Uncommon Knowledge
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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.
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.
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.
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.
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:
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:
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:
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.
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.
Additional reporting by Kacie Goff
Source: bankrate.com
The Federal Reserve’s recent data says the average credit card interest rate is 21.47%, which is a high number by most standards. If you never carry a balance or take out cash advances, it may not be a big deal for you, but if you do, it’s worth paying attention to the average credit interest rate. Doing so could help you anticipate and potentially budget for increased interest payments.
Here, you’ll learn more about credit card interest rates and how they can impact your financial life.
The average interest rate for credit cards is 21.47%, as mentioned above, as of the start of 2024. Rates have been steadily increasing in recent years — in November 2021, the average rate for credit cards was 14.51%, and back in November 2017, for example, it was 13.16%.
Keep in mind, however, that the interest rate for your credit card could be higher or lower than this average depending on factors such as your credit profile, given how credit cards work. So what’s a good annual percentage rate (APR) for you may be different from what a good APR for a credit card is for someone else, as you’ll learn in more detail below.
Credit card interest rates, or the APR on a credit card, tend to vary depending on an applicant’s credit score. The average interest rate for credit cards tends to increase for those who have lower credit scores, according to the CFPB’s most recent Consumer Credit Card Market Report.
The report measures what’s called an effective interest rate — meaning, the total interest charged to a cardholder at the end of the billing cycle.
Credit Quality | Effective Interest Rate |
---|---|
Deep subprime (a score of 579 or lower) | 23% |
Subprime (a score of 580-619) | 22% |
Near prime (a score of 620-659) | 20% |
Prime (a score of 660-719) | 18% |
Prime plus (a score of 720-799) | 15% |
Super prime (800-850) | 9% |
What this table shows is that the lower your credit score, the more you will be paying in interest on balances you have on your credit cards (meaning, any amount that remains after you make your credit card minimum payment).
Keep in mind that these rates don’t include any fees that may also apply, such as those for balance transfers or late payments, which can further increase the cost of borrowing.
Recommended: Revolving Credit vs. Line of Credit, Explained
Interest rates may vary depending on the type of credit card you carry. In general, platinum or premium credits have a higher APR — cards with higher interest rates tend to come with better features and benefits.
Type | APR Range |
---|---|
No annual fee credit card | 20.64% – 27.65% |
Cash back credit card | 21.06% – 27.78% |
Rewards credit card | 20.91% – 28.15% |
The prime rate is the interest rate that financial institutions use to set rates for various types of loans, such as credit cards. Most consumer products use the prime rate to determine whether to raise, decrease, or maintain the current interest rate. That’s why for credit cards, you’ll see the rates are variable, meaning they can change depending on the prime rate.
As of March 6, 2024, the prime rate is 8.50%. On March 17, 2022, the prime rate was 3.50%. This can be considered an example of how variable this rate can be.
Credit card delinquency rates apply to accounts that have outstanding payments or are at least 90 days late in making payments. These rates have fluctuated based on various economic conditions. In many cases, rates are higher in times of financial duress, such as during the financial crisis in 2009, when it was at 6.61%.
As economic conditions rebound or the economy builds itself up, delinquency rates tend to go down, as consumers can afford to make on-time payments. According to the Federal Reserve, the delinquency rate for the fourth quarter in 2023 was 3.20%, up from 2.34% a year earlier and 1.63% for the same time period in 2021. This may be due to the pandemic, when consumers were more wary of discretionary spending or from negotiating payment plans with creditors.
Credit card debt has risen from its previous levels of $926 billion in 2019 and $825 billion at the end of 2020. It has climbed to $1.129 trillion for the fourth quarter of 2023, a new high.
This shows an ongoing surge in credit card debt, and these statistics can make individual cardholders think twice about their own balance and how to lower it.
Recommended: How Does Credit Card Debt Forgiveness Work?
Credit cards have more than one type of interest rate. The credit card interest rate that applies may differ depending on how you use your card.
The purchase APR is the interest rate that’s applied to balances from purchases made anywhere that accepts credit card payments. For instance, if you purchase a pair of sneakers using your credit card, you’ll be charged the purchase APR if you carry a balance after the statement due date.
A balance transfer APR is the interest rate you’ll be charged if you move a balance from one credit card to another. Many issuers offer a low introductory balance transfer APR for a predetermined amount of time.
A penalty APR can kick in if you’re late on your credit card payment. This rate is usually higher than the purchase APR and can be applied toward future purchases as long as your account remains delinquent. This is why it’s always critical to make your credit card payment, even if you’re in the midst of requesting a credit card chargeback, for instance.
A cash advance has its own separate APR that gets triggered when you use your card at an ATM or bank to withdraw cash, or if you use a convenience check from the issuer. The APR tends to be higher than the purchase APR.
An introductory APR is an APR that’s lower than the purchase APR and that applies for a set amount of time. Introductory APRs may apply to purchases, balance transfers, or both.
For instance, you may get a 0% introductory APR for purchases you make for the first 18 months of account opening. After that, your APR will revert to the standard APR. (Note that the end of the introductory APR is completely unrelated to your credit card expiration date.)
When you apply for a credit card, you may notice that your interest rate is different from what was advertised by the issuer. That’s because there are several factors that affect your interest rate, which can make it higher or lower than the average credit card interest rate.
Your credit score determines how risky of a borrower you are, so your interest rate could reflect your creditworthiness. Lenders tend to charge higher interest rates for those who have lower scores. Your credit score can also influence whether your credit limit is above or below the average credit card limit.
The type of credit card may affect how much you could pay in interest. Different types of credit cards include:
• Travel rewards credit cards
• Student credit cards
• Cash-back rewards credit cards
• Balance transfer cards
Most likely, the more features you get, the higher the interest rate could be. Student credit cards may have lower interest rates, but that may not always be the case. That’s why it’s best to check the APR range of credit cards you’re interested in before submitting an application.
The current average credit card interest rate is 21.47%, according to data from the Federal Reserve. However, your rate could be higher or lower than the average APR for credit cards based on factors such as your creditworthiness and the type of card you’re applying for. Your best bet is to pay off your entire balance each month on your credit card so you don’t have to worry about how high the interest rate for a credit card may be. That way, you can focus on features you’re interested in.
With whichever credit card you may choose, it’s important to understand its features and rates and use it responsibly.
Whether you’re looking to build credit, apply for a new credit card, or save money with the cards you have, it’s important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
The average interest rate for credit cards is 21.47%, according to the latest data from the Federal Reserve for the fourth quarter of 2023.
You may be able to get a low credit card interest rate by building your credit score, as this will encourage lenders to view you as less risky. Otherwise, you can also aim to get a credit card with a low introductory rate, though these offers are generally reserved for those with good credit. Even if the APR is temporary, it could be beneficial depending on your financial goals.
A bad APR is generally one that is well above the average credit card interest rate. However, what’s a good or bad APR for you will depend on your credit score as well as what type of card you’re applying for.
Photo credit: iStock/MicroStockHub
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Source: sofi.com
In remarks made Thursday to the Senate Banking Committee this week, Federal Reserve Chair Jerome Powell said he expects some U.S. banks to fail in the coming months because of declining values and defaults in their commercial real estate loan portfolios.
According to reporting by multiple outlets, including The Hill, Powell indicated that the risk is tied to small and midsized banks, and there is no systemic risk to the banking sector posed by the potential collapse of major institutions.
“We have identified the banks that have high commercial real estate concentrations, particularly office and retail and other [property types] that have been affected a lot,” Powell said. “This is a problem that we’ll be working on for years more, I’m sure. There will be bank failures, but not the big banks.”
Powell’s remarks came about a month after U.S. Treasury Secretary Janet Yellen expressed similar concerns to the Senate Banking Committee. Yellen told lawmakers that bank regulators are working to address risks tied to rising vacancy rates and lower valuations for office buildings in major cities.
These stressors are tied to the post-pandemic increase in remote work, as well as higher interest rates that have made it difficult to refinance commercial real estate debt.
“I hope and believe that this will not end up being a systemic risk to the banking system,” Yellen said in February. “The exposure of the largest banks is quite low, but there may be smaller banks that are stressed by these developments.”
Although commercial mortgage debt is propelling these concerns, the possibility of failure for a federally insured bank has implications for the residential mortgage sector. According to the Federal Deposit Insurance Corp. (FDIC), banks held $2.78 trillion in residential mortgage debt as of first-quarter 2023.
Community banks — commonly defined as those with less than $10 billion in assets — accounted for nearly $477 billion (or 17%) of the total debt. And the FDIC reported that home loans are the largest lending segment by dollar volume at more than 40% of community banks.
New York Community Bancorp (NYCB) is one institution that is facing a “confidence crisis” related to commercial real estate, primarily multifamily loans. NYCB, one of the largest U.S. residential mortgage servicers, received an equity investment of $1 billion earlier this month that is designed to strength the bank’s balance sheet.
In the wake of last year’s failures of First Republic Bank, Silicon Valley Bank and Signature Bank, smaller U.S. banks moved away from commercial real estate lending. Data from MSCI Real Assets showed that after originating a record-high 34.2% of all commercial mortgages in Q1 2023, regional and local banks trimmed their share of originations to 25.1% in Q2 2023. The latter figure represented a 53% year-over-year decline.
Still, small banks are more exposed to commercial mortgage debt than larger banks. Federal Reserve data from September 2023 showed that commercial real estate accounted for an average of 44% of the portfolios at small banks, compared to 13% at the country’s 25 largest banks.
Funding a potential bailout could be another concern for banks. When the FDIC rescued Silicon Valley Bank and Signature Bank in March 2023, the price tag was $22 billion. The regulator recouped $16 billion of that through a special assessment on more than 100 of its institutions.
Source: housingwire.com
With the immigration crisis, California lawmakers have proposed expanding the state’s zero-down, no payment home “loan” program to illegal immigrants. “Assembly Bill 1840 is an insult to California citizens who are being left behind and priced out of homeownership,” said Republican State Senator Brian Dahle. “I’m all for helping first-time homebuyers, but give priority to those who are here in our state legally” Dahle added.
However, bill author Assemblyman Joaquin Arambula, a Democrat from Fresno, said in an interview with the Los Angeles Times, “The social and economic benefits of homeownership should be available to everyone.”
Assembly Bill 1840 is the California Dream for All Shared Appreciation Loans program administered by the California Housing Finance Agency. It started in 2023 with $300 million set aside for 2,300 applicants, and ran out of funds in just 11 days. In 2024 the program will require applicants to be first-generation home buyers and reduce maximum income thresholds to 120% of county median household income. Under the program, applicants can secure “loans” of up to 20% of a home’s purchase price to first-time home buyers — the cost of a down payment — with zero down payment to the CHFA, and no payments on the “loan.”
The Center Square writes the state’s so-called “loan” can potentially be repaid “when the home is refinanced, sold, or transferred, with the borrower paying back the original loan amount plus 20% of any increase in value on the property. Unless a property loses more than 80% of its purchase price, the state will not directly lose money, but without any provisions on how long a property can be held for — including what happens with certain kinds of trusts, such as right-of-survivorship trusts — it’s not clear if the state can ever get its money back if a family decides to hold on to the home.”
“With the typical home in California requiring nearly triple the median household income to afford, 45% of Californians are considering leaving the state due to the high cost of housing” adds the publication.
Source: 1190kex.iheart.com
President Joe Biden has proposed an annual tax credit that would give Americans $400 a month for the next two years to put towards their mortgages.
Addressing the affordability crisis in the housing market in his State of the Union address on Thursday, Biden said: “I know the cost of housing is so important to you. Inflation keeps coming down, and mortgage rates will come down as well.
“But I’m not waiting. I want to provide an annual tax credit that will give Americans $400 a month for the next two years as mortgage rates come down, to put towards their mortgage when they buy their first home, or trade up for a little more space.”
Home prices skyrocketed during the pandemic, driven by relatively low mortgage rates, high demand and low inventory. At their peak, the median listed price for a home in the U.S. reached $465,000 in June 2022, according to data from the Federal Reserve Bank of St. Louis (FRED).
While the housing market experienced a price correction between late summer 2022 and spring 2023, prices remain historically high, propped up by lingering low supply. In June 2023, the median listed price for a home in the U.S. was $448,000. As of January 2024, this was $409,500, according to data from FRED.
While home prices have stayed high for the past three years, a rise in mortgage rates driven by the Federal Reserve’s aggressive hike rate campaign last year has led to many aspiring homebuyers being completely squeezed out of the market. In December last year, the reserve said that it would have stopped rising rates, but mortgages are yet to significantly come down.
High mortgage rates, together with the historic shortage of homes in the U.S.—due to the fact that the country hasn’t built enough homes to meet demand since the housing crash of 2008—have contributed to the current affordability crisis.
In late 2023, J.P. Morgan said that, based on then-current trends, housing affordability could be restored in 3.5 years. Newsweek contacted J.P. Morgan for comment by email on Friday morning.
Biden is now calling on Congress to provide a one-year tax credit of up to $10,000 to middle-class families who sell their starter home—a home below the median home price of the area where it is located—to another owner or occupant. The White House said that this proposal could help nearly 3 million American families.
On Friday, Biden’s announcement on the tax credit was met with a standing ovation and roaring applause by Democratic lawmakers, while about half of the House stayed seated.
The president also mentioned other measures to address the housing affordability crisis in the U.S. These included down-payment assistance for first-generation homeowners, tax credit to build more housing, and lowering costs by building and preserving millions of homes.
“My administration is also eliminating title insurance on federally backed mortgages,” Biden told lawmakers on Friday.
“When you refinance your home, you can save $1,000 or more as a consequence. We’re cracking down on big landlords who break antitrust laws by price-fixing and driving up rents. We’ve cut red tape, so builders can get federal financing,” the president said among the cheering of some lawmakers.
Update, 3/8/24, 8 a.m. ET: The headline on this article was updated.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Source: newsweek.com
The originators who are weathering the industry headwinds told HousingWire that a significant decline in mortgage rates is no longer expected.
“Generally speaking, originators did not expect mortgage rates to be as high as they are right now. But look, I think a lot of it is wishful thinking. The refinance boom lasted three years. Why would the higher rate environment not last as long?” said Craig Strent, former CEO of Apex Home Loans and head of the faculty of mentors at The Loan Atlas, a mortgage coaching platform.
“A lot of people are going after not a lot of deals, and it’s easy to fall into a race to the bottom and get commoditized. It’s a survival of the people that are doing the right things,” Strent added.
The high-performing LOs are not putting a lot of focus on a potential decline in mortgage rates. Rather, their priorities are buyer education and the nurturing and building of more referral relationships to expand their market share, loan originators who spoke to HousingWire said.
“For every five phone calls I have, only one out of five of those will actually supply paperwork. They want to know what the rates are and they say it’s too high,” said Justin Wood, production manager at CMG Financial.
Many of his buyers are still waiting for rates to come down before seeking preapproval for a mortgage. On the other hand, some buyers see the value of getting a higher-rate mortgage in the current environment.
Having a fully preapproved mortgage, buyers will be able to jump on the opportunity more quickly when they find the home they’ve been looking for, Wood explained.
These are the borrowers who know it’s unrealistic to get mortgage rates as low as 3% and realize a drop in mortgage rates will entail a rise in list prices due to lower levels of housing inventory.
What’s changed about first-time homebuyers is that they no longer expect to get mortgages at 4% levels like they did during the COVID-19 pandemic, said Khash Saghafi, a loan officer at Liberty Home Mortgage Corp.
Saghafi has clients who recently decided to pull the trigger and move to a bigger house by selling their home that had a 2.375% mortgage rate.
The couple was quoted 7% for a $500,000, three-bedroom home in early March, and they decided to go ahead with the purchase as they expect to refinance the mortgage when rates eventually decline.
“What I tell all loan officers, no matter who I talk to, is that there’s no foreclosure crisis coming on the horizon,” Saghafi said. “For that reason, real estate prices are only going in one direction — and that’s up. So, whatever you’re looking at today, it’s going to be more expensive 12 months from now.”
Educating borrowers on the reasons why they should be in the market now is crucial in adding value, Saghafi and other mortgage professionals emphasized.
“Even though the rates are higher now, I think it’s a great market for a first-time homebuyer,” Saghafi said. “Interest rates going up definitely cooled the market, but overall, that is not the problem.”
The rationale behind this thinking is that if a borrower can afford their current monthly mortgage payment, they can always refinance when rates drop, rather than waiting until rates decline only to see home prices soar.
“I have spoken to multiple people that feel trapped in their home,” Strent said. “They say, ‘Why would I sell my $600,000 home at 3.5% to buy a $1 million house at 7%?’ That 7% rate is high now, but you’re going to refinance. If you wait for rates to drop to 5%, that $1 million house is going to be $1.4 million because everybody else is going to want it.”
Mike Simonsen, founder and president of real estate analytics company Altos Research, expects home prices to climb for the rest of the spring and peak in June.
“There are buyers on the sidelines and if rates were to finally fall again, you’ll see inventory fall with new bidders, you’ll see fewer price reductions and you’ll see the leading indicators of home sales prices … climb over last year,” Simonsen wrote in recent commentary.
According to Michael Clark, vice president at Primary Residential Mortgage, there’s no secret to grabbing market share — it’s about doing outbound sales activities, addressing agents’ fears and adding value for them.
“Our philosophy is, ‘Go help agents that are sending you buyers.’ Market their listings; go to their listings. By doing so, you are adding value to their marketing efforts and getting them a contract even if you don’t write a loan on that home,” Clark said.
When an agent sees this effort, they will be more likely to send buyers, refer the loan officer to other agents through word of mouth, and even pick up some clients at an open house.
Clark’s team of 73 loan originators who cover the East Coast funded $81 million in loans in January 2024, up 35% from January 2023. More than 20 of his LOs produced at least $1 million in volume during the opening month of this year and 10 of them topped $2 million.
“All those guys weren’t doing that much volume in 2019,” Clark noted.
U.S. mortgage origination volume is expected to be $2 trillion in 2024 and $2.3 trillion in 2025, according to forecasts from the Mortgage Bankers Association (MBA). For comparison, lenders funded $2.4 trillion in first-lien mortgages in 2019, prior to the pandemic.
“Buyers are shopping left and right, but we don’t get shopped. Why? Because there’s an actual relationship — we are their mortgage adviser,” Clark said. “We’re not just some transaction coordinator that is trying to push paper to a closing table.”
“I always tell our loan officers and our team, activity breeds activity,” Wood said. “There’s a tough market out there for sure, but I think it’s creating a lot of good opportunities for people that are ready to go and serious about buying.”
Source: housingwire.com
Lately, mortgage rates have surged higher, climbing from as low as 2% to over 8% in some cases.
Despite this, home builders have been enjoying healthy sales of newly-built homes.
And somewhat incredibly, they haven’t had to lower their prices in many markets either.
The question is how can they continue to charge full price if financing a home has gotten so much more expensive?
Well, there are probably several reasons why, which I will outline below.
The first thing working in the home builders’ favor is a lack of competition. Typically, they have to contend with existing home sellers.
A healthy housing market is dominated by existing home sales, not new home sales.
If things weren’t so out of whack, we’d be seeing a lot of existing homeowners listing their properties.
Instead, sales of newly-built homes have taken off thanks to a dearth of existing supply.
In short, many of those who already own homes aren’t selling, either because they can’t afford to move. Or because they don’t want to lose their low mortgage rate in the process.
This is known as the mortgage rate lock-in effect, which some dispute, but logically makes a lot of sense.
At the same time, home building slowed after the early 2000s housing crisis, leading to a supply shortfall many years later.
Simply put, there aren’t enough homes on the market, so prices haven’t fallen, despite much higher mortgage rates.
There’s also this notion that home prices and mortgage rates have an inverse relationship.
In that if one goes up, the other must surely come down. Problem is this isn’t necessarily true.
When mortgage rates rose from record lows to over 8% in less than two years, many expected home prices to plummet.
But instead, both increased. This is due to that lack of supply, and also a sign of strength in the economy.
Sure, home buying became more expensive for those who need a mortgage. But prices didn’t just drop because rates increased.
History shows that mortgage rates and home prices don’t have a strong relationship one way or the other.
Things like supply, the wider economy, and inflation are a lot more telling.
For the record, home prices and mortgage rates can fall together too!
So we know demand is keeping prices mostly afloat. But even still, affordability has really taken a hit thanks to those high rates.
You’d think the home builders would offer price cuts to offset the increased cost of financing a home purchase.
Well, they could. But one issue with that is it could make it harder for homes to appraise at value.
One big piece of the mortgage approval process is the collateral (the property) coming in at value, often designated as the sales price.
If the appraisal comes in low, it could require the borrower to come in with a larger down payment to make the mortgage math work.
Lower prices would also ostensibly lead to price cuts on subsequent homes in the community.
After all, if you lower the price of one home, it would then be used as a comparable sale for the next sale.
This could have the unintended consequence of pushing down home prices throughout the builder’s development.
For example, if a home is listed for $350,000, but a price cut puts it at $300,000, the other homes in the neighborhood might be dragged down with it.
That brings us to an alternative.
Instead of lowering prices, home builders seem more interested in offering incentives like temporary rate buydowns.
Not only does this allow them to avoid a price cut, it also creates a more affordable payment for the home buyer.
Let’s look at an example to illustrate.
Home price: $350,000 (no price cut)
Down payment: 20%
Loan amount: $280,000
Buydown offer: 3/2/1 starting at 3.99%
Year one payment: $1,335.15
Year two payment: $1,501.39
Year three payment: $1,676.94
Year 4-30 payment: $1,860.97
Now it’s possible that home builders could lower the price of a property to entice the buyer, but it might not provide much payment relief.
Conversely, they could hold firm on price and offer a rate buydown instead and actually reduce payments significantly.
With a 3/2/1 buydown in place, a builder could offer a buyer an interest rate of 3.99% in year one, 4.99% in year two, 5.99% in year three, and 6.99% for the remainder of the loan term.
This would result in a monthly principal and interest payment of $1,335.15 in year one, $1,501.39 in year two, $1,676.94 in year three, and finally $1,860.97 for the remaining years.
This assumes a 20% down payment, which allows the home buyer to avoid private mortgage insurance and snag a lower mortgage rate.
If they just gave the borrower a price cut of say $25,000 and no mortgage rate relief, the payment would be a lot higher.
At 20% down, the loan amount would be $260,000 and the monthly payment $1,728.04 at 6.99%.
After three years, the buyer with the higher sales price would have a slightly steeper monthly payment. But only by about $130.
And at some point during those preceding 36 months, the buyer with the buydown might have the opportunity to refinance the mortgage to a lower rate.
It’s not a guarantee, but it’s a possibility. In the meantime, they’d have lower monthly payments, which could make the home purchase more palatable.
Price Cut Payment |
Post-Buydown Payment |
|
Purchase Price | $325,000 | $350,000 |
Loan Amount | $260,000 | $280,000 |
Interest Rate | 6.99% | 6.99% |
Monthly Payment | $1,728.04 | $1,860.97 |
Difference | $132.93 |
At the end of the day, the easiest way to lower monthly payments is via a reduced interest rate.
A slightly lower sales price simply doesn’t result in the savings most home buyers are looking for.
Using our example from above, the $25,000 price cut only lowers the buyer’s payment by about $130.
Sure, it’s something, but it might not be enough to move the needle on a big purchase.
You could take the lower price and bank on mortgage rates moving lower. But you’d still be stuck with a high payment in the meantime.
And apparently home buyers focus more on monthly payment than they do the sales price.
This explains why home builders aren’t lowering prices, but instead are offering mortgage rate incentives instead.
Aside from temporary buydowns, they’re also offering permanent mortgage rate buydowns and alternative products like adjustable-rate mortgages.
But again, these are all squarely aimed at the monthly payment, not the sales price.
So if you’re shopping for a new home today, don’t be surprised if the builder is hesitant to offer a price cut.
If they do offer an open-ended incentive that can be used toward the sales price or interest rate (or closing costs), take the time to consider the best use of the funds.
Those who think rates will be lower in the near future could go with the lower sales price and hope to refinance. Just be sure you can absorb the higher payment in the meantime.
Read more: Should I use the home builder’s lender?
Source: thetruthaboutmortgage.com
Joaquin Arambula, a Democratic assemblyman from California, introduced Assembly Bill 1840 earlier this year, which could create an alternative way for illegal immigrants to achieve homeownership.
The bill is set to expand eligibility criteria for a state loan program to expand these loans to include undocumented migrants that are first-time buyers.
Arambula’s update to the bill states, “an applicant under the program shall not be disqualified solely based on the applicant’s immigration status.”
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“It’s that ambiguity for undocumented individuals, despite the fact that they’ve qualified under existing criteria, such as having a qualified mortgage [that] underscores the pressing need for us to introduce legislation,” Arambula told the LA Times.
The bill focuses on the California Dream for All Shared Appreciation Loans program, which launched spring of 2023 to give qualifying first-time home buyers a loan that covers up to 20% of a property’s purchase price that will not accumulate interest or have required monthly payments. Loanees are instead expected to pay back the original loan amount in addition to 20% of the increase in the home’s value when the property’s mortgage is refinanced or resold.
First introduced on January 16th, Bill 1840 was originally intended to “provide shared appreciation loans” to low and middle income citizens. Under Arambula’s new proposal, the legislation would expand to allow the program to include illegal immigrants into the eligibility pool.
Arambula sent Fox News Digital a statement saying how the bill will address the uncertainty of the eligibility for undocumented indviduals.
“The California Dream for All program already exists – it was established to assist low- and middle-income individuals to purchase homes. But the program hasn’t been clear about eligibility for undocumented individuals, and AB 1840 addresses that issue. Let me be clear: anyone who meets the program’s criteria can apply for this loan program. And, to qualify, you must secure a bank loan or mortgage,” the statement said. “AB 1840 is about providing an opportunity for homeownership, which we know allows families to secure financial security and stability. The ability to do this strengthens local economies, and that benefits all people who call California home.”
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The LA Times reported the California loan program garnered 2,300 applicants in less than two weeks last year before the program’s applications were halted, and that “the program will replace its first-come, first-serve basis with a lottery.”
Concerns continue to rise across the country as the migrant crisis continues to grow and overpower different states’ available resources.
The new Senate border bill that was introduced earlier this month before subsequently failing to gather enough support, was at the forefront of Biden’s priorities during his recent visit to the border.
“Folks, the bipartisan border security bill is a win for the American people and a win for the people of Texas, and it’s fair for those who legitimately have a right to come here,” Biden stated.
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National Border Patrol Council (NBCP) President Brandon Judd, who was present at former President Trump’s visit to the border in Eagle Pass, TX, relayed his sentiments towards the ongoing migrant crisis.
“Border patrol agents are upset that we cannot get the proper policy that is necessary to protect human life, to protect American citizens, to protect the people that are crossing the border illegally. We can’t do that because President Biden’s policies continue to invite people to cross here,” Judd said.
The artic was updated to include a statement from State Rep. Arambula.
Source: foxnews.com
Want to learn how to get free furniture? Do you want to transform your living space without breaking the bank? Here’s a guide on furnishing your house without spending any money. Whether you’re looking for sofas, beds, dishes, or other household items, there are ways to get free furniture. Today you’ll learn: You may be…
Want to learn how to get free furniture?
Do you want to transform your living space without breaking the bank? Here’s a guide on furnishing your house without spending any money.
Whether you’re looking for sofas, beds, dishes, or other household items, there are ways to get free furniture.
Today you’ll learn:
You may be able to get furniture for pretty cheap or even free. If you are looking to save some money, then finding ways to get free stuff can help you spend less money.
Below are 11 places that give away free furniture.
Facebook is one of the best places to find free furniture near you. By utilizing Facebook Marketplace and local community groups, you can score the furniture pieces you need for your home.
Here’s a step-by-step guide to finding free furniture on Facebook.
It’s important to be safe when arranging pickups and meeting people online. Stay safe by meeting in public places, bringing someone with you, and letting someone know where and when you plan on meeting this person.
The Buy Nothing Project started in 2013 and the main purpose is to get free things that you need without having to go and buy more things.
These groups encourage recycling and giving items a second chance rather than throwing them away when you no longer need them.
To get started, find and join a local Buy Nothing Group on Facebook. You can search for groups specifically for your city. Read and understand the group rules for the Buy Nothing Group and regularly check the group for new posts.
If you see a piece of furniture you’re interested in, respond to the offer politely and express your interest. You can even share why you need the item, so the person knows it’s going to good use.
Buy Nothing Groups are incredible communities for sharing, getting, and giving support to others. If you have the means, consider giving things to the Buy Nothing Group when other members of the community need something.
My sister has given away a ton of free furniture in local buy-nothing groups such as a sectional couch, TV stand, coffee table, bed frames, dressers, outdoor furniture, and more. There are lots of decent furniture pieces that you may be able to find in your local buy-nothing group as well!
Craigslist is another great spot for finding free furniture for your home.
Here’s a list of tips to find free furniture on Craigslist.
When meeting with people from Craigslist, it’s important to coordinate a spot that is safe and well-lit. It doesn’t hurt to bring a friend with you and let someone know where you’re meeting the online person and at what time.
Freecycle is a network of local groups for people who want to give away stuff and receive items for free. Here are some tips for finding furniture on Freecycle.
Contribute to the community when you can by offering items you no longer need. And as always, prioritize safety when arranging pickups. Let someone know your plans and choose public places to pick up furniture.
You can possibly get free furniture from friends and family, especially if they are looking to declutter or upgrade their home with new furniture.
Let family and friends know you need furniture. Be honest about your situation and clearly communicate the type of furniture you’re looking for, whether it’s a couch, table, bed, etc.
In a casual setting, such as at a family dinner, mention that you’re in need of furniture for your place. People may be more inclined to offer items they no longer use.
You could even make a Facebook post simply asking if anyone has any furniture they no longer want.
To make things as easy as possible, offer to pick up the furniture from your friend or family member. They’ll probably be really happy to get rid of the furniture and have more space in their home.
Hope To Dream is a program by Ashley Furniture with the main goal of providing free mattresses and bedding to children in need. This program operates through partnerships with local organizations and charities.
The qualifications for the Hope To Dream program include:
The Ashley Furniture free bed assistance program is a helpful one to look into if you are looking for free furniture for low income families.
Here is more information on the Hope To Dream program.
Salvation Army accepts furniture donations, but sometimes they sell their furniture items at a high price. If you are low-income, you may qualify for Salvation Army free furniture vouchers.
The Salvation Army gives free furniture vouchers to people in need as part of their assistance program.
To get support, contact your local Salvation Army and ask about their assistance program, specifically related to furniture. Explain your situation and provide any required documentation to assess your eligibility for assistance. You may need to provide proof of your financial situation and ID.
Some Salvation Army locations conduct interviews as part of the application process. Once the application process is completed, the Salvation Army will inform you of your outcome.
If approved, the Salvation Army will provide you with furniture vouchers.
Dumpster diving is a unique way to score free furniture, but it’s important to approach this activity with caution and respect for local laws and safety.
Here are some tips for dumpster diving:
It’s also handy to bring gloves and a flashlight. If you’re unsure about the legalities of dumpster diving, it’s best to check with local authorities.
College campuses are a gold mine on move-out day. Students throw away items they no longer need or cannot take home with them ALL THE TIME.
You should find out when the official move-out dates are for the colleges near you. These dates are always online on the college’s website.
On move-out days, arrive early to the campus where students are likely to leave items. Carry tools such as a screwdriver or wrench in case you need to disassemble furniture so that it can fit in your car.
As always, make sure to inspect furniture for damage, pests, and other issues.
NextDoor is a social networking platform that connects people in the same neighborhood or community. This is a great spot for finding free furniture locally.
To get started, sign up for NextDoor and verify your address to join the specific neighborhood community where you live. Browse the “Free” section as members are constantly posting items that they are giving away for free.
You can even set up alerts for specific keywords. Set up alerts for furniture-related items, so you can get notified as soon as someone posts free furniture in your area.
If you aren’t having luck searching for items on NextDoor, consider creating a “Wanted” post. Be specific about the items you’re looking for and why you need the item.
While, this will take some time, because furniture is not cheap, one way is to earn free gift cards.
You can earn free gift cards by answering online surveys and doing other online tasks, and you can use these gift cards to help you get free furniture.
So, this would work like this – You could get free gift cards to places like Amazon or TJ Maxx as a reward for answering online surveys or earning points in other ways. You can simply collect gift cards until you reach the amount that you need to buy your wanted and essential household items.
Some of my favorite rewards sites are:
I recommend signing up for all of them so that you can get the most surveys and tasks possible, which will then pay you with more gift cards.
My sister gets free gift cards all the time, and just the other day, she logged into several of the accounts that she is signed up for (such as Fetch Rewards and Swagbucks) and turned in her points. This led to her getting $275 in free Amazon gift cards. She personally likes to wait until she has a lot of gift cards that she can redeem at once, like for furniture!
Recommended reading: 16 Real Ways To Earn Free Gift Cards (Amazon, Target, Visa)
Below are answers to common questions about how to get free furniture.
The best places to find free furniture are Facebook Marketplace, Facebook Buy Nothing Groups, and college or university campuses (on the last day of the semester before summer break).
Wherever you get furniture, it’s important to inspect items thoroughly for cleanliness and functionality before bringing it home.
If you or your family is low income, there are several ways you can get free furniture.
Here are some tips:
When getting free furniture, it’s important to prioritize safety and take certain precautions. When getting new furniture, make sure to inspect the item thoroughly. You don’t want to take items home with infestations like bedbugs or cockroaches.
You will also want to clean the furniture before bringing it inside your home by using appropriate cleaning agents to disinfect and sanitize. It’s also important to check for recalls on furniture. You can check the Consumer Product Safety Commission (CPSC) website to search for recalls.
I hope you learned some new ways when it comes to how to get free furniture.
Finding free furniture is possible with the right resources and patience. Resources, like Buy Nothing Groups, NextDoor, and other platforms, have many options for people in need of free furniture.
Whether you are looking to furnish a small apartment or a big house, there are many places to get free furniture near you.
What’s your favorite way to find free furniture?
Recommended reading:
Source: makingsenseofcents.com