debt-to-income

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A while back, I cautioned readers to avoid swiping the credit card before applying for a mortgage.

In short, the more you charge, the higher your outstanding balances. And the higher your balances, the lower your available credit.

This can result in lower credit scores since utilization is a big factor for FICO. And it can increase your debt-to-income ratio as well.

Simply put, if you’re seen as overextended due to maxed out credit cards, your credit scores will suffer.

So you can give your credit scores a boost by simply doing nothing, but there are some proactive measures you can take as well.

Increase the Credit Limits on Your Credit Cards

  • One quick and easy way to boost your credit scores is to increase your available credit
  • You can do this by raising the credit limits on the credit cards you have open
  • Simply ask your credit card issuers for credit line increases online or by phone
  • Once granted your utilization will go down and your credit scores should improve over time

One simple trick to improve your credit scores is via a credit limit increase.

This is something that is very easy (and fast) to accomplish thanks to the many credit card management tools now at our fingertips.

If you visit just about any credit card issuer’s website, you should be able to find an area to increase your credit limit online.

Typically, all you need to do is enter enter your gross annual income and monthly housing/rent payment.

With other issuers, such as American Express, you are asked to enter your desired credit limit and then hope they extend it to you. Apparently you can get 3x your starting limit with little trouble.

So if you started with $5,000, you could get it increased to $15,000 simply by visiting the American Express website and filling out an online form.

Once submitted, you’ll either get that new limit, something in between, or you’ll be denied.

But as long as your credit history and income is sufficient, you should get something. What’s awesome is it can take as little as a few seconds to get your new line of credit.

Note: Some card issuers may need to pull your credit report to do this, which could affect your credit scores temporarily due to the inquiry.

They’ll typically notify you first, but this is why you should request credit increases 3+ months in advance of your mortgage application to let the dust settle.

Lower Your Credit Utilization to Improve Your Scores

The underlying goal of a credit limit increase is to lower your credit utilization, which is the percentage of credit you’re actively using at any given time.

A lower utilization, similar to a lower debt-to-income ratio, is viewed favorably by credit bureaus and mortgage lenders, respectively.

So imagine you have that American Express credit card with a $5,000 limit.

If you currently have a $2,500 balance, even if it’ll be paid off on time and not revolved, you’re essentially using 50% of your available credit. This isn’t a good thing when it comes to credit scores.

You may actually want to keep your utilization rate below 25%. In this case, no more than $1,250 outstanding, even if you pay it off in full by the due date.

But what if you naturally charge a lot on your credit cards each month, despite paying them off in full every month? What can you do to keep utilization low?

Well, if your credit limit happened to be $10,000 instead of $5,000, that $2,500 balance would only represent 25% utilization.

If it were $15,000, it’s only around 17% utilization, which should certainly be viewed favorably.

In other words, all you have to do is ask for higher credit limits, instead of spending less. Of course, spending less will sweeten the deal and ideally push your credit scores even higher.

Tip: It’s easier to get credit limit increases approved if your balances are low because you’re viewed as a lower risk customer.

Pay Off Your Existing Balances at the Same Time

  • Another trick that goes hand in hand with the first tip is to pay down your balances
  • Any existing loans and credit card balances that you can chip away at
  • This will also effectively free up available credit and should give your credit scores a boost
  • It will also lower your DTI because minimum payments will be reduced in the process

In conjunction with the first tip, you can also pay down any balances you may have, assuming you don’t pay your credit cards in full each month.

If implemented together, you can get higher limits and reduced balances, which will be a one-two punch in the credit utilization department.

So using our same example, if the individual with the $2,500 balance lets carries it from month to month and only has a $5,000 credit limit, imagine if they got a higher limit and started paying it down.

They could push their utilization down from 50% to say 15% if they got the limit increased to $10,000 and paid $1,000 off the balance.

These actions should result in a higher credit score, which generally means a better mortgage rate if you apply for a home loan.

Additionally, smaller credit card balances mean you’ll have more of your income available to use toward a mortgage payment.

So you may actually be able to qualify for a larger mortgage and/or buy more house.

Give It Time to Work

The only caveat here is that a credit limit increase request could result in a hard inquiry on your credit report.

Because you’re requesting additional credit, some card issuers treat it as a quasi-application, meaning they’ll need to review your credit history.

This could ding your credit slightly, like any new line of credit. It’s temporary, but may offset some of the expected gains of a higher limit.

So either request the increased limits several months in advance of applying for a mortgage, or ask the credit card issuer if it will result in a hard or soft pull before making the request.

If it’s the latter, it won’t harm your credit score. Regardless, inquiries typically don’t impact scores much, maybe 3-5 points and the damage is generally short-lived.

One final thing you can do is check out the Experian Boost, which increases credit scores by adding positive payment history to your credit file.

It can be helpful to those who lack traditional credit history, but pay other bills on time like a cell phone or utility.

In closing, you’ll want to approach mortgage lenders with the highest credit scores possible. This ensures you have the best chance of approval and also obtain the lowest interest rate available.

Read more: What credit score do I need to get a mortgage?

Source: thetruthaboutmortgage.com

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It’s been some time since I’ve done mortgage Q&A, so without further delay, let’s explore the following question: “Do you need 20% down to buy a house?”

If you chat with anyone older than 50 (maybe 60), they’ll probably tell you that you need to (or should) put 20% down if you want to buy a house.

For them, it’s the normal, or should I say traditional, down payment needed to secure a mortgage.

And while it might be conventional wisdom when it comes to home buying, it’s not necessarily the reality anymore.

In fact, the median down payment is just 12%, per the National Association of Realtors (NAR) 2021 Home Buyer and Seller Generational Trends report. Despite this, a lot of people still seem to think you need 20% down to purchase a home.

You Don’t Need a 20% Down Payment…

typical down payment

A few years back, the NAR 2017 Aspiring Home Buyers Profile report found that 39% of non-owners believed they needed more than 20% for a mortgage down payment on a home purchase.

And 26% assumed they needed to put down 15-20%, while 22% said they needed a down payment of 10-14% in order to buy. None of those answers are true.

A 2020 study from NAR also had a whopping 35% of respondents going with the 16% to 20% down payment tier, easily the number one answer.

In reality, you may not even need a down payment if you take out a certain type of home loan, or receive gift funds for the down payment.

Even if a down payment is required, it’ll be a lot less than 20% in most cases, most likely less than 5%.

Last year, the typical down payment for first-time home buyers was just 7%, while it was 17% for repeat buyers, per NAR.

It’s common for repeat buyers to use the proceeds from their original home to buy a replacement, making it easier to come up with a larger down payment.

Conversely, first-timers often have a tough time coming up with funds because they can’t tap into home equity.

You’ll notice both figures have moved lower over the years, though average down payments have ticked higher recently, perhaps due to home buyer competition in this hot housing market.

20% Down Payments Used to Be the Norm

20 percent down payment

  • Your parents probably put down 20% or more when they bought a house
  • But back then home prices were a lot lower than they are today (and interest rates a lot higher)
  • You might only need to put down 3% or 3.5% when you purchase a property these days
  • But there are still key advantages to putting down at least 20% like no mortgage insurance and a lower interest rate

Back in the day, it was customary to come in with 20% down (or more) when purchasing a property.

But property values were significantly lower those days, and mortgage rates a lot higher.

Times have changed as home prices skyrocketed and mortgage lenders got more competitive (and less risk-averse).

Leading up to the housing crisis seen in the mid-2000s, a zero down mortgage was a common theme. In fact, there were lenders that named themselves after that lack of a down payment…

Of course, we all know what happened next – home prices tanked and low down payment options began to evaporate.

That led to increased FHA loan lending, which requires only 3.5% down if you have at least a 580 FICO score.

And over time, Fannie Mae and Freddie Mac introduced a competing product that allows for loan-to-value ratios (LTVs) as high as 97% (just 3% down).

So we’ve kind of come full circle, though we’re not quite at the zero-down stage just yet.

Though lenders have offered mortgages with just 1% down, such as Quicken, Guaranteed Rate, and United Wholesale Mortgage thanks to the use of grants.

Should You Put Less Than 20% Down on a Home?

median down payment

  • You may not need to put 20% down on a home purchase in many cases
  • But it will cost you more money monthly if you don’t via a higher rate, PMI, and a larger loan amount
  • It may also make your offer less desirable to home sellers if they have competing bids with larger down payments
  • So it can beneficial to put down more, especially in a seller’s market

We’ve already answered the original question. You don’t need a 20% down payment to purchase a home.

In fact, you don’t need any down payment in some cases if you consider a home loan from the VA or USDA, both of which offer 100% financing.

You also don’t need to put down 10% or even 5% thanks to widely available programs from the FHA and Fannie and Freddie.

The median down payment is quite a bit lower, around 12% at last glance, and even lower (6%) for the 22 to 30 age cohort.

This age group also said saving for the down payment was one of the most difficult steps of the home buying process.

Now assuming you can muster a 20% down payment, should you come in with less?

This answer is a bit more elusive because it depends on a variety of factors, which include your household balance sheet and your financial goals.

Perhaps it’s better to frame the question the other way around.

Why You Should Put 20% Down on a House

In short, the less you put down on a home, the more you pay each month via your mortgage payment. This happens for three main reasons:

– Larger loan amount (less down means more financed)
– Higher mortgage rate (rates tend to rise as down payments fall)
– Mortgage insurance (added cost to account for risk)

If you put down less than 20%, you wind up with a bigger loan amount (obviously), a higher mortgage rate (usually) because of pricing adjustments, and you have to pay mortgage insurance to protect the lender.

This means your monthly housing costs go up, but you keep more cash in-hand, or at least not in your house.

Let’s assume the home you want to purchase is selling for $350,000 and you plan to take out a 30-year fixed mortgage. This comparison chart shows us how things might look.

3% Down vs. 20% Down: The Math

$350,000 Home Purchase 3% Down Payment 20% Down Payment
Down payment $10,500 $70,000
Loan amount $339,500 $280,000
Mortgage rate 4.125% 3.875%
Monthly P&I payment $1,645.39 $1,316.66
PMI $125 n/a
Total monthly cost $1,770.39 $1,316.66
Difference +453.73

As you can see from the chart above, the 3% down mortgage payment is roughly $454 more expensive each month thanks to those three things I mentioned.

That higher payment equates to an additional $27,223.80 spent over the course of five years.

Additionally, because the loan balance and mortgage rate are higher, more of your payment goes toward interest every month.

After 60 months, the 3% down mortgage would have a balance of $307,684.69, whereas the 20% down mortgage would be whittled down to $252,738.50.

The tradeoff is basically more money in your pocket versus the home, and the ability to buy more house now in exchange for a higher monthly payment.

This assumes you lack the down payment funds, but can afford the higher payments, which can be a common scenario for young high-earning individuals without significant savings (HENRYs).

At the same time, I’ve argued that it’s possible to buy more house if you put more money down because less income is required.

This assumes income is the problem and not assets, which can result in debt-to-income issues, which are prevalent and often grounds for denial.

Of course, it’s entirely possible for a low-down payment to be voluntary, for a homeowner who wants to park their money elsewhere.

That decision really comes down to how you value your housing investment, and if you think you can do better putting the money in the stock market or some other place.

For those who don’t have that choice, take comfort in the fact that you don’t need a 20% down payment to buy a home, or anywhere close to it.

But you will pay extra for that convenience, and you might have more hurdles to clear, such as convincing a seller to take your offer when another prospective buyer offers to put down 20%.

Alternatively, you could get a gift for a portion of the down payment and get the best of both worlds.

Can You Put More Than 20% Down on a House?

  • You can put as much down as you’d like (or even buy all-cash to avoid the mortgage entirely)
  • There are advantages to putting down more than 20% on a home purchase
  • Such as a lower mortgage rate thanks to fewer pricing adjustments
  • And an even stronger offer if buying a home in a hot market
  • Also a lower monthly payment and much less interest paid

You sure can. It’s generally possible to put down as much as you’d like on your home purchase, though if you put down too much you could run into issues with minimum loan amounts from lenders.

Of course, this probably isn’t going to be an issue in most cases with property values so high these days.

I’ve heard of home buyers putting down 50% just because they are debt-averse, but again, most folks don’t have that type of cash lying around.

The obvious benefit of putting a large down payment on a house is that you’ll have a smaller mortgage balance and pay less interest as a result.

You’ll also enjoy lower monthly payments, which will free up cash for other expenses or investments.

Conversely, you’ll have that much more money locked up in your property, which you’ll only be able to access if you sell or take out another home loan.

When it comes to mortgage rate pricing, it’s possible to obtain a slightly lower interest rate when you put down more than 20%, though it likely won’t be much.

We’re talking .125% to .25% lower depending on the scenario in question, so there are diminishing returns, especially when interest rates are already low.

But if you have bad credit the pricing impact can be greater with a larger down payment, so in those cases it could make sense to put down more than 20%, assuming you’ve got the cash available.

However, once you’re at 65% LTV (35% down payment) the pricing incentives tend to stop, so there wouldn’t be a benefit mortgage rate-wise after that threshold.

In summary, consider how much money you want locked up in your home, what your money could be doing (earning) otherwise, and how much it’ll cost you to put less down.

Lastly, don’t forget home sellers favor those who come in with larger down payments!

Read more: 2021 home buying tips to get the deal done.

Pros of Putting Down 20% on a Home Purchase

– Smaller loan amount
– No mortgage insurance required
– Lower mortgage rate
– Pay less interest over the life of the loan
– Ability to tap equity or take out a HELOC
– Lower closing costs
– Better chance of getting your offer accepted in a hot market
– More lender choice and loan options available

Cons of Putting Down 20% on a Home Purchase

– Requires a lot more money up front
– May make you house poor (little leftover for repairs/maintenance)
– Money tied up in the home that could lose value (and thus access to it)
– Could invest that money elsewhere for a better return
– Inflation makes dollars worth less over time
– Difference in monthly payment may not be all that substantial

Source: thetruthaboutmortgage.com

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A couple of closely followed mortgage rates increased over the last seven days. The average 15-year fixed and 30-year fixed mortgage rates both climbed. The average rate of the most common type of variable-rate mortgage, the 5/1 adjustable-rate mortgage, also increased.

On the heels of cooling inflation, the Federal Reserve announced on May 3 a 25-basis-point increase to its benchmark short-term interest rate. The Fed’s May meeting marks what could be the last increase we see for the time being. The central bank has signaled that it may soon be time to pause on rate hikes. Depending on incoming inflation data, the next step would be to hold rates where they are for an extended period of time in order to bring inflation down to its 2% target.

As long as inflation continues to trend downward, experts say a pause in rate hikes from the Fed could bring some stability to today’s volatile mortgage rate market.

Mortgages hit a 20-year high in late 2022, but now the macroeconomic environment is changing again. Rates dipped significantly in January before climbing back up in February. Throughout March and April, rates fluctuated in the 6% range.

“Ultimately, more certainty about the Fed’s actions will help to smooth out some of the volatility we have seen with mortgage rates,” says Odeta Kushi, deputy chief economist at First American Financial Corporation.

While rates don’t directly track changes to the federal funds rate, they do respond to inflation. Overall, inflation remains high but has been slowly but consistently falling every month since it peaked in June 2022.

After raising rates dramatically in 2022, the Fed opted for smaller, 25-basis-point rate increases in its first three meetings of 2023. The decision to hike by 0.25% on May 3 suggests that inflation is cooling and the central bank may soon be able to pause its rate hiking regime. While the central bank is unlikely to cut rates any time soon, positive signaling from the Fed and cooling inflation may ease some of the upward pressure on mortgage rates.

“If inflation keeps coming down, that will be the biggest driver, outside of the Fed, that’s really going to help bring rates down to a better level and improve affordability for home buyers,” says Scott Haymore, head of capital markets and mortgage pricing at TD Bank.

However, mortgage rates remain well above where they were a year ago. Fewer buyers are willing to jump into the housing market, driving demand down and causing home prices in some regions to ease, but that’s only part of the home affordability equation.

“Even though home prices in many parts of the country have fallen since the start of the year, high rates make buying prohibitively expensive for many,” says Jacob Channel, senior economist at loan marketplace LendingTree. It’s still difficult for many buyers, particularly those looking for their first home, to afford a monthly payment.

What does this mean for homebuyers this year? Mortgage rates are likely to decrease slightly in 2023, although they’re highly unlikely to return to the rock-bottom levels of 2020 and 2021. However, rate volatility may continue for some time. “Expect mortgage rates to yo-yo up and down in the first half of the year, at least until there is a consensus about when the Fed will conclude raising interest rates,” says Greg McBride, CFA and chief financial analyst at Bankrate. (Like CNET Money, Bankrate is owned by Red Ventures.) McBride expects rates to fall more consistently as the year progresses. “Thirty-year fixed mortgage rates will end the year near 5.25%,” he predicts.

Rather than worrying about market mortgage rates, homebuyers should focus on what they can control: getting the best rate they can for their situation.

“The most important thing is that they find the right home. The second most important thing is obviously to find the most efficient way to finance it,” says Melissa Cohn, regional vice president of William Raveis Mortgage.

Take steps to improve your credit score and save for a down payment to increase your odds of qualifying for the lowest rate available. Also, be sure to compare the rates and fees from multiple lenders to get the best deal. Looking at the annual percentage rate, or APR, will show you the total cost of borrowing and help you compare apples to apples.

30-year fixed-rate mortgages

For a 30-year, fixed-rate mortgage, the average rate you’ll pay is 7.03%, which is a growth of 12 basis points from one week ago. (A basis point is equivalent to 0.01%.) Thirty-year fixed mortgages are the most frequently used loan term. A 30-year fixed rate mortgage will usually have a smaller monthly payment than a 15-year one — but usually a higher interest rate. You won’t be able to pay off your house as quickly and you’ll pay more interest over time, but a 30-year fixed mortgage is a good option if you’re looking to minimize your monthly payment.

15-year fixed-rate mortgages

The average rate for a 15-year, fixed mortgage is 6.45%, which is an increase of 18 basis points from seven days ago. Compared to a 30-year fixed mortgage, a 15-year fixed mortgage with the same loan value and interest rate will have a higher monthly payment. But a 15-year loan will usually be the better deal, if you’re able to afford the monthly payments. You’ll most likely get a lower interest rate, and you’ll pay less interest in total because you’re paying off your mortgage much quicker.

5/1 adjustable-rate mortgages

A 5/1 adjustable-rate mortgage has an average rate of 5.87%, an increase of 8 basis points compared to last week. With an ARM mortgage, you’ll usually get a lower interest rate than a 30-year fixed mortgage for the first five years. But shifts in the market might cause your interest rate to increase after that time, as detailed in the terms of your loan. Because of this, an adjustable-rate mortgage might be a good option if you plan to sell or refinance your house before the rate changes. Otherwise, changes in the market mean your interest rate may be a good deal higher once the rate adjusts.

Mortgage rate trends

Mortgage rates were historically low throughout most of 2020 and 2021 but increased steadily throughout 2022. Now, mortgage rates are roughly twice what they were a year ago, pushed up by persistently high inflation. That high inflation prompted the Fed to raise its target federal funds rate seven times in 2022. By raising rates, the Fed makes it more expensive to borrow money and more appealing to keep money in savings, suppressing demand for goods and services.

Mortgage interest rates don’t move in lockstep with the Fed’s actions in the same way that, say, rates for a home equity line of credit do. But they do respond to inflation. As a result, cooling inflation data and positive signals from the Fed will influence mortgage rate movement more than the most recent 25-basis-point rate hike.

We use data collected by Bankrate to track daily mortgage rate trends. This table summarizes the average rates offered by lenders across the country:

Average mortgage interest rates

Product Rate Last week Change
30-year fixed 7.03% 6.91% +0.12
15-year fixed 6.45% 6.27% +0.18
30-year jumbo mortgage rate 7.06% 6.96% +0.10
30-year mortgage refinance rate 7.07% 7.07% N/C

Rates as of May 23, 2023.

How to shop for the best mortgage rate

To find a personalized mortgage rate, speak to your local mortgage broker or use an online mortgage service. In order to find the best home mortgage, you’ll need to take into account your goals and current finances.

Specific interest rates will vary based on factors including credit score, down payment, debt-to-income ratio and loan-to-value ratio. Having a good credit score, a higher down payment, a low DTI, a low LTV or any combination of those factors can help you get a lower interest rate.

The interest rate isn’t the only factor that affects the cost of your home. Be sure to also consider other costs such as fees, closing costs, taxes and discount points. Make sure to comparison shop with multiple lenders — like credit unions and online lenders in addition to local and national banks — in order to get a loan that works best for you.

How does the loan term impact my mortgage?

When picking a mortgage, it’s important to consider the loan term, or payment schedule. The mortgage terms most commonly offered are 15 years and 30 years, although you can also find 10-, 20- and 40-year mortgages. Mortgages are further divided into fixed-rate and adjustable-rate mortgages. For fixed-rate mortgages, interest rates are fixed for the life of the loan. Unlike a fixed-rate mortgage, the interest rates for an adjustable-rate mortgage are only stable for a certain amount of time (usually five, seven or 10 years). After that, the rate adjusts annually based on the current interest rate in the market.

One thing to think about when deciding between a fixed-rate and adjustable-rate mortgage is the length of time you plan on living in your house. Fixed-rate mortgages might be a better fit if you plan on living in a home for a while. Fixed-rate mortgages offer more stability over time in comparison to adjustable-rate mortgages, but adjustable-rate mortgages may offer lower interest rates upfront. If you aren’t planning to keep your new house for more than three to 10 years, however, an adjustable-rate mortgage might give you a better deal. There is no best loan term as a general rule; it all depends on your goals and your current financial situation. Make sure to do your research and understand what’s most important to you when choosing a mortgage.

Source: cnet.com

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Webinars and Training, Construction Tracking, MERS Certification, 100% Financing, HELOC Products; Jumbo, DSCR Program News

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Sponsored Webinars and Training

Join MCT today, June 1st at 10am PT, for its webinar discussing Strategies to Improve Profitability in the Current Market. In this webinar, MCT’s Phil Rasori and Paul Yarbrough will provide a current market overview and include actionable insights to improve profitability for lenders. Attendees will receive key hedging, trading, best execution, and MSR recommendations, as well as how to leverage technology to improve profitability and efficiency. MCT also recently released a new whitepaper on Mortgage Pipeline Hedging 101. The whitepaper reviews information on moving to mandatory, the strategy of hedging, the benefits of hedging, and how to determine if you are ready. Read the whitepaper to learn how you can use hedging as a tactic to mitigate risk and optimize profitability when selling mortgage loans.

Lenders that support down payment assistance (DPA) are in high demand as a multitude of market conditions put a strain on affordability. To help more lenders win business by supporting consumers with DPA, the Mortgage Bankers Association is hosting the webinar Profit & Succeed with DPA on June 8 at 2 pm EDT. Best practice approaches to DPA lending will be shared by panelists Mark Hasson of Lennar Mortgage, Kate McDougall of Lake Michigan Credit Union and Down Payment Resource’s Veronica Khandelwal and Sean Moss. Registration is FREE for MBA members! Register now to turn up the heat with DPA programs this summer

Investors and Lenders: Jumbo, Non-QM, and DSCR News

Newfi Wholesale’s newly expanded Non-QM product suite offers 90 percent LTV up to $1.5M, loan amounts up to $4M, 2-1 buydowns, DSCR (no minimum ratio) 1-8 units, and alt-doc solutions that make sense for your borrowers. (For more information contact SVP, Non-QM Development & Strategy Dan Bayer or 925-584-0579.)

Effective 5/15/2023, updates to Kind Lending’s Choice Jumbo Program are now live. See UW guide for full program requirements located in Kwikie. Additionally, based on FHFA’s announcement that it would rescind controversial loan-level pricing adjustments (LLPAs) for conventional borrowers with debt-to-income (DTI) levels at or above 40 percent, as of May 14th,

Kind Lending will no longer be charging for a DTI >=40 percent on any FNMA or FHLMC loans. If you have an affected loan that is in process now, Kind Lending will automatically remove this price adjustment and will send out a new lock confirmation.

United Wholesale Mortgage (UWM) is rolling out a suite of six fixed-rate jumbo products. “Brokers now have access to more competitive jumbo pricing, along with transparent investor guidelines and loan qualifications, giving them a leg up on big banks and retail lenders. This will give loan officers the flexibility to tailor a fixed jumbo loan to each borrower’s situation, helping them get into their homes faster, cheaper, and easier.”

As a leader in Non-QM lending, Carrington Correspondent is working hard to deliver top-notch products to trusted partners. Nearly 2 dozen changes took effect on March 23, 2023, which hopefully will have a positive impact on your business and borrowers. Highlights include reduced FICO at which cash-out may be considered for reserves from 700 to 620 for all Non-QM loans. Investor Advantage (DSCR) changes include Resales within 6 months ok, Cash-out FICO requirement down from 640 to 620 and updated “1st-time investor” definition to no investment ownership within 36 months (was 12) – LTV benefit. Prime Advantage (FICO 660+) Now permits primary residences of 3-4 units (was 1-2).

Carrington Prime Advantage for borrowers who just miss qualifying for traditional or jumbo financing. Carrington Flexible Advantage Plus for borrowers who have recently re-established credit scores above 620. Carrington Flexible Advantage for borrowers with recent credit events and FICO down to 550. Carrington Investor Advantage for seasoned property investors with no income documentation.

Did you know there is no State Licensing Required in 20 States & DC? These states consider DSCR loans as commercial loans, so they are generally not subject to licensing requirements.

Carrington Mortgage Services Investor Advantage (DSCR) loan may be the answer for your borrowers.

Champions Funding recently announced an expanded business loan product to increase your offerings to real estate investors. Champs Accelerator Expanded (DSCR < .75) / No Ratio, part of its robust suite of DSCR loan options to fit your borrowers’ needs. Champs accepts transferred appraisals on DSCR and can get your loans closed quickly.

Looking for more options for your borrowers? American Heritage Lending offers CondoTels & Non-Warrantable Condos programs.

Angel Oak Mortgage Solution’s Investor Cash Flow mortgage (DSCR Loan) program now allows you to offer your clients financing for condotels. In addition to this new program enhancement, Angel Oak has implemented rate reductions across all loan programs. If you haven’t ran a loan scenario recently, today is the day to Get Started!

Angel Oak Mortgage Solutions shared great news regarding lending services, now offering its DSCR loans to non-permanent residents. Angel Oak believes in the importance of helping everyone achieve their dreams of homeownership, regardless of residency status. If you have clients who are non-permanent residents seeking financing options, Angel Oak Mortgage Solutions would be honored to assist.

Capital Markets

What will we talk about without the periodic debt ceiling negotiations to consume the press? There’s always the Fed. The Federal Reserve’s Beige Book for May described overall economic activity as little changed in April and early May with four Districts reporting small increases and two reporting slight-to-moderate declines. Consumer expenditures remained resilient while manufacturing activity was flat or up in most Districts. Residential real estate activity improved, and employment increased in most Districts, while prices rose at a slowing pace.

For LOs watching prequals stack up on desks across the country, we had a second consecutive bond price rally (rates down) yesterday due to both a sense that the House of Representatives would pass the debt limit bill and dovish Fed speak. Expectations for a June rate hike flipped from over 70 percent to below 30 percent after Fed Governor Jefferson said that a potential decision to hold the fed funds rate range steady at the June meeting should not be viewed as a signal that the hiking cycle is over. Philadelphia Fed President Harker said that he supports holding steady in June, but also acknowledged that more tightening could be done at subsequent meetings.

Today’s economic calendar includes a series of labor market indicators ahead of tomorrow’s payrolls report. First up were job cuts from Challenger, Gray & Christmas for May: U.S.-based employers announced 80,089 cuts in May, a 20 percent increase from the 66,995 cuts announced one month prior, 287 percent higher than the 20,712 cuts announced in the same month in 2022. Next was ADP employment for May (278k, a huge jump). Weekly jobless claims were 232k with the back month revised higher, while Q1 productivity and unit labor costs were -2.1 percent and 4.2 percent, respectively. Later today brings S&P Global manufacturing PMI and ISM manufacturing PMI for May, April construction spending, Freddie Mac’s Primary Mortgage Markets Survey, and remarks from Philadelphia Fed President Harker. We begin the day with Agency MBS prices roughly unchanged from Wednesday’s close, the 10-year yielding 3.62 after closing yesterday at 3.64 percent, and the 2-year stubbornly high at 4.40 after the spate of jobs news.

Employment

“Button Finance, an industry-leading Home Equity mortgage lender, is seeking a dynamic and experienced Marketing Specialist to build out our correspondent lending program. The ideal candidate will have a strong background in creating innovative marketing strategies and a deep understanding of the mortgage industry. You’ll lead campaigns, drive customer acquisition, and enhance our brand visibility. Join a growing company that is constantly delivering top-quality customer service with HELOCs/HELOANs closing in under 12 days and 24-hour review times. Strong skills in digital marketing, data analysis, and exceptional communication are required. Join our team and contribute to shaping the future of mortgage lending. Please send resumes to Rose King.”

Hey, did you hear that Planet is acquiring right-sized, financially solid distributed retail companies to expand its geographic footprint? This month’s acquisition of Platinum Home Mortgage Corporation brought 20+ branches and 100+ Professionals to Planet. After three decades together, Platinum’s producers were confident in their choice to join Planet because of its financial stability, competitive pricing, and strong leadership. Planet has solidified its position as a leading mortgage industry player by gaining the #9 spot on Inside Mortgage Finance’s overall lender leaderboard and the #4 spot among government loan producers. With the additional volume from Platinum’s power players, Planet expects to continue gaining market share (especially for government, where it’s at 5.2 percent now). To find out how you can profit from working with people who think bigger, work smarter, and perform better, contact Planet’s VP, Talent Acquisition Peter Briggs (435-709-6278).

 Download our mobile app to get alerts for Rob Chrisman’s Commentary.

Source: mortgagenewsdaily.com

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Your debt-to-income ratio—the total of all your monthly expenses divided by your gross monthly income—is one of several factors that impact your mortgage rate, our experts say. Your debt-to-income ratio (DTI) determines the loans you can get and a higher DTI generally means you won’t get access to loans with lower mortgage rates.

“The better programs have thresholds with lower debt-to-income ratios. And better programs translate into better rates,” says Kevin Leibowitz, a mortgage broker at Grayton Mortgage.

Impact of DTI on buying choices

In New York City, co-op boards have their own DTI requirements for buyers, usually 22 to 24 percent. “Co-ops are usually stricter than banks when looking at DTI,” says Deanna Kory, a leading agent at Corcoran. 

Of course lenders are also assessing your financial viability. “Every bank has guidelines with regard to the maximum debt-to-income they allow in order to approve a loan,” says Melissa Cohn, regional vice president at William Raveis Mortgage.

When you’re shopping for a mortgage, a loan officer or mortgage broker will offer you a rate based on your borrowing profile. This includes your credit score, your down payment, whether you’re buying a condo, second home, or investment property, and whether the mortgage is a cash-out refinance. “All these factors are layered on top of each other and it becomes a decision-tree matrix,” Leibowitz says. 

Many lenders will allow for DTI ratios up to 50 percent but the terms available for the loans with a higher DTI are typically worse than those with lower DTI ratios. “Many adjustable and most jumbo lenders cap the maximum DTI at 43 percent in order to qualify,” Cohn says. If you are financing more than 80 percent and applying for private mortgage insurance (PMI), Cohn says the cost of the PMI increases with a higher DTI. 

Put another way—if you have a small down payment, a low credit score, and a high DTI, Leibowitz says, “either the programs are going to disappear or the programs that are available come with worse terms.”

For example, let’s say a condo buyer has a low credit score and a high DTI and they are putting 50 percent down on a $500,000 apartment. That’s not necessarily a bad loan for a lender, Leibowitz says. A buyer is unlikely to default on $250,000 of equity or cash they’ve just put down.

However a higher DTI might rule out access to a loan with a better rate, Leibowitz says. 

How to improve your DTI

One of the best ways to improve your DTI ratio is to limit or pay down any consumer-related debt. This might mean paying off your credit card debt, delaying a big purchase, holding off on a leasing arrangement for a new car, or setting up a loan repayment program for any student debt.

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Source: brickunderground.com

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Originally founded as Social Finance in 2011 to help borrowers manage student loan debt, SoFi started offering mortgages in 2014. Today, the company has funded more than $50 billion in loans, which include everything from wedding loans to auto loan refinancing. The company offers a wide range of services including investing, credit cards and checking accounts for more than 4 million members. Those interested in and eligible for a mortgage can prequalify online in less than two minutes. The lender typically issues conditional approvals in one to two business days, with closings on purchases currently averaging 30 days.

Breakdown of SoFi overall score

  • Affordability: As an online lender, SoFi’s mortgage rates are very competitive. Notably, you’ll pay a flat lender fee instead of a percentage-based fee. Depending on the price of your home, this might mean you save some money.
  • Availability: SoFi lends to borrowers in the majority of states in the U.S. It has limited mortgage options, however, and requires a higher down payment (unless you’re a first-time homebuyer).
  • Borrower experience: SoFi is a membership-driven company that does business primarily online, so you can expect convenience when working with this lender. You’ll need to become a member to take full advantage of some of its perks, however.

Affordability: 5/5

SoFi updates its 10-year, 15-year, 20-year and 30-year APRs daily on its website. All publicly advertised rates assume you’re making a 20 percent down payment, however. To get loan offers tailored to your situation, you’ll need to provide some contact information and other details via an online form.

SoFi charges a $1,495 administration fee, according to a company spokesperson, but SoFi members get $500 off this cost. (Membership is free.)

Note: You can lock in your rate with SoFi for 90 days at the time you’re preapproved. However, if you don’t enter into a purchase agreement by day 60 of the 90-day window, you’ll be subject to a $250 fee. This’ll be refunded at closing. On the plus side, if you do sign a purchase agreement by day 30 of the 90-day period, you’ll get a 0.125 percent further discount on your rate.

Availability: 5/5

While SoFi is licensed to lend mortgages in most states, it only offers conforming and non-conforming (jumbo) conventional loans; it doesn’t offer government-backed products like FHA loans. To qualify, you’ll need a credit score of at least 620 and a debt-to-income (DTI) ratio of no more than 50 percent. If you’re an eligible first-time homebuyer, you can get a conventional loan for as little as 3 percent down. If it’s not your first home, however, you’ll need to put down 5 percent, at minimum.

Borrower experience: 4.7/5

SoFi has been providing mortgages since 2014, originating more than $6 billion in loan volume on that front to date. While the company isn’t accredited by the Better Business Bureau, it does have an A+ rating from the organization, along with “Great” reviews from Trustpilot.

SoFi is a digitally-focused company, and its mobile app is in the top 100 finance apps in the Apple App Store. You can complete the entire application for a mortgage online; there’s also a Home Loan Help Center with calculators, insights into local housing markets and other information to help with the home-buying process. If you need help with your loan at any point, you can call 833-408-7634 Monday through Friday from 8 a.m. to 8 p.m. CT, or Saturday, 10 a.m. to 2 p.m. CT.

Refinancing with SoFi

You can refinance your current mortgage with SoFi. With a traditional refinance, you only need to have 5 percent equity in the home. For a cash-out refinance, you’ll need at least 20 percent equity.

The company also offers student loan cash-out refinances, which allow you to pay off your student debt and refinance your mortgage at the same time. You’ll need to do the math to determine if that move would actually save you money in the long run. Existing SoFi members can save $500 on refinancing costs.

Alternatives to SoFi

Methodology

Bankrate’s expert editorial team collects lender information through a variety of methods. We contact lenders directly, and we also turn to regulatory filings and to assessments by third parties. Our research takes into account three main factors – affordability, availability and borrower experience.

Bankrate’s reporters and editors have decades of experience covering the mortgage industry. They’re skilled at gathering information through interviews and by scouring regulatory filings. Bankrate evaluates more than 85 lenders for factors relating to affordability, availability and customer experience, assigning each a Bankrate Score out of five stars. Here’s how we assess each of the categories:

  • Affordability. Loan cost is a deciding factor for many borrowers. We look at two metrics: 1) a lender’s lowest advertised annual percentage rate (APR) based on Bankrate’s sample scenario, which assumes a 740 or higher credit score and a 20 percent down payment, among other factors and 2) established-customer discounts or incentive pricing, when applicable.
  • Availability. Another factor is how quickly your loan application will be approved, and how many loan programs the lender offers. So we evaluate approval and closing timelines and diversity of loan products.
  • Customer experience. Finally, we delve into what it’s like to deal with the lender as a consumer. We look at the lender’s application process and availability of customer service support. We also consider the results of J.D. Power’s 2022 Mortgage Origination Satisfaction Survey.

Bankrate’s editorial team confirms the accuracy of data at the time of publication. Our team is dedicated to maintaining the timeliness of information – the mortgage industry is changing constantly, so we regularly revisit these reviews to update them.

Bankrate’s methodology page spells out our rating process in greater detail.

Source: thesimpledollar.com

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A variety of significant mortgage rates trended upward over the last seven days. The average interest rates for both 15-year fixed and 30-year fixed mortgages both saw an increase. For variable rates, the 5/1 adjustable-rate mortgage also notched higher.

On the heels of cooling inflation, the Federal Reserve announced on May 3 a 25-basis-point increase to its benchmark short-term interest rate. The Fed’s May meeting marks what could be the last increase we see for the time being. The central bank has signaled that it may soon be time to pause on rate hikes. Depending on incoming inflation data, the next step would be to hold rates where they are for an extended period of time in order to bring inflation down to its 2% target.

As long as inflation continues to trend downward, experts say a pause in rate hikes from the Fed could bring some stability to today’s volatile mortgage rate market.

Mortgages hit a 20-year high in late 2022, but now the macroeconomic environment is changing again. Rates dipped significantly in January before climbing back up in February. Throughout March and April, rates fluctuated in the 6% range.

“Ultimately, more certainty about the Fed’s actions will help to smooth out some of the volatility we have seen with mortgage rates,” says Odeta Kushi, deputy chief economist at First American Financial Corporation.

While rates don’t directly track changes to the federal funds rate, they do respond to inflation. Overall, inflation remains high but has been slowly but consistently falling every month since it peaked in June 2022.

After raising rates dramatically in 2022, the Fed opted for smaller, 25-basis-point rate increases in its first three meetings of 2023. The decision to hike by 0.25% on May 3 suggests that inflation is cooling and the central bank may soon be able to pause its rate hiking regime. While the central bank is unlikely to cut rates any time soon, positive signaling from the Fed and cooling inflation may ease some of the upward pressure on mortgage rates.

“If inflation keeps coming down, that will be the biggest driver, outside of the Fed, that’s really going to help bring rates down to a better level and improve affordability for home buyers,” says Scott Haymore, head of capital markets and mortgage pricing at TD Bank.

However, mortgage rates remain well above where they were a year ago. Fewer buyers are willing to jump into the housing market, driving demand down and causing home prices in some regions to ease, but that’s only part of the home affordability equation.

“Even though home prices in many parts of the country have fallen since the start of the year, high rates make buying prohibitively expensive for many,” says Jacob Channel, senior economist at loan marketplace LendingTree. It’s still difficult for many buyers, particularly those looking for their first home, to afford a monthly payment.

What does this mean for homebuyers this year? Mortgage rates are likely to decrease slightly in 2023, although they’re highly unlikely to return to the rock-bottom levels of 2020 and 2021. However, rate volatility may continue for some time. “Expect mortgage rates to yo-yo up and down in the first half of the year, at least until there is a consensus about when the Fed will conclude raising interest rates,” says Greg McBride, CFA and chief financial analyst at Bankrate. (Like CNET Money, Bankrate is owned by Red Ventures.) McBride expects rates to fall more consistently as the year progresses. “Thirty-year fixed mortgage rates will end the year near 5.25%,” he predicts.

Rather than worrying about market mortgage rates, homebuyers should focus on what they can control: getting the best rate they can for their situation.

“The most important thing is that they find the right home. The second most important thing is obviously to find the most efficient way to finance it,” says Melissa Cohn, regional vice president of William Raveis Mortgage.

Take steps to improve your credit score and save for a down payment to increase your odds of qualifying for the lowest rate available. Also, be sure to compare the rates and fees from multiple lenders to get the best deal. Looking at the annual percentage rate, or APR, will show you the total cost of borrowing and help you compare apples to apples.

30-year fixed-rate mortgages

The 30-year fixed-mortgage rate average is 7.04%, which is an increase of 15 basis points from seven days ago. (A basis point is equivalent to 0.01%.) Thirty-year fixed mortgages are the most common loan term. A 30-year fixed rate mortgage will usually have a smaller monthly payment than a 15-year one — but usually a higher interest rate. Although you’ll pay more interest over time — you’re paying off your loan over a longer timeframe — if you’re looking for a lower monthly payment, a 30-year fixed mortgage may be a good option.

15-year fixed-rate mortgages

The average rate for a 15-year, fixed mortgage is 6.42%, which is an increase of 18 basis points compared to a week ago. Compared to a 30-year fixed mortgage, a 15-year fixed mortgage with the same loan value and interest rate will have a larger monthly payment. But a 15-year loan will usually be the better deal, as long as you can afford the monthly payments. You’ll usually get a lower interest rate, and you’ll pay less interest in total because you’re paying off your mortgage much quicker.

5/1 adjustable-rate mortgages

A 5/1 adjustable-rate mortgage has an average rate of 5.87%, an uptick of 8 basis points from seven days ago. You’ll usually get a lower interest rate (compared to a 30-year fixed mortgage) with a 5/1 adjustable-rate mortgage in the first five years of the mortgage. However, you may end up paying more after that time, depending on the terms of your loan and how the rate adjusts with the market rate. Because of this, an adjustable-rate mortgage could be a good option if you plan to sell or refinance your house before the rate changes. Otherwise, changes in the market mean your interest rate may be much higher once the rate adjusts.

Mortgage rate trends

Mortgage rates were historically low throughout most of 2020 and 2021 but increased steadily throughout 2022. Now, mortgage rates are roughly twice what they were a year ago, pushed up by persistently high inflation. That high inflation prompted the Fed to raise its target federal funds rate seven times in 2022. By raising rates, the Fed makes it more expensive to borrow money and more appealing to keep money in savings, suppressing demand for goods and services.

Mortgage interest rates don’t move in lockstep with the Fed’s actions in the same way that, say, rates for a home equity line of credit do. But they do respond to inflation. As a result, cooling inflation data and positive signals from the Fed will influence mortgage rate movement more than the most recent 25-basis-point rate hike.

We use data collected by Bankrate to track changes in these daily rates. This table summarizes the average rates offered by lenders nationwide:

Current average mortgage interest rates

Loan type Interest rate A week ago Change
30-year fixed rate 7.04% 6.89% +0.15
15-year fixed rate 6.42% 6.24% +0.18
30-year jumbo mortgage rate 7.09% 6.93% +0.16
30-year mortgage refinance rate 7.12% 7.03% +0.09

Rates as of May 22, 2023.

How to find personalized mortgage rates

You can get a personalized mortgage rate by reaching out to your local mortgage broker or using an online calculator. Make sure to consider your current financial situation and your goals when looking for a mortgage.

Things that affect the mortgage rate you might get include: your credit score, down payment, loan-to-value ratio and your debt-to-income ratio. Having a higher credit score, a larger down payment, a low DTI, a low LTV or any combination of those factors can help you get a lower interest rate.

Apart from the mortgage interest rate, factors including closing costs, fees, discount points and taxes might also affect the cost of your house. Be sure to speak with multiple lenders — such as local and national banks, credit unions and online lenders — and comparison-shop to find the best loan for you.

What is a good loan term?

One important thing to consider when choosing a mortgage is the loan term, or payment schedule. The loan terms most commonly offered are 15 years and 30 years, although you can also find 10-, 20- and 40-year mortgages. Mortgages are further divided into fixed-rate and adjustable-rate mortgages. The interest rates in a fixed-rate mortgage are stable for the duration of the loan. Unlike a fixed-rate mortgage, the interest rates for an adjustable-rate mortgage are only set for a certain amount of time (commonly five, seven or 10 years). After that, the rate changes annually based on the market rate.

When deciding between a fixed-rate and adjustable-rate mortgage, you should consider how long you plan to stay in your home. Fixed-rate mortgages might be a better fit for people who plan on staying in a home for a while. Fixed-rate mortgages offer more stability over time in comparison to adjustable-rate mortgages, but adjustable-rate mortgages might offer lower interest rates upfront. If you aren’t planning to keep your new house for more than three to 10 years, though, an adjustable-rate mortgage may give you a better deal. There is no best loan term as an overarching rule; it all depends on your goals and your current financial situation. Make sure to do your research and understand your own priorities when choosing a mortgage.

Source: cnet.com