such as an additional .5%, can add up to a considerable increase in your monthly payment. Over a 30-year term, you could be paying tens of thousands of dollars more in interest.
While interest rates aren’t the only factor to look at when choosing a lender, they are a significant one. Select a lender that offers a range of competitive rates and terms and will quickly lock in a rate when you find the one that works best for your budget.
Down Payment and Mortgage Insurance
Most, but not all, home loans will require a down payment. A home down payment is money paid upfront for the home at closing and is a percentage of the home’s purchase price.
A conventional fixed-rate mortgage may require a down payment of as little as 3%. A Federal Housing Administration (FHA) mortgage has a minimum down payment of 3.5%, while the U.S. Department of Veterans Affairs offers loans with 0% down.
When comparing mortgage lenders, be sure to inquire about which loans they offer, especially if you’re interested in a non-conventional loan, such as a FHA or VA loan.
Keep Mortgage Insurance in Mind
While there is flexibility in how much of a down payment you make, if you have a conventional loan and do not put at least 20% down, you’ll have to pay for private mortgage insurance (PMI). This is a policy that protects your lender if you fall behind on your payments or end up in foreclosure. It is paid monthly on top of your regular mortgage payment.
Lenders partner with certain PMI providers and may use different calculations to determine your PMI premium. If you anticipate that you’ll be paying PMI, be sure to factor those premium charges into your cost comparisons. Conventional mortgage insurance can be priced quite aggressively, especially if the borrower has a solid credit score. It’s a great option for those who want to keep cash in the bank for investing and/or reserves.
If you opt for an FHA loan, mortgage insurance — similar to PMI — is always required at first. How much and how long you’ll have to pay the extra monthly premium depends on the amount of your down payment. VA loans do not require any type of mortgage insurance but may have other mandatory fees.
Fees
When comparing lenders, you’ll want to specifically evaluate rates, as well as origination fees and discount points, which can vary depending on who you choose. The homebuyer usually pays the fees, although sometimes a seller will agree to a concession and pay for some. Don’t be afraid to negotiate any closing costs. See if the lender you’re considering will work with you to reduce some fees or make other favorable compromises.
Prepare for Meeting with a Loan Officer
Once you find a prospective lender, you’ll meet with a loan officer or expert in person, through email or over the phone to discuss your mortgage options. Your loan officer will help determine your short and long-term goals with your home purchase and offer options to tailor your loan to your current financial situation. This meeting will provide a foundation for your loan officer to match you with a home loan that meets your needs.
Being prepared will help you make the most of your meeting and facilitate the mortgage process. Before meeting with your loan officer, here are some things you can do.
Improve Your Credit Score
Your credit score is a major factor in determining what kind of loans you may qualify for and your interest rate. A lender will want to be confident that you’ll be able to repay your loan. Your credit score is based on the data in your credit report and is a numerical rating based on your credit history. It takes the following into account:
Your bill-paying history
Total amount of current unpaid secured and unsecured debt
Your open loan accounts
How long you have had your loan accounts open
Credit account limits
Collections, charge-offs and any derogatory debt
Typically, the higher your credit score, the more loan options you will have. A lower credit score can mean that mortgage choices may be limited to non-conventional loans with broader qualification requirements.
The following are three steps you can take to help boost your credit score:
Check your credit report. Request free credit reports from each major credit bureau (Equifax, TransUnion and Experian) and review them for accuracy.
Pay bills on time. Late payments for credit cards and personal or auto loans can negatively impact your credit score. Making consistent on-time payments is one of the most influential credit score factors. If this is an area of concern, consider setting up automatic payments and commit to paying at least the minimum amount due each month.
Reduce credit utilization ratio (CUR). Demonstrate responsible credit management by lowering your credit card balances as much as possible. Try to keep your credit utilization ratio below 30%, which indicates that you are using a smaller portion of your available credit. Calculate your CUR as follows: Credit Utilization Ratio = (Total Outstanding Balances on Credit Accounts/Available Credit/Total Credit Limit on Accounts) x 100.
Organize Your Finances and Documents
To prepare for your loan officer meeting, determine how much money you have for a down payment, as this will be important when evaluating your loan options and monthly payments. You will also be required to submit numerous financial documents, including:
Photo ID
Pay stubs
Tax returns and W-2s and/or 1099s
Bank statements
All the paperwork may not be necessary during your initial meeting. Still, a jumpstart on document-gathering can help streamline the mortgage application process when your loan officer is ready to review them.
Understand Which Loan Is Right for You
While your lender will look at your complete financial picture before presenting — and explaining — your mortgage options, it is a good idea to have a basic understanding of the choices available. The following are the most common types of home purchase loans:
Each type of loan has its benefits and qualification requirements. When comparing home loans, you’ll want to think about:
How long you intend to stay in the loan
Your down payment and credit score
Your income stability
How much you intend to borrow
How long you plan to stay in and/or own the home
Your future plans, e.g., will you need more space for children or aging parents?
Your budget
Assess Your Budget
After you apply for your mortgage, you’ll go through the underwriting process, whereby all your financial documents will be examined and verified. Because the loan officer will ultimately determine how much you can borrow based on your budget, it’s crucial to provide them with the most accurate information upfront during the application process. Providing inaccurate information before going into processing can impact your qualification on the back end. Taking these steps before your loan officer meeting may help improve your chances that you’ll receive a loan approval:
Review your debt-to-income ratio (DTI) with a licensed loan officer. Your DTI is determined by how much recurring monthly debt you have compared to your monthly gross income. Look at your credit card and loan payments. Having less of your monthly income allocated to debt is a positive indicator of being able to qualify for a loan.
Establish how much you can put down on a home. The higher your down payment, the less you’ll have to borrow.
Determine how much you can afford to pay every month. Your new home expenses are not limited to your mortgage. Consider other costs such as:
Closing costs
Insurance
Property taxes
Potentially higher utility expenses
Any applicable mortgage insurance
Homeowners association fees
You’ll also want to think about how your new mortgage will affect your long-term savings goals, such as saving for retirement or your child’s education.
Questions to Ask the Loan Officer
Whether you’re a first-time homebuyer or a seasoned homeowner, the mortgage process may seem a bit overwhelming. Meeting with a licensed loan officer is an opportunity to get your questions answered so you can better understand the process, the loans available and the fees involved.
The following questions are a starting point for gathering information from your loan officer:
What types of home loans do you offer? Which do you think would best fit my needs?
What are the loan rates, terms and eligibility requirements?
What is the required minimum down payment amount for the different loan options?
Will my loan require mortgage insurance?
Is there a prepayment penalty if I want to pay off my loan early?
Do you offer a letter, certification, pre-approval or something similar I can provide sellers to validate my qualifications?
What will my closing costs be?
Can I lock in my interest rate?
Who will be my primary contact? Will it be you or someone else once the loan moves to underwriting?
Can I buy discount mortgage points? How long will it take to recoup them?
These are fees paid at closing that can help you lower your monthly mortgage payment.
How long is the mortgage process? When can I expect to close?
Will the loan closing take place in person or online?
Take your time to ask all the questions you need. A mortgage is a significant financial commitment, and you want to be confident that you’re making the most informed decision. If your loan officer is impatient or reluctant to answer your questions, that may be a sign that they’re not the right lender for you. A loan officer should be a borrower’s advocate and take the time to educate them throughout the process.
Interest Rate Lock
Mortgage rates constantly fluctuate, so asking for an interest rate lock is a smart idea if you find a good rate. An interest rate lock, also known as a locked-in rate, is a guarantee from a lender to give you a set interest rate when you apply for a mortgage. It protects borrowers against potential interest rate increases during the mortgage underwriting process.
Rates can generally be locked for an option of 30, 45, 60 or even 90 days. They are usually locked after the loan application has been reviewed and before underwriting. Lenders have different policies regarding rate locks, including fees, so inquire about policies when comparing lenders.
How Long Is the Process?
The mortgage loan timeline, consisting of a BuyerReady Certification, applying for the loan and underwriting, varies from 30 to 60 days or longer. Some factors that hinder the mortgage process include:
When borrowers do not have all their documents in order or provide inaccurate or incomplete information
When borrowers have more complex situations, such as credit issues
When lenders experience delays obtaining verifications, such as your credit history from the credit bureaus, rental records from a landlord or employment information
Stricter regulations that require lenders to accommodate more compliance checks
While some delays may be beyond your control, here are a few tips that could help expedite the loan process:
Gather as many financial documents as possible before applying for the loan
Do not omit any required information
Respond promptly to your lender’s questions or documentation requests
Stay in frequent communication with your lender and address any issues quickly
Try to avoid making any major financial changes during this time, such as changing jobs or taking on significant new debt
Get a List of All Paperwork Needed
Submitting documents is a requisite part of the home loan application and approval process. All lenders require certain documents to verify your financial and personal information to assess your creditworthiness and ability to repay your loan. The documentation will give your lender insight into your financial situation, income, assets and liabilities. While you should check with your lender to see what specific documentation they will need, at a minimum, lenders will typically ask for:
Employment verification, including pay stubs
Social Security, pension or retirement income, if retired
Evidence of any other forms of income, such as child support
Tax returns for the past two years
Bank statements for your checking and savings accounts
Statements for other assets like your investment and retirement accounts
Student loan details
Information on any debt you have, such as auto or student loans
Gift letter, if family members are contributing funds toward the down payment
Rental payment history, if applicable
There’s a lot that goes into choosing the right lender. But finding one that offers a loan that aligns with your financial goals and provides a positive borrowing experience is essential. With some due diligence, you’ll find a reputable lender to guide and support you through the mortgage process as you make the move toward your next home.
As a top national mortgage lender, Pennymac has loan experts who specialize in purchase loans to help homebuyers through the mortgage process and ensure a seamless home-buying experience. Plus, they can help you get BuyerReady Certified so you’ll know how exactly much money you can borrow and be more confident when looking for a home. Interested to learn more about what Pennymac can do for you? Get a custom instant rate quote today.
If you’re in the market for a home, here are today’s mortgage rates compared to last week’s.
Loan type
Interest rate
A week ago
Change
30-year fixed rate
6.97%
7.12%
-0.14
15-year fixed rate
6.47%
6.57%
-0.10
30-year jumbo mortgage rate
7.04%
7.13%
-0.09
30-year mortgage refinance rate
6.96%
7.10%
-0.13
Average rates offered by lenders nationwide as of March 8, 2024. We use rates collected by Bankrate to track daily mortgage rate trends.
Mortgage rates change every day. Experts recommend shopping around to make sure you’re getting the lowest rate. By entering your information below, you can get a custom quote from one of CNET’s partner lenders.
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.
Choosing the right mortgage type and term
When picking a mortgage, consider the loan term, or payment schedule. The most common mortgage terms are 15 and 30 years, although 10-, 20- and 40-year mortgages also exist. You’ll also need to choose between a fixed-rate mortgage, where the interest rate is set for the duration of the loan, and an adjustable-rate mortgage. With an adjustable-rate mortgage, the interest rate is only fixed for a certain amount of time (commonly five, seven or 10 years), after which the rate adjusts annually based on the market’s current interest rate. Fixed-rate mortgages offer more stability and are a better option if you plan to live in a home in the long term, but adjustable-rate mortgages may offer lower interest rates upfront.
30-year fixed-rate mortgages
The average interest rate for a standard 30-year fixed mortgage is 6.97%, which is a decrease of 14 basis points from seven days ago. (A basis point is equivalent to 0.01%.) A 30-year fixed mortgage is the most common loan term. It will often have a higher interest rate than a 15-year mortgage, but you’ll have a lower monthly payment.
15-year fixed-rate mortgages
The average rate for a 15-year, fixed mortgage is 6.47%, which is a decrease of 10 basis points from the same time last week. Though you’ll have a bigger monthly payment than a 30-year fixed mortgage, a 15-year loan usually comes with a lower interest rate, allowing you to pay less interest in the long run and pay off your mortgage sooner.
5/1 adjustable-rate mortgages
A 5/1 adjustable-rate mortgage has an average rate of 6.51%, a slide of 4 basis points compared to last week. You’ll typically get a lower introductory interest rate with a 5/1 ARM in the first five years of the mortgage. But you could pay more after that period, depending on how the rate adjusts annually. If you plan to sell or refinance your house within five years, an ARM could be a good option.
Mortgage rate news
High inflation and the Federal Reserve’s aggressive interest rate hikes drove up mortgage rates over the last several years. Toward the end of last year, however, the Fed announced that interest rate cuts were on the table for 2024. That projection led to a significant drop in mortgage rates, pushing them into the 6% range. Since early February, however, mortgage rates have climbed back above 7% in response to strong economic data.
30-year fixed mortgage: 6.97%
15-year fixed mortgage: 6.47%
5/1 adjustable-rate mortgage: 6.51%
Mortgage rate forecasts from experts
Experts say interest rate cuts from the Fed will allow mortgage rates to ease, though the first cut won’t likely come until May or June, depending on how quickly inflation decelerates.
“We are expecting mortgage rates to fall to around 6.5% by the end of this year, but there’s still a lot of volatility I think we might see,” said Daryl Fairweather, chief economist at Redfin. “It’s possible that rates might go up before they go down again, so that’s why we’re still being conservative with rates being around 6.5%.”
Each month brings a new set of inflation and labor data that can change how investors and the market respond and what direction mortgage rates go, said Odeta Kushi, deputy chief economist at First American Financial Corporation. “Ongoing inflation deceleration, a slowing economy and even geopolitical uncertainty can contribute to lower mortgage rates. On the other hand, data that signals upside risk to inflation may result in higher rates,” Kushi said.
While mortgage forecasters base their projections on different data, most experts and market watchers predict rates will move toward 6% or lower by the end of 2024. Here’s a look at where some major housing authorities expect average mortgage rates to land.
What influences mortgage rates?
While it’s important to monitor mortgage rates if you’re shopping for a home, remember that no one has a crystal ball. It’s impossible to time the mortgage market, and rates will always have some level of volatility because so many factors are at play.
“Mortgage rates tend to follow long-date Treasury yields, a function of current inflation and economic growth as well as expectations about future economic conditions,” says Orphe Divounguy, senior macroeconomist at Zillow Home Loans.
Here are the factors that influence the average rates on home loans.
Federal Reserve monetary policy: The nation’s central bank doesn’t set interest rates, but when it adjusts the federal funds rate, mortgages tend to go in the same direction.
Inflation: Mortgage rates tend to increase during high inflation. Lenders usually set higher interest rates on loans to compensate for the loss of purchasing power.
The bond market: Mortgage lenders often use long-term bond yields, like the 10-Year Treasury, as a benchmark to set interest rates on home loans. When yields rise, mortgage rates typically increase.
Geopolitical events: World events, such as elections, pandemics or economic crises, can also affect home loan rates, particularly when global financial markets face uncertainty.
Other economic factors: The bond market, employment data, investor confidence and housing market trends, such as supply and demand, can also affect the direction of mortgage rates.
Calculate your monthly mortgage payment
Getting a mortgage should always depend on your financial situation and long-term goals. The most important thing is to make a budget and try to stay within your means. CNET’s mortgage calculator below can help homebuyers prepare for monthly mortgage payments.
Tips for finding the best mortgage rates
Though mortgage rates and home prices are high, the housing market won’t be unaffordable forever. It’s always a good time to save for a down payment and improve your credit score to help you secure a competitive mortgage rate when the time is right.
Save for a bigger down payment: Though a 20% down payment isn’t required, a larger upfront payment means taking out a smaller mortgage, which will help you save in interest.
Boost your credit score: You can qualify for a conventional mortgage with a 620 credit score, but a higher score of at least 740 will get you better rates.
Pay off debt: Experts recommend a debt-to-income ratio of 36% or less to help you qualify for the best rates. Not carrying other debt will put you in a better position to handle your monthly payments.
Research loans and assistance: Government-sponsored loans have more flexible borrowing requirements than conventional loans. Some government-sponsored or private programs can also help with your down payment and closing costs.
Shop around for lenders: Researching and comparing multiple loan offers from different lenders can help you secure the lowest mortgage rate for your situation.
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.
USDA mortgages are aimed at borrowers buying in eligible rural areas.
These loans come with lenient rules around credit scores and down payment requirements.
USDA loans come with income limits that vary by location.
USDA loans are one of many options available to finance a home purchase. However, their attributes and eligibility requirements make them unique from other types of home loans. Still, if a USDA home loan is an option for you, there are some big perks you might want to take advantage of.
What is a USDA loan?
A USDA home loan is a no-down payment mortgage for low- and moderate-income homebuyers in largely rural areas. USDA loans are part of a national program created by the U.S. Department of Agriculture to help create loans for first-time homebuyers or people who don’t meet conventional mortgage requirements. They are sometimes referred to as rural development or RD loans.
Along with no need for a down payment, USDA loans have another advantage: You could qualify for a low, fixed interest rate if you have low income.
Some drawbacks, though, are that the property must be located in a USDA-approved area, and borrowers cannot exceed income limits.
Who is eligible for a USDA loan?
USDA eligibility requirements include:
The borrower must be a U.S. citizen or permanent resident with a track record of stable income.
The home must be in a rural area designated by the USDA.
The borrower’s household income must be limited to 115 percent of the median income in the county where the property is located.
While USDA loans have no formal minimum credit score, a borrower must have a credit history that demonstrates they can pay back debt. To qualify for streamlined processing, the minimum score is 640. The USDA uses alternative methods to evaluate borrowers without credit scores.
Eligible properties
The easiest way to find out if a home is in a USDA-eligible area is to check the USDA website. Homes purchased with USDA loans must be located in eligible rural areas. The USDA defines these areas as “open country or any town, village, city, or place, including the immediately adjacent densely settled area, which is not part of or associated with an urban area.”
USDA mortgages are only available in these rural areas as part of a government initiative to promote homeownership and economic growth. These loans can help attract and retain people in these locations.
Income limits
The USDA guaranteed loan program is geared toward low- and moderate-income homebuyers. For this reason, applicants can’t earn more than certain income limits, which vary by metro area and family size. In more expensive areas, the income ceiling is higher. You can check income limits for your county and household size using the same property eligibility tool on the USDA website.
To prove income, you’ll need to provide the lender with documentation such as:
Paystubs
Tax statements (W-2s, 1040s and 1099s)
Alimony and child support payments
Social Security payments
Statements for bank and investment accounts
Credit score
The USDA doesn’t impose a blanket credit score requirement for all borrowers, but typically, USDA-approved lenders look for a score of at least 640.
Types of USDA loans
Different types of USDA loans cater to different buyers, each coming with its own requirements and reasons for use. Let’s break them down.
USDA guaranteed loans
The USDA guaranteed home loan program (officially known as Section 502 Guaranteed) allows approved mortgage lenders to provide 30-year fixed-rate loans to borrowers in USDA-eligible locations. It’s called a “guaranteed loan” because the USDA guarantees 90 percent of the loan to lenders in the event you were to default on the mortgage.
Along with buying a home in a USDA-approved area, you’ll also need to meet an income requirement: no more than 115 percent of your area’s median household income (AMI). You can find income limits for your market using this tool.
USDA direct loans
Also known as Section 502 Direct, USDA direct loans offer low-rate home loans to individuals in rural areas in need of adequate housing. Unlike USDA guaranteed loans, you’ll apply for a direct loan through the USDA’s Rural Development Service Centers.
Direct loans are only available to households with low and very low income. (You can view income limits here). There’s also a limit on how much you can borrow, depending on the county where the home is located. (You can view area loan limits here.)
Direct loans have a fixed interest rate, which can be reduced to 1 percent if you qualify for payment assistance. The loan terms range up to 33 years, or 38 years for very low income borrowers.
USDA repair loans and grants
The USDA repair loan program (Section 504 Home Repair) is similar to the direct program in that it caters to low-income individuals. But it’s different in that it provides loans only up to $40,000 and only to help improve or repair a home. It also offers grants to very low-income homeowners aged 62 or older to help remove hazards at home. These are capped at $10,000.
Pros and cons of USDA loans
The major benefit of a USDA home loan is that there’s no down payment requirement. This can be a great program for homebuyers on a budget who are flexible about where they live. The cons mostly have to do with the restrictions on where you can buy or how much income your family can make.
Pros
No down payment required
No formal loan limit for guaranteed loans
Seller can pay the closing costs
Available for both purchasing property and refinancing
Low, fixed interest rates for direct loans
Cons
Strict guidelines around where the property is located
Must use the home for a primary residence
Limited income requirements
Upfront and annual fees
How to apply for a USDA loan
To apply for a USDA loan, you’ll first need to determine if you qualify. Consult the USDA property and income eligibility maps. If you meet those parameters, next consider whether you’ll want or need a guaranteed or direct loan. Remember: Guaranteed loans have higher income limits, and you’ll apply for one through a USDA-approved lender. Direct loans, on the other hand, are reserved for lower-income borrowers who lack access to safe housing.
When you’re ready to apply, you’ll submit paperwork about your finances, including income, assets and debt, and undergo a credit check. If preapproved, you can begin searching for a home in an appropriate area based on USDA eligibility.
USDA loan fees
USDA mortgages come with two fees:
Upfront guarantee fee: The upfront guarantee fee this fiscal year is 1 percent of the loan amount. For example, for a $100,000 loan, this fee would be $1,000. This fee can often be rolled into the mortgage instead of paying it out of pocket.
Annual fee: The annual fee is 0.35 percent of the loan amount. A $100,000 mortgage, for example, would have a $1,000 one-time payment (the upfront guarantee fee) and a $350 per year ongoing payment for the life of the loan.
Both of these fees are charged to the lender, who then usually passes the cost on to the borrower. These fees keep USDA loans subsidy-neutral, which means that any losses incurred by the program are paid for by these fees instead of taxpayer dollars. Depending on the needs of the program, the fees can change annually.
How much does it cost to get a USDA loan?
Along with the two USDA fees listed above, you’ll need to cover regular mortgage costs. These may include:
Origination fee: Many lenders charge an origination fee on mortgages, regardless of loan type. The fee usually costs around 1 percent of the amount you’re borrowing.
Loan application fee: Similar to applying for college, some lenders charge a nominal fee to complete the mortgage application.
Title insurance and services: When you buy a home with a mortgage, you’ll need to pay for a title search and lender’s title insurance policy. The cost varies depending on the closing attorney or settlement or title company you work with.
Processing or underwriting fees: In addition to (or sometimes in lieu of) an origination fee, some lenders charge a “processing” or “underwriting” fee. This cost covers the expense of underwriting your loan application.
Credit report fee: Many lenders charge a small fee to run a credit check.
Appraisal: As the homebuyer, you’ll be responsible for paying for the home appraisal before the lender can approve your loan. A home appraisal cost a median of $500 in 2022, according to the National Association of Realtors.
Discount points: Many lenders offer the option to purchase mortgage points to buy down your loan’s interest rate. One point costs 1 percent of the amount you’re borrowing.
How do USDA loans compare to other types of loans?
USDA loans aren’t the only type of mortgage out there. If you’re not eligible for a USDA loan, you might be for an FHA or VA loan, or even a conventional loan. Here’s an overview of some key differences between these types of loans:
USDA loan
Conventional loan
FHA loan
VA loan
Credit requirements
None, but 640 is standard
620
580
None unless lender requires
Debt-to-income (DTI) ratio requirements
Up to 41%
Up to 43%
Up to 50%
Up to 41%
Down payment requirements
None
3% or 5%
3.5%
None
USDA loan FAQ
USDA loans do not require PMI, as PMI is only for borrowers of conventional loans who put down less than 20 percent. Instead of charging mortgage insurance, USDA loans charge two fees: the upfront guarantee fee (which equals 1 percent of the loan amount) and an annual fee (which equals 0.35 percent of the loan amount, charged yearly).
You can refinance an existing USDA mortgage into another USDA mortgage or refinance an existing USDA mortgage into a conventional mortgage. However, you cannot refinance a non-USDA mortgage into a USDA mortgage. If you have a USDA loan, you have three options for refinance: a USDA streamline, USDA non-streamline or conventional loan refinance
FHA 203(k) loans provide funding to finance both a home’s purchase and the cost of repairing it. If you qualify, you can obtain one from an FHA-approved lender.
This type of loan is reserved for borrowers who intend to live in the home, not house-flippers or investors.
There are two types of 203(k) rehab loans: limited, for repairs less than $35,000, and standard, for more expensive projects.
When you buy a home, there are usually a few repairs to pay for. If you plan to take on a fixer-upper, you might be facing the prospect of many projects. If this is the case for you, you might be considering an FHA 203(k) loan.
What is an FHA 203(k) loan?
An FHA 203(k) loan, also known as an FHA 203(k) rehab loan or Section 203(k) loan, combines the financing for a home’s purchase and remodeling or repairs into a single loan. Along with these costs, you can also use a 203(k) loan to finance up to six months’ of mortgage payments while you live elsewhere during renovations.Like other FHA loans, a 203(K) loan is insured by the Federal Housing Administration and offered by FHA-approved mortgage lenders. It also comes with the requirement to pay FHA mortgage insurance.Types of 203(k) rehab loans
There are two types of FHA 203(k) loans: limited 203(k) and the more popular standard 203(k). Here’s an overview:
Key terms
Limited 203(k) loan:
Designed for non-structural projects valued at less than $35,000, with no minimum cost requirement
Standard 203(k) loan:
Designed for more extensive jobs, including major structural work like an addition, with a minimum cost requirement of $5,000
How does an FHA 203(k) loan work?
A 203(k) renovation loan can be a 15- or 30-year fixed-rate or adjustable-rate mortgage (ARM). The amount you can borrow depends on criteria such as your credit rating and income. The total amount borrowed through 203(k) loans must be within FHA loan limits for the area in which the home is located.
Generally, the most you can borrow for the loan is the lowest of the following:
The FHA’s maximum loan limit for the county where the property is located
The home’s before-renovation value plus improvement costs
The home’s after-renovation value
What can an FHA 203(k) loan be used for?
A standard 203(k) loan can cover many major projects, including:
Converting a property from one unit to up to four units, or the reverse
Foundation repairs
Adding or repairing a deck, patio or porch
Adding or remodeling a garage
Adding or repairing septic or well systems
Adding a fence
Adding accessibility features for those living with disabilities
Installing appliances
Landscaping
Remediating health and safety hazards, such as lead paint
This type of loan can’t cover improvements such as adding a gazebo, swimming pool or tennis court. It also can’t be used for repairs to co-ops or mixed-use properties, unless that property is primarily residential.
A limited 203(k) loan, in contrast, can cover upgrades like new carpeting or paint.
FHA 203(k) loan requirements
There are many requirements to qualify for an FHA renovation loan, including:
Occupation – The main restriction for an FHA 203(k) loan is that the borrower has to be the owner-occupant of the home. Investors are not eligible for this kind of loan, although in certain situations, nonprofit organizations might be allowed to obtain one.
Credit score and down payment – You’ll need a minimum credit score of 580 with 3.5 percent down, or a minimum score of 500 with a down payment of 10 percent.
Debt-to-income (RTI) ratio – Your debt-to-income (DTI) ratio, which measures your gross monthly income against your monthly debt payments, can’t exceed 43 percent.
Renovation rules – You can only use a limited 203(k) loan for non-structural renovations costing less than $35,000. For a standard 203(k) loan, the work has to involve major construction and cost at least $5,000.
Timeline – Generally, the work has to be completed within six months of closing.
How to get an FHA 203(k) loan
Once you’ve identified a home to buy and fix up, you can apply for a 203(k) loan with your lender. If you’re obtaining the standard version of the loan, the lender will assign a 203(k) consultant to your project. The consultant will visit the home to estimate repair costs. If you’re getting the limited 203(k), you’re not required to work with a consultant.
Once your lender signs off on these details and closes the loan, you’ll work with a licensed contractor to handle renovations. Ideally, this contractor should be familiar with 203(k) loans, especially the payment schedule and requirements. If you’re qualified, you might be able to do some or all of the work yourself, but you can’t use the loan proceeds for your labor cost.
The process from there works like a regular construction loan: The lender issues payments to the borrower at various phases of the renovation. As the project progresses, the consultant will inspect the work to authorize more payments. You’ll have six months to complete the renovations. Once the project is finished, you’ll provide a release letter and the consultant will evaluate the work.
FHA 203(k) loan pros and cons
An FHA 203(k) loan offers the opportunity to purchase a home that needs some work without having to obtain two loans. However, there are many rules to qualifying for this type of mortgage.
Pros of an FHA 203(k) loan
One loan for both purchase and renovations
Lower credit score requirement
Low minimum down payment requirement
Potentially lower interest rates compared to credit cards or home improvement loans
Can finance up to six months of mortgage payments if living elsewhere during renovations
Cons of an FHA 203(k) loan
Must plan to live in the home during or after renovation, for at least one year
FHA mortgage insurance payments required
Rates might be higher compared to buy-and-renovate conventional loans
Work must be completed in six months, in most cases
FHA 203(k) loan refinancing
You can use FHA 203(k) loans to purchase a fixer-upper or rehabilitate the home you already live in through a refinance. The process to refinance into a 203(k) loan is similar to a regular refinance, but you must meet the additional requirements of the 203(k) loan.
After refinancing, a portion of the 203(k) proceeds will pay off your existing mortgage, and the rest of the money will be kept in escrow until repairs are completed.You can also refinance an existing 203(k) mortgage through the FHA streamline program, which may help you get an even lower interest rate.
FHA 203(k) loan FAQ
An FHA 203(k) loan funds the purchase of a home and qualifying renovations, while a short-term construction loan funds renovations only. Once the project is complete, you can convert the construction loan to a regular mortgage. Depending on your credit and finances, a 203(k) loan might be easier to qualify for, but a construction loan has less restrictions around the types of improvements you can finance.
An FHA 203(k) loan can be used for single-family homes (including homes with accessory dwelling units, or ADUs), duplexes, triplexes or another multifamily home up to four units. It can also be used for an eligible condo or manufactured home, or a townhome. You might be able to use it for a mixed-use property, as well, provided the property is majority-residential.
If you’re qualified — say, a licensed general contractor — you might be able to do some or all of the work yourself. You cannot reimburse yourself for labor costs with the 203(k) loan proceeds, however.
An FHA 203(k) loan allows you to use funds for everything from minor repair needs to nearly the entire reconstruction of a home, as long as the original foundation is intact.
FHA 203(k) loans are one of several options to pay for home improvements. These alternatives include a conventional HomeStyle or CHOICERenovation loan; a cash-out refinance; a home equity line of credit (HELOC) or home equity loan; credit cards; or personal loans. You might also explore co-investment or shared equity companies, which provide financing in exchange for a piece of your home’s appreciation when you sell.