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Apache is functioning normally

June 4, 2023 by Brett Tams

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

Posted in: Mortgage Tips, Refinance, Renting Tagged: 2, About, All, american express, applying for a mortgage, ask, balance, before, best, big, bills, Buy, chance, closing, Credit, Credit Bureaus, credit card, credit card issuer, credit cards, credit history, credit limit, Credit Report, credit score, credit scores, credit utilization, Debt, debt-to-income, DTI, existing, experian, Experian Boost, fico, Financial Wize, FinancialWize, Free, goal, good, hard inquiry, helpful, history, home, home loan, house, Housing, impact, in, Income, Inquiries, interest, interest rate, lenders, line of credit, loan, Loans, low, LOWER, making, More, Mortgage, mortgage lenders, mortgage payment, MORTGAGE RATE, Mortgage Tips, new, or, Other, payment history, payments, points, proactive, rate, Rent, rent payment, Review, risk, short, simple, Spending, Spending Less, the balance, time, tools, traditional, will

Apache is functioning normally

June 3, 2023 by Brett Tams

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

Posted in: Mortgage Tips, Refinance, Renting Tagged: 2017, 2021, 30-year, 30-year fixed mortgage, About, age, All, assets, average, bad credit, balance, balance sheet, best, Best of, Buy, buy a home, buy a house, buyer, buyers, Buying, Buying a Home, chance, choice, clear, closing, closing costs, Competition, Convenience, cost, Credit, Crisis, Debt, debt-to-income, decision, down payment, down payment on a house, Down payments, earning, equity, expenses, expensive, Fall, Fannie Mae, Fannie Mae and Freddie Mac, FHA, FHA loan, fico, fico score, Financial Goals, Financial Wize, FinancialWize, financing, fixed, Freddie Mac, Free, front, funds, gift, goals, Guaranteed Rate, HELOC, home, home buyer, home buyers, home buying, home buying process, Home buying tips, home equity, home loan, home prices, home purchase, home sellers, Homeowner, hot, house, House poor, household, Housing, housing costs, housing crisis, Housing market, impact, in, Income, Inflation, Insurance, interest, interest rate, interest rates, Invest, investment, investments, lenders, lending, Life, loan, low, LOWER, Main, maintenance, Make, making, market, math, money, More, more money, Mortgage, Mortgage Insurance, mortgage lenders, mortgage payment, MORTGAGE RATE, Mortgage Rates, Mortgage Tips, Mortgages, NAR, National Association of Realtors, offer, offers, or, Original, Other, parents, park, payments, place, plan, PMI, poor, Prices, programs, property, property values, pros, protect, Purchase, Q&A, rate, Rates, Realtors, Repairs, return, returns, rise, risk, Saving, savings, Sell, seller, sellers, selling, short, stage, stock, stock market, The Stock Market, The VA, time, tips, traditional, trends, united, United Wholesale Mortgage, USDA, VA, value, versus, wants, will, young

Apache is functioning normally

June 3, 2023 by Brett Tams

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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Apache is functioning normally

June 1, 2023 by Brett Tams

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

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

By:
Rob Chrisman

2 Hours, 59 Min ago

The United States has about 336 million people. Did you know that 1/3 of them live within a 500-mile radius of Nashville? This is a cool site for anyone putting together a sales presentation for a real estate agent or a borrower. Speaking of geography, Wyoming has 23 counties, not 58 as the Commentary mentioned yesterday, further proof that this is, and always will be, produced by human hands! (Thank you to everyone who corrected me on that.) While we’re on selling, from a sales perspective, some LOs advocate adding value by subtracting complexity for clients. They are asking themselves, “How do I add value? How am I any different?” They are looking at their sales pitch, comparing bringing up pain (minimizing pain through minimizing paperwork) versus bringing up pleasure (“You’ll save time by working with me.”) And most are doing what they say they’re going to do: If you tell a potential client you’re going to call in two days, call in two days. Simple. Now go get ‘em! (Today’s podcast can be found here and this week’s is sponsored by Lenders One, one of the largest mortgage co-ops in the country with a diverse mix of 250+ member companies and providers of an end-to-end solution independent mortgage professionals trust to drive profitability and growth. Listen to an interview with Lenders One’s Justin Demola on the member benefits of joining a national alliance of independent mortgage banks, banks, and credit unions.)

Lender and Broker Products, Software, and Services

Ever feel like you can’t keep up with the latest tech trends? Having trouble separating hype from reality? Black Knight’s Dana Federspiel, SVP of servicing technologies and product innovation, knows these struggles and is helping lenders, servicers and mortgage industry professionals navigate the future. Dana is participating in a panel discussion during the USFNdustry Forum in Charlotte, North Carolina on the emerging trends in technology to help make more sound business decisions to support your business. Special focus will be given to artificial intelligence, machine learning, robotic process automation and more. Panelists will also evaluate options within the cloud computing universe that are becoming increasingly prevalent and affordable. If you need help cutting through buzz words to identify what really matters so you can remain successful both today and in the future, contact Black Knight.

As lenders adapt to volatile mortgage rates, many are stopping to reconsider their servicing strategy. Do inconsistent mortgage origination volumes have you questioning what makes more sense: retaining servicing or selling servicing released? Seth Sprague, CMB, Richey May’s Director of Mortgage Banking Consulting Services (aka, resident servicing expert), outlines the 13 key trends and strategies in servicing including recommendations on how to make the right decisions for your business. Want more help defining the optimal strategy? You know where to find us.

Thinking about boosting volume with construction loans? Think outsourcing. Homebuilder confidence is slowly improving, with sales of newly built single-family homes rising 4.1 percent in April, according to the NAHB’s latest numbers. If that’s piquing your interest in launching a construction loan program or scaling your existing offerings, CFSI Loan Management can provide the foundation you need to excel. “We’ve seen it time and time again,” says CFSI CEO Brian Mingham. “Outsourcing the trickiest aspects of construction lending, like budgeting, inspections, funding draws and disbursements, can reduce costs and unleash new business opportunities.” Imagine having all the complexities seamlessly handled by a team of seasoned experts, so you close more deals. CFSI has helped hundreds of lenders do exactly that for the past 10 years. To find out how they can help you, contact Brian Mingham (855-344-3052).

We know the current market can be stressful. But fortunately, there’s a bright side: home equity. These products have been around for decades but in recent years have taken a back seat to cash-out refinances. Now this is changing as borrowers with historically low first mortgage rates and generationally high levels of tappable equity rediscover HELOCs and home equity loans. Leverage this historic opportunity with FirstClose Equity, the rapid end-to-end digital technology that processes HELOCs and home equity loans in days instead of weeks. FirstClose Equity is designed to enable lenders to dramatically elevate the experience they deliver to existing or potential customers while providing a streamlined workflow for processors. Learn more.

“Looking for 100 percent financing with competitive pricing? All roads lead to ESSEX CORRESPONDENT and our Down Payment Assistance (DPA) product. Become a fully delegated and underwrite/fund your own 100 percent LTV purchase product. FHA 1st 96.5 percent LTV with two 3.5 percent 2nd mortgage options; 0 percent Forgivable or a 10 year Fully Amortized. No DTI limit, AUS approval required. FICOS as low as 600. One set of guidelines is available in 47 states. No first-time home buyer requirement. No 3rd party underwrite allows you to close as quickly as your team can originate. Email Kim Schenck or contact your Account Executive today and get signed up!”

While the mortgage industry is flooded with rules, there is no rule prohibiting you from celebrating National Donut Day a day earlier! Plus, we Donut want you to miss an opportunity for a free Krispy Cream. Among other things we don’t want you to miss, MERS season is officially here, and early-bird pricing is available now! If your organization had more than 1,000 MINs [on the MERS® System] on March 31st, you must have the annual review completed by an “authorized MERS third-party reviewer. Donut fret, MQMR aced the MERS certification with flying colors! Donut miss this opportunity to save, pricing will increase through the end of the year. Donut wait until the last minute, as your annual audit report may be submitted anytime between now and December 31, 2023. Schedule a call to discuss your MERS Annual Audit requirement and lock-in the sweetest deal of the season!

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).

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Source: mortgagenewsdaily.com

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Apache is functioning normally

June 1, 2023 by Brett Tams

Interested in a 40-Year Fixed Mortgage?

  • If you need even more time to pay off your mortgage
  • Or need to get the monthly payment down to boost affordability
  • A 40-year fixed mortgage could be one alternative to consider
  • But they’re harder to come by these days and aren’t well-suited for everyone

Every now and then, I take a look at a specific mortgage product to determine if it could be a good fit for a prospective (or existing) homeowner.

Today, we’ll discuss a formerly popular home loan option, the “40-year mortgage.” It was all the rage during the prior housing boom in the early 2000s.

But also partially to blame for the housing crisis that took place shortly after.

Still, with mortgage rates now double what they were to start the year, they could make a resurgence.

What Is a 40-Year Mortgage?

40 year mortgage

A 40-year mortgage is a home loan with a loan term that lasts for 40 years. This is 10 years longer than the typical 30-year loan term attached to most mortgages.

You may already be thinking, “40 years? I thought mortgages had terms of 30 years?” Is this a mistake?

Well, you’d be mostly right. The majority of mortgages issued today do have terms of 30 years. It’s certainly the most common loan term out there.

In fact, aside from 30-year fixed mortgages, which clearly last for 30 years, as the name implies, most adjustable-rate mortgages also have terms of 30 years, despite lacking any reference to 30 years in their title.

So that 5/1 ARM or 7/1 ARM you’ve got your eye on still has a 30-year term, meaning it’s fixed for the first five or seven years.

It then becomes adjustable for the remaining 25 or 23 years, respectively. This is one reason why consumers have a great amount of difficulty understanding mortgages.

Only the 15-year mortgage and 10-year fixed come with different loan terms, 15 and 10 years respectively.

Why Go With a 40-Year Mortgage Term?

  • It’s an extra 10 years over the typical 30-year loan term
  • Offered as a means to lower monthly mortgage payments
  • This can make the home loan more affordable or allow money to allocated elsewhere
  • But it will also lead to a lot more interest paid over the longer term (and a slower payoff)

Okay, so we know the 40-year mortgage bucks the trend, and adds 10 years on to the standard mortgage term. But why?

What’s the point of paying a mortgage for an extra decade? That sounds like a literal lifetime commitment. Especially since 30 years is already way too long.

Well, the longer a mortgage amortizes (is paid off), the lower the monthly mortgage payment.

Essentially, payments are stretched out over a longer period of time. Instead of 360 months, you’re looking at 480 months.

Let’s look at an example of a 40-year fixed mortgage:

Loan amount: $300,000
30-year fixed: $1,703.37 @5.5%
40-year fixed: $1,598.66 @5.75%

As you can see, the monthly mortgage payment on the 40-year mortgage is roughly $105 less each month thanks to that longer period of time to pay it off.

That extra cash could be used to pay off student loans, credit cards, personal loans, and other higher-APR debt you may have.

Or it could be allocated toward a different investment or retirement account. It could also make a real estate purchase slightly more affordable.

The bad news is you’ll pay much more interest over the life of the loan, and it’ll take a very long time to build a meaningful amount of home equity.

If you use a mortgage calculator, make sure it’s set at 480 months. And pay close attention to how much interest is paid versus a loan with a term of 360 months. It’ll be an eye-opener.

In the example above, it’s about $150,000 more in interest for the 40-year mortgage, assuming it’s held until maturity.

40-Year Mortgage Rates Are Slightly Higher

  • Expect 40-year mortgage rates to be slightly higher than interest rates on 30-year fixed mortgages
  • How much higher will depend on the lender in question and your unique loan scenario
  • You essentially pay a premium to lock in an interest rate for an additional 10 years
  • And the slower payoff means you must pay a higher rate of interest to the bank/lender

You may have also noticed that the mortgage rate on the 40-year mortgage in my example is 0.25% higher than the interest rate on the 30-year fixed. There’s a reason for that.

Simply put, you pay a premium for a longer amortization period. This is the opposite of a 15-year fixed, where you receive a discount for paying your mortgage off faster.

After all, a bank or lender is willing to give you a fixed rate for four decades, so they’re going to want a slight premium in exchange for all that uncertainty.

In other words, expect 40-year mortgage rates to be slightly more expensive. It might only be .125% higher than the 30-year, but could definitely range from bank to bank. The bigger problem is finding a lender that offers the product to begin with.

That being said, the short-term savings can increase how much house a buyer can afford, and also make qualifying easier (or even feasible) if a borrower’s debt-to-income ratio is too high for a 30-year mortgage. That’s assuming the lender qualifies the borrower at the 40-year loan payment…

This is essentially why a borrower would go with the 40-year fixed – to buy more house or make their home loan more “affordable.”

More aggressive borrowers could even invest that $105 each month in a high-yielding retirement account and essentially try to beat the relatively low interest rate on their mortgage.

Nowadays, a 40-year mortgage term may even be part of a loan modification program to make payments more affordable for a struggling borrower.

When combined with an interest rate cut on their current mortgage, the combo can help a borrower stay put in their home for the long haul.

The Downsides of a 40-Year Mortgage

  • Loan is paid much back slower (harder to build equity)
  • Most of the mortgage payment consists of interest
  • May not be much cheaper than a 30-year fixed when all is said and done
  • And they’re not easy to find these days but that could change if rates remain elevated

While the benefits of a 40-year mortgage sound good, a borrower who chooses to go with a such a loan is paying a premium to do so.

As mentioned, they are higher-rate home loans, so that cuts into the payment “discount” afforded by a 40-year mortgage.

And while the monthly mortgage payment might be lower, the total interest paid over the full loan term will be much higher, which makes one question whether $100 or so in monthly savings is worth it.

On smaller mortgages, the payment different will be even more negligible. It may also be difficult to find a 40-year mortgage, since not all lenders offer them.

In fact, the Qualified Mortgage rule outlawed loan terms longer than 30 years, so 40-year mortgages aren’t even QM-compliant.

That means you’ll probably need to go with a specialty mortgage lender or portfolio lender if you want one.

Additionally, a longer amortization period means you’ll build home equity a lot slower, which could prove to be an issue if you need to sell your home or refinance in the future and your loan-to-value ratio is still sky-high. This could be the case if you come in with a low down payment.

Some Benefits to a 40-Year Mortgage

  • Could be a good short-term solution if you need monthly payment relief
  • Or if you don’t plan on staying in the property for very long
  • Those who wish to use their money elsewhere might be attracted to the program
  • But keep in mind that you pay for the privilege of a longer term via a higher interest rate

One could argue that most homeowners don’t stick with their mortgage full term anyway, let alone for 10 years, so why pay more each month? Or worry that it’ll take forever to pay it off?

A 40-year mortgage could also serve as a good alternative to an interest-only home loan, the latter of which won’t build any equity, and could eventually land a homeowner in an underwater position.

These mortgage types are also safer than an ARM (assuming it’s a 40-year fixed rate), which can adjust higher once the fixed period comes to an end.

So you won’t have to contend with any interest rate adjustments, which could make it easier to sleep at night, especially if you’re a first-time home buyer.

As always, do plenty of homework (and math using a mortgage calculator) and consult with a loan officer or mortgage broker to determine what’s best for you and your unique situation.

Tip: You may come across a “40 due in 30” as well, which is essentially a 30-year balloon mortgage that amortizes like it has a 40-year term.

That keeps monthly payments low, but the balance due at 30-year mark. Again, most of these probably aren’t kept full term, so it might be moot.

Is a 40-Year Mortgage a Good Idea?

Some say you should only buy a house if you can afford a 15-year mortgage. So if we’re talking a 40-year mortgage, which is 10 years beyond the standard 30-year fixed, it might be a red flag.

It may reveal that you aren’t qualified for the mortgage in question, at least from a traditional, more conservative standpoint.

Of course, there are exceptions to every rule, and it depends why a homeowner would seek out this type of financing.

They might want to deploy their cash in other places where its yield is higher than the rate on a 40-year mortgage.

At the same time, for the typical home buyer, a 40-year loan probably isn’t the best idea because so much more interest is paid throughout the loan term.

And it takes a significant amount of time to pay off the loan. But every situation is unique.

Are 40-Year Mortgages Available?

One last thing. As noted above, you might have difficulty finding a 40-year mortgage because not many lenders offer them.

So they might not even be available to begin with, which stops the debate in its tracks. Before you spend too much time thinking about getting one, maybe see if anyone offers them.

The reason they’re scarce is mostly because the Consumer Financial Protection Bureau (CFPB) outlawed loan terms beyond 30 years on most residential home loans.

You can still get one, but it won’t be considered a Qualified Mortgage (QM). And only big banks and niche non-QM lenders offer such products, typically at a premium.

So even if you find one, the pricing might not be great given the lack of competition. At the end of the day, you might be better off with a more traditional loan program instead.

(photo: Derek Swanson)

Source: thetruthaboutmortgage.com

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Apache is functioning normally

June 1, 2023 by Brett Tams

Imagine a situation where you could transform your mortgage into a more favorable and empowering financial tool. Picture the possibilities of accessing the equity in your property or securing lower interest rates. Welcome to the world of mortgage refinancing. Refinancing your mortgage is like hitting the reset button on your home loan, allowing you to replace your current mortgage with one that better aligns with your financial goals. The general rule of thumb is that you’ll pay between 2% and 6% of the refinance value. Here’s how it breaks down.

For help figuring out how to refinance your mortgage in a way that works for you, consider working with a financial advisor.

Mortgage Refinances Basics

A mortgage refinance refers to the process of replacing an existing mortgage with a new one, typically to take advantage of more favorable terms or to access equity in a property. Refinancing means receiving a new loan to pay off your current loan and obtaining a lower interest rate, longer loan duration, or a different type of mortgage. For instance, you might refinance your fixed-rate mortgage to a 5/1 adjustable-rate mortgage (ARM) for a lower interest rate.

Remember, although mortgage refinancing can provide a more favorable loan, it involves closing costs and fees. As a result, it’s essential to calculate whether the potential savings or benefits outweigh the expenses over the long term.

Average Cost to Refinance a Mortgage

Refinancing a mortgage means paying for the loan servicing required for your original mortgage. While the average refinance costs 2% to 6% of your loan amount, costs vary depending on your circumstances. In addition, interest rates have risen in the last two years, making borrowing more expensive.

Here’s a breakdown of refinancing costs:

  • Application fee: $0-$500
  • Attorney fees: $500-$1,000
  • Credit report fee: $10-$100
  • Discount points: 0%-3%
  • Document preparation fee: $50-$600
  • Flood certification: $15-$25
  • Home appraisal: $300-$700
  • Home inspection: $300-$500
  • Origination fees: 0.5%-2%
  • Recording fees: $25-$250
  • Reconveyance fee: $50-$65
  • Tax service: Varies
  • Title insurance and search: $400-$900

Factors Affecting Refinance Costs

Refinancing your mortgage can save you a significant amount of money. However, it’s critical to note that, similar to acquiring a new home loan, a refinance entails closing costs that can impact your immediate and long-term financial situation. Compared to closing on a comparable purchase loan, the closing costs for a refinance are generally lower. The precise amount you’ll be required to pay depends on various factors, such as:

Your Loan Size

As mentioned above, lenders base mortgage insurance and other costs on your total loan amount. Therefore, the larger your loan, the higher the refinance cost.

Your Lender

Each lender has its own fee structure. For example, some lenders may waive your credit report or application fee. As a result, it’s wise to shop around for lenders and ask for a summary of fees before committing to a specific lender. This way, you can compare the offers available.

Your Location

Costs of home inspections, recording fees, taxes and more depend on your location. Therefore, where you live can change your refinance costs by hundreds or thousands of dollars.

Your Credit Score

Your credit score and history demonstrate your consistency and reliability as a borrower. As a result, your lender charges lower interest rates to customers with higher credit scores because they present less risk. On the other hand, a low credit score means you’ll pay more interest, increasing your refinancing costs.

Your Home Equity

Similarly, home equity can also impact the interest rates available when refinancing. Generally, lenders offer better rates to borrowers with higher levels of equity. With more equity in your home, you represent less risk to the lender, which can result in more favorable interest rate options.

In addition, the loan-to-value ratio (LTV) is a crucial factor lenders consider when evaluating a refinance application. You can calculate it by dividing the loan amount by the property’s appraised value. Lenders typically have maximum LTV ratios they are willing to accept. For example, if a lender has a maximum LTV of 80%, they will only refinance up to 80% of the home’s appraised value. So, if your original mortgage required private mortgage insurance (PMI) because you had a low down payment or a higher LTV ratio, refinancing can help you eliminate PMI. Building equity to achieve an LTV ratio of 80% or less can eliminate PMI, reducing your monthly payment.

Your Loan Duration

Refinancing means receiving new terms for your loan. For example, you might extend your loan by five years or more through a refinance. Although doing so can lower your monthly payment, it usually increases the amount of interest you pay over time. On the other hand, shortening your loan duration means paying it off more quickly, reducing paid interest.

Your Type of Mortgage (Fixed-Rate or Adjustable-Rate)

With a fixed-rate mortgage, the interest rate remains constant throughout the entire loan term. The rate you agree upon at the beginning of the loan remains unchanged over the life of the mortgage, whether over 15, 20, or 30 years. This stability allows you to have predictable monthly mortgage payments, making budgeting easier. The downside is your interest rate is permanent, even if market trends in the future produce lower interest rates.

In contrast to fixed-rate mortgages, adjustable-rate mortgages (ARMs) have an interest rate that can change periodically. Typically, an ARM has an initial fixed-rate period, such as 5, 7, or 10 years, during which the interest rate remains stable. This rate is usually lower than fixed-rate mortgages. Then, after the initial period, the interest rate can adjust periodically based on an index, such as the U.S. Treasury rate. Therefore, the interest rate can fluctuate over time, potentially resulting in higher or lower monthly payments. If interest rates rise, your payments may increase, but if rates fall, your payments could decrease.

Your Specific Mortgage Program

In addition, you’ll pay different amounts for mortgage insurance depending on the loan type. For instance, mortgage insurance for conventional loans costs 0.15% to 1.95% of the loan amount every year. For FHA loans, you’ll pay a 1.75% premium upon closing and 0.15% to 0.75% of the loan amount every year. VA loans have a funding fee at closing of 0.5% to 3.6%. Lastly, USDA loans have a 1% upfront fee and a 0.35% annual fee.

Your Type of Property

The type of property you own can impact the refinancing process. Lenders may consider different factors and have specific guidelines based on the property type. Here are a few ways the property type can affect a refinance:

  1. Primary Residence: Refinancing a primary residence typically offers the most favorable terms and options. Lenders may provide lower interest rates and more flexible terms for primary residences because borrowers prioritize them over other real estate and assets.
  2. Investment Property: Refinancing an investment property, such as a rental property or vacation home, often comes with slightly higher interest rates and stricter eligibility requirements. Lenders may impose stricter debt-to-income ratios, require larger down payments and assess the property’s rental income potential to determine the feasibility of the refinance.
  3. Condominiums: Refinancing a condominium may have specific requirements. Lenders may assess the financial health of the condominium association, including factors such as the percentage of owner-occupied units, insurance coverage and reserve funds. Additionally, lenders may have stricter appraisal requirements for condos to ensure the property’s value and marketability.
  4. Multi-Unit Properties: Refinancing a multi-unit property, such as a duplex, triplex, or apartment building, may involve different considerations. Lenders typically evaluate the property’s rental income potential, occupancy rates and the borrower’s experience as a landlord. The appraisal process may focus on the property’s income-generating capabilities.
  5. Manufactured or Mobile Homes: Refinancing a manufactured or mobile home may have specific requirements and considerations. Lenders may have stricter criteria for these types of properties due to their unique characteristics. They may require specific certifications, consider the property’s foundation and location and have limitations on the loan-to-value ratio.

Typical Cost Breakdown

Here’s an example of how these numbers work. According to a recent report by Freddie Mac, the average rate refinance is about $273,500. So, here’s how the costs look at percentages of the loan balance on average using the dollar figures introduced earlier:

  • Application fee: 0%-0.18%
  • Attorney fees: 0.18%-0.36%
  • Credit report: 0.003%-0.03%
  • Discount points: 0%-3%
  • Document preparation fee: 0.018%-0.2%
  • Home appraisal: 0.11%-0.25%
  • Home inspection: 0.11%-0.18%
  • Origination fees: 0.5%-2%
  • Recording fees: 0.009%-0.09%
  • Reconveyance fee: 0.018%-0.023%
  • Title insurance and search: 0.14%-0.33%

Additional Considerations

Here are several other aspects of refinancing a mortgage to contemplate before taking action:

Interest Rates Variations 

Interest is the foundation for how lenders make money on loans. As a result, it’s one of the primary expenses for refinanced mortgages. The rate is a percentage of your principal balance, and your monthly payment goes toward interest first, then the principal. As a result, a higher interest rate means you’re paying more for the cost of the loan and less on the loan itself, increasing the cost and requiring more time for repayment.

Choosing Between Fixed-Rate and Adjustable-Rate Mortgages

Remember, a fixed-rate mortgage offers an interest rate that doesn’t change throughout the loan. This feature offers predictability for monthly payments until you repay the loan. On the other hand, adjustable-rate mortgages (ARMs) have interest rates that shift according to market trends after the initial fixed period. The advantage of ARMs is that your initial rate is usually lower than fixed-rate mortgages, and the adjustable rate afterward could also remain lower, increasing your savings.

Potential Savings Over the Long Term

How long you plan to live in your home is another crucial factor regarding refinancing. The refinancing process entails paying closing costs, which can outweigh the savings the interest rate reduction provides. Therefore, it’s best to estimate how long you plan to stay in your home to determine if you can break even or save money through refinancing. One method is to calculate the break-even point by dividing the total cost of the refinance by your monthly savings.

For example, say you save $100 per month, and the closing costs amount to $5,000. In this case, it would take approximately 50 months (or over four years) before you experience savings on your refinance. If you intend to stay in your home for longer than that, refinancing is worthwhile.

Loan-To-Value Ratio (LTV)

The eligibility of your mortgage for refinancing is influenced by the current value of your home compared to the loan amount. During the refinancing process, an independent party appraises your home to determine its market value. The appraised value is critical since the LTV usually can’t exceed 80%. If your home’s value has declined since you purchased it, you might lack sufficient equity to refinance, or you may need to bring additional funds to cover the difference between the home’s value and the loan amount.

Income Stability and Debt-To-Income Ratio

Other debts besides your mortgage, such as car loans or credit card debt, can impact your ability to refinance or the interest rate you receive. Lenders evaluate your debt-to-income ratio when you apply for a refinance. To calculate this ratio, divide your monthly debt payments by your gross monthly income. Generally, a debt-to-income ratio below 43% is desirable for mortgage or refinance qualification.

In addition, your current income and employment status, will influence the refinancing application. Specifically, changes in your income or employment can affect your refinancing eligibility. For instance, you may qualify for a better rate or more favorable terms if your income recently increased.

Conversely, suppose your income has decreased or you recently changed jobs. In that case, the refinancing process may be more challenging, depending on the duration of your current job or the extent of the income reduction. If you’ve recently started a new job, giving your situation several months to stabilize before attempting to refinance can help you qualify for a loan.

Cash-Out Refinance

Freddie Mac’s most recent report shows that 41.9% of refinances in 2021 were cash-out refinances. A cash-out refinance means liquidating a portion of your equity, putting thousands of dollars in your pocket. Homeowners cash out their equity for numerous purposes, such as improving the home, paying off debt, or starting a business. As a result, this refinance enlarges your mortgage, and you get a lump sum in return.

Strategies to Minimize Refinance Costs

Because refinancing can be expensive, it’s recommended to reduce costs as much as possible. This way, excessive fees won’t ruin the benefits of the refinance. These strategies can help you do so:

Shopping Around for Lenders

The whole lending market is open to you when refinancing. Although refinancing with your current lender might be convenient, you could find better rates and terms by getting quotes from several lenders and comparing the offers. This way, you’ll get the best deal available and save money on fees and interest.

Negotiating Fees and Closing Costs

Negotiating fees and closing costs with the lender is also an option. Many fees have wiggle room on the price, so asking lenders about discounts and waivers can be fruitful. In addition, a preexisting relationship with a lender, such as having a bank account or loan beforehand, allows you to access special deals.

Utilizing Mortgage Points

Lastly, you can purchase mortgage points to reduce your interest rate. Typically, they cost 1% of the loan amount per point. As a result, you can cut your interest rate down by paying several thousand dollars up front, reducing interest payments over time. It’s crucial to calculate when you break even if you do so. For example, say you spend $1,500 to lower your interest rate by 1%, lowering your monthly payment by $50. In this scenario, it will take 30 months to break even.

Hidden Costs to Be Aware Of

In addition, some refinancing costs are less apparent when shopping lenders. Here’s what to keep an eye out for:

  • Loan duration and its impact on costs: Generally, the longer the repayment schedule, the more expensive the loan. Your loan duration affects how long the interest rate builds upon the principal. So, repaying the loan faster means fewer compounding periods, which equates to less interest accrual.
  • Tax implications: Both original and refinanced mortgages provide a tax deduction for paid interest. In addition, purchasing points for a refinance loan creates another tax deduction. Specifically, you’ll divide what you paid over the number of years for the loan. So, paying $1,000 for a mortgage point for a 10-year loan results in a $100 deduction every year.
  • Costs associated with mortgage insurance: Refinancing with a conventional loan can incur mortgage insurance costs if you have less than 20% equity in your home. Specifically, private mortgage insurance (PMI) charges a percentage of your loan amount. These charges can occur at closing and each month as part of your loan payment.

The Bottom Line

Mortgage refinancing can benefit homeowners by allowing them to take advantage of more favorable terms and access equity in their property. However, it’s vital to carefully consider the costs involved in the refinancing process and determine whether the potential savings or benefits outweigh these expenses in the long term. As a result, it’s necessary to understand how numerous factors, including the loan amount, origination fees and discount points, can impact the overall cost of refinancing and evaluate the potential savings. Other considerations include the option of a cash-out refinance, which allows homeowners to access their equity, and using strategies to minimize refinance costs.

Tips for Refinancing a Mortgage

  • It’s a good idea for homeowners to analyze their financial situation and goals before refinancing their mortgage. Fortunately, you can consult with a financial advisor to evaluate your circumstances and make informed decisions that align with your long-term plan. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • The real estate market fluctuates daily, making it challenging to understand when refinancing is beneficial. You can get an interest rate estimation using SmartAsset’s rate comparison tool to see if the market conditions suit you.

Photo credit: ©iStock/cnythzl, ©iStock/Daenin Arnee, ©iStock/dusanpetkovic

Source: smartasset.com

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Apache is functioning normally

May 31, 2023 by Brett Tams

Building or purchasing a home can be a daunting task as it involves several considerations, many of which must be planned well in advance. For prospective homeowners in India, the most significant concern is often the substantial financial investment required to construct or buy a property.

While many Indians invest their savings in purchasing or renovating a home, they may still fall short of the necessary funds. In such cases, Home Loans can be a suitable solution. Moreover, securing a housing loan in India has become much simpler in recent years.

Previously, applicants had to visit a bank office, undergo KYC and credit checks, and wait for approval. However, now one can easily apply for a home loan with just a few clicks online, submit a few essential documents, and wait for the bank to complete the remaining necessary checks.

In this article, we will guide you through everything you need to know about home loans up to Rs 75 lakh.

How To Apply For Home Loans Up To Rs. 75 Lakhs

Applying for a home loan for Rs 75 lakh can be done by visiting the relevant lender’s website and following the steps outlined below:

  1. Select “Home Loan” from the list of loans.
  2. Select the “Apply Online” option. You will be directed to a website where you must enter your name, mailing location, email address, contact phone number, and PAN.
  3. On your cell number, you’ll get an OTP.
  4. Enter the OTP to confirm.
  5. Select the loan’s value and term. You’ll be taken to another website where you must enter your job, salary, and property information.
  6. To finish the web registration procedure, the ‘Submit’ option must be clicked.
  7. You will be contacted by an employee of the relevant bank or financial organisation for additional help. The agent will also pick up the papers from your contact location.

Eligibility Requirements For Home Loans Up To Rs. 75 Lakhs

The usual eligibility requirements for home loans up to Rs 75 Lakh are as follows:

  1. If applying as a salaried person, the candidate should fall between the ages of 21 and 60 or 21 and 65 if applying as a self-employed person.
  2. The required minimal annual revenue will range from Rs 25000 to Rs 30000.
  3. The ideal debt-to-income ratio is 40% to 50%.
  4. The minimal credit score ranges from 650 to 750.
  5. The credit is open to both Indian citizens and non-residents.

Important Documents For Home Loans Up To Rs 75 Lakh

You must send the following paperwork with your home loan application to be eligible for a house loan of up to Rs 75 lakh:

  • KYC records
  • Card Aadhar
  • Passport
  • PAN
  • Driving Permit
  • Income records for those who are employed
  • Pay stubs from the previous three months
  • Current Form 16
  • Current ITR
  • Statement of recent six-month bank accounts
  • Income tax returns for independent contractors
  • Financial records that have been audited for the past two years, such as the profit and loss account and balance sheet
  • ITR for the previous two years
  • Statement of bank accounts for the previous 12 months.
  • Property records (copies to be submitted)
  • Deed of Sale
  • Contract of Sale
  • Holding Certificate
  • Latest receipt for property taxes paid
  • Proof of encumbrance for the previous 13 years

Factors That Affect The Rs 75 Lakh Home Loan EMI

The factors that impact the Rs 75 lakh home loan EMI are:

  1. Income: People working for federal, state, or local governments or the public sector are assured of a salary. These borrowers will thus pay relatively reduced interest rates, resulting in cheaper overall credit costs.
  2. Interest rate: If you selected a fixed interest rate, your interest payment would be between 1% and 2% more than if you had selected a variable interest rate.
  3. LTV Ratio: The LTV Ratio affects the interest rate that is applied. Banks typically offer home loans for 75% to 90% of the property’s market worth. The greater the margin, the smaller will be the interest rate, as the potential for loss is smaller for the lender. The EMI will decrease if the interest rate is cheaper too.
  4. Duration: An increased EMI will result from an extended term and vice versa.

Techniques To Reduce The EMI For Rs. 75 Lakh Home Loan

The EMI does not have to remain at the same amount as when the debt was first obtained. Thus, you can decrease the 75 lakh home loan EMI and subsequent debt costs in several methods. This includes:

  1. Implementation Of An Improved Debt Rate System

According to RBI rules, the interest rate system is constantly transforming. It might be the MCLR, BPLR, Base Rate, or EBR.

As you can see, BPLR charges an interest rate significantly greater than the other interest cost structures, with EBR charging the lowest interest rate.

  1. Make The Step-Down EMI Choice.

You can choose the step-down EMI choice if you are a young person who has just begun your job. In this case, the EMI would be originally made greater and progressively decreased over time.

As a result, you’ll be able to pay less interest during the first few years when the capital is falling off quickly. The demand will decrease in line with that.

  1. Change The Interest Rate On Your Loan From Set To A Variable.

A set interest rate typically costs more than a variable interest rate. The set EMI is a benefit of selecting a fixed interest rate.

Furthermore, it will aid in managing the money needed for the long-term EMI payment. You won’t frequently be caught off guard when the EMI unexpectedly rises in response to an increase in the interest rate.

  1. Transfer The Outstanding Amount Of Your Mortgage To A New Provider With A Lower Interest Rate.

You can move the outstanding Home Loan amount to a provider who provides a loan at a reasonable interest rate. This is possible if you did not compare interest rates when initially filing for it and later discovered that you are paying a greater interest rate. This will ease the weight of your EMIs.

Conclusion

In conclusion, many people consider owning a house a significant life objective. There are many Indians who are willing to spend anything necessary to realise this goal. Although purchasing a property is a very costly expenditure, it is possible to opt for a housing loan in India up to Rs 75 Lakh.

Source: newspatrolling.com

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Apache is functioning normally

May 31, 2023 by Brett Tams

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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Apache is functioning normally

May 30, 2023 by Brett Tams

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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Apache is functioning normally

May 30, 2023 by Brett Tams

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

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