Uncommon Knowledge
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MPA: How does Carolina Ventures navigate economic fluctuations, especially in terms of interest rate changes and housing market dynamics? WB: We don’t dwell on the market or recommend that clients do so, either. With so many buyers looking for new homes, inventory in our area is the bigger challenge, not interest rate fluctuations. Business executives, … [Read more…]
Rates for 30-year mortgages dropped again, but homes remain unaffordable in most areas. (iStock)
Mortgage rates dropped to 6.63% this week, according to Freddie Mac’s Primary Mortgage Market Survey. Rates for 30-years fixed-rate mortgages were 6.69% last week, dropping by 0.06 percentage points.
Rates for 15-year mortgages also dropped slightly from 5.96% last week to 5.94% this week. Both 15-year mortgages and 30-year mortgage rates are still higher than they were last year.
A year ago, 30-year mortgages sat at 6.09%, on average, while 15-year mortgages averaged 5.14%, Freddie Mac reported.
“Mortgage rates have been stable for nearly two months, but with continued deceleration in inflation we expect rates to decline further,” Freddie Mac Chief Economist Sam Khater explained.
“The economy continues to outperform due to solid job and income growth, while household formation is increasing at rates above pre-pandemic levels. These favorable factors should provide strong fundamental support to the market in the months ahead.”
As mortgage rates drop, you may decide it’s the right time to finally buy a home. To find the right mortgage for your needs, Credible can show you multiple mortgage lenders all in one place and provide you with personalized rates within minutes.
HOMEOWNERS INSURANCE RATES ON THE RISE, MAINLY DUE TO INCREASE IN NATURAL DISASTERS
After remaining for high most of the year, home prices are dropping slightly in some metro areas.
Data from a recent S&P report showed prices in 12 out of 20 metro areas decreasing. This decrease in prices has led some households to move across state lines in search of more affordable areas.
Charlotte, Providence and Indianapolis saw the largest increase in buyers as they fled high-cost cities, stated a Zillow report.
Households that made these moves found homes were $7,500 less, on average, than where they left.
Cities that saw the highest outflow in households included Chicago, San Diego and Cincinnati. These metro areas often have higher housing costs and less robust economies, Zillow found.
If you think you’re ready to shop around for a home loan, consider using Credible to help you easily compare interest rates from multiple lenders, all without affecting your credit score.
HOMEOWNERS MOVING ACROSS STATE LINES, SEEKING AFFORDABILITY, FIND IT IN CERTAIN CITIES
The housing market is trudging toward recovery, largely thanks to mortgage interest rates dropping in recent months.
“The surge in pending home sales and new home sales, both determined by contract signings in the early stages of the buying process, indicates increased participation from buyers in the market,” explained Realtor.com Economist Jiayi Xu in response to Freddie Mac’s recent mortgage rates update. “Simultaneously, the recent rise in listing activity suggests that sellers are closely monitoring mortgage rates and adjusting their selling strategies accordingly.”
Potential homebuyers won’t see a full recovery anytime soon, however. JP Morgan experts predict that the real estate market will become affordable again about three and a half years from now. This is largely dependent on continued interest rate decreases.
“Despite the promising increase in listing activity, inventory is likely to remain low as sellers may not respond as swiftly as anticipated. In other words, a more substantial improvement in mortgage rates is necessary to attract more sellers to the market,” Xu said.
Until rates drop more substantially, mortgage payments are likely to stay high. In November 2023, the average monthly mortgage payment was $2,198, up from $1,993 a year earlier, a National Association of Realtors report found.
If buying a home is your near future, make sure you’re getting the best mortgage lender and rates with the help of Credible. Credible helps you compare rates and lenders and get a mortgage pre-approval letter in minutes.
JUST OVER 15% OF HOME LISTINGS WERE CONSIDERED AFFORDABLE IN 2023: REDFIN
Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.
Source: foxbusiness.com
If you scan through mortgage programs and lender rate sheets you may have come across mortgage lingo such as “pay rate” or “teaser rate”.
Though the two terms are sometimes used interchangeably by loan officers, mortgage lenders, and mortgage brokers, they are actually very different. Allow me explain why.
A “pay rate” is essentially an option to make a mortgage payment that is lower than the actual note rate (mortgage rate) associated with the home loan.
In other words, if you only make the pay rate payment, which is usually referred to as the minimum payment, negative amortization will likely occur.
This means you aren’t paying enough each month to cover the total amount of interest due, and the unpaid portion will be tacked onto the existing loan balance.
For example, if you owe $1,000 in interest in a given month, but the lender gives you the option to only pay $800, that $200 shortfall would be added to the outstanding balance going forward.
So you don’t actually get a discount, you get a payment deferment, which will actually cost you because the loan balance will grow, resulting in more interest on subsequent payments.
Of course, it can serve a meaningful purpose if you have cash flow issues, or if you simply want to allocate your liquidity elsewhere.
But don’t be fooled into thinking the pay rate is a low introductory rate like those you see with 0% APR credit cards.
If you find yourself with a pay rate loan, make sure you know how payments are applied and what happens with the shortfall.
Tip: Pay rates are usually associated with those 1% option-arm loans everyone is angry about.
On the other hand, a teaser rate actually allows homeowners to pay less interest for a set period of time without accruing additional interest.
Teaser rates are typically seen on home equity loans, mostly as an incentive to open one. You may see an ad for a home equity line offering “prime minus 2% for the first six months!” Or something similar.
What this means is that you’re actual mortgage rate will be reduced for the first six months of the loan term, and will then adjust to the standard interest rate agreed upon.
You could also argue that the starting rate on products like the 5/1 ARM have a teaser rate attached because it’s offered for an initial period before the loan can adjust higher.
But technically, an ARM loan can also adjust down or simply remain flat, so it’s not necessarily a true teaser rate, it’s more like a fixed start rate.
Regardless, teaser rates can save you money, but don’t choose a loan program just because it offers a special low start rate.
Make sure you factor in other important aspects, such as how long you intend to keep the loan, how you plan to pay it back, and what the alternatives are.
It might be in your best interest to go with a fixed mortgage instead, even if the rate is higher at the outset. You won’t have to worry about rate adjustments in a rising interest rate environment.
And watch out for loan officers and brokers who use these two terms loosely. Over the last few years, many unscrupulous and/or uneducated loan officers were selling the pay rate as if it was a teaser rate, causing a lot of headaches, missed mortgage payments, and even foreclosures.
Source: thetruthaboutmortgage.com
A bill intended to protect Nevada homeowners by labeling mortgage lending fraud a crime has led to a great deal of confusion and frustration for lenders and mortgage brokers statewide and beyond.
Assemblyman Marcus Conklin, D-Las Vegas, prime sponsor and author of “AB440”, said the bill was intended for consumer protection, not to “slow up the process for qualified people” attempting to purchase homes.
Per the bill, as of October 1, 2007 it will be an “unfair lending practice for a lender to: (b) Knowingly or intentionally make a home loan, other than a reverse mortgage, to a borrower, including, without limitation, a low-document home loan, no-document home loan or stated-document home loan, without determining, using any commercially reasonable means or mechanism, that the borrower has the ability to repay the home loan.”
Unfortunately, because the wording of the bill is somewhat vague, it was misinterpreted by lenders and mortgage brokers, many of whom believe stated income loans in Nevada will soon be illegal.
In fact, some banks and mortgage lenders have already stopped or have said they intend to stop originating “stated income” home loans in Nevada because of the verbiage in AB440.
But the truth is, AB440 was written to ensure homeowners are financially able to repay their mortgages, and simply asks that licensees discuss and document that ability to repay with borrowers before the loan process begins.
The hope is that fewer borrowers will end up in home loans they aren’t qualified for, reducing the number of loan defaults and foreclosure proceedings in the state.
In an effort to clear up the confusion, a letter from Mortgage Lending Division Commissioner Joseph L. Waltuch was addressed to licensed mortgage brokers and bankers on September 13. Here is an excerpt:
“AB 440 does not prohibit specific mortgage products or types of documentation that may be utilized in the making or underwriting of home loans. Instead, AB 440 recognizes, and specifically defines, “low-document”, “stated-document” and “no-document” home loans.”
Many licensees were led to believe that stated income loans would be banished in Nevada, but as this letter states, no loan programs or loan documentation types will be explicitly prohibited.
In fact, the Mortgage Lending Division of Nevada has made it fairly simple for licensees to comply with the new law, by asking that they fill out a worksheet in good faith to ensure they have discussed with homeowners the ability to repay the loan.
“It is also important that licensees document for examination purposes that these discussions and verifications have occurred. One suggested method for doing so would be the completion of a worksheet for each home loan…”
The “Division” said it will also allow other methods of determining a borrower’s ability to repay, “as long as they are reasonable and frequently used within the lending community.”
The new bill should actually protect both homeowners and loan originators, as it will document the fact that a detailed discussion took place to ensure both parties were clear on the terms of the loan, which could prevent homeowners from blaming brokers and loan officers for improper loan disclosure.
However, one downside is that the confusion associated with the bill may drive more lenders away from the state, and could prove to be problematic for the many borrowers in Nevada who earn much of their income from tips, which is often difficult to state and/or document.
Nevada posted the highest foreclosure rate in the United States in July, a whopping one filing per 199 households, three times the national average.
The state reported 5,116 filings during July, an increase of 8% from June.
According to state officials and the Nevada Association of Mortgage Professionals, “Stated income” loans account for a quarter of all home loans in Nevada, and roughly half of the loans in the Las Vegas area.
Source: thetruthaboutmortgage.com
Mortgage rate declines from their two-decade peak in October are allowing buyers to buy homes worth tens of thousands of dollars more than they did a few months ago, according to real-estate platform Redfin.
Prospective buyers able to afford $3,000 monthly payments are well-suited to acquire a home priced at $453,000 at a 6.7 percent home loan cost compared to $416,000 when rates hovered near 8 percent. That means buyers are potentially able to add $40,000 to the cost of the home they can buy, Redfin pointed out.
Mortgage rates soared to around 8 percent on the back of the Federal Reserve’s hiking of rates beginning in March 2022 to the current range of 5.25 to 5.5 percent to battle inflation that had at one point skyrocketed to a 40-year high. Recent economic news suggests that inflation has slowed and the market now expects the Fed to begin cutting rates sometime this year.
This shift has contributed to a fall in rates over the last few to under 7 percent sparking activity in the housing market. As of January 25, the 30-year fixed-rate mortgage stood at 6.69 percent, according to Freddie Mac.
The drop in rates has also given buyers the potential to save hundreds of dollars in monthly mortgage payments. A typical home selling at $363,000 at a 6.7 percent mortgage will mean an estimated monthly outlay of $2,545. The same home would have cost an owner more than $2,700 in monthly payments when rates had jumped to nearly 8 percent in November, according to Redfin.
The market is starting to shift as a result of these potential savings with buyers coming out of the sidelines and looking to buy.
“Late last year, many listings sat on the market as buyers sat on the sidelines, hoping for rates to drop,” Shoshana Godwin, a Redfin Premier agent in Seattle, said in a statement. “Now, buyers are snapping up homes because even though rates haven’t plummeted, people are realizing that the longer they wait to buy a home, the more competition they’re likely to face.”
Redfin analysts are forecasting mortgage rates to decline over the months ahead with some level of fluctuations over the year.
Freddie Mac chief economist Sam Khater suggested last week that should mortgage rates continue to trend downwards, spring could be a busy season for the housing market.
“Potential homebuyers with affordability concerns have jumped off the fence back into the market. Despite persistent inventory challenges, we anticipate a busier spring homebuying season than 2023, with home prices continuing to increase at a steady pace,” Khater said in a statement.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Source: newsweek.com
If you’re having a tough time getting home loan financing using a mortgage broker or a local mortgage lender, consider contacting a portfolio lender directly to close your mortgage.
They can offer solutions that others cannot, and may have just what you’re looking for. For example, a portfolio lender may be willing to offer you a no-down payment mortgage while others are only able to give you a loan up to 97% loan-to-value (LTV).
The same might be true if you have bad credit, a high DTI ratio, or any other number of issues that could block you from obtaining traditional mortgage financing.
In short, a “portfolio loan” is one that is kept in the bank or mortgage lender’s loan portfolio, meaning it isn’t sold off on the secondary market.
By servicing the loans themselves and keeping them in portfolio, these lenders are able to take on greater amounts of risk, or finance loans that are outside the credit box because they don’t need to be resold to investors with specific underwriting guidelines.
These companies have the ability to bend the rules when they see a deal worth doing, whereas mortgage lenders that must adhere to Fannie Mae, Freddie Mac, and the FHA have very little wiggle room.
You see, most loans that are sold off are backed by Fannie and Freddie, or the FHA in the case of FHA loans, so very rigid underwriting standards must be met without exception.
Portfolio lenders, on the other hand, can create their own underwriting guidelines because they aren’t at the mercy of an outside agency if they’re actually willing (and able) to keep the loans they make.
A lot of small and mid-size lenders don’t have the same authority because they must sell their loans off on the secondary mortgage market due to liquidity constraints. And investors are becoming increasingly selective as to which loans are actually purchased.
Many mortgages today are originated by one entity, such as a mortgage broker or mortgage lender, and then quickly resold to investors who earn money from the repayment of the loan over time.
Gone are the days of the neighborhood bank offering you a mortgage and expecting you to repay it over 30 years, culminating in you walking down to the branch with your final payment in hand. Well, there might be some, but it’s now the exception rather than the rule.
In fact, this is part of the reason why the mortgage crisis took place in the early 2000s. Because originators no longer kept the home loans they made, they were happy to take on more risk.
After all, if they weren’t the ones holding the loans, it didn’t matter how they performed, so long as they were underwritten based on acceptable standards. They received their commission for closing the loan, not based on loan performance.
Today, you’d be lucky to have your originating bank hold your mortgage for more than a month. And this can be frustrating, especially when determining where to send your first mortgage payment. Or when attempting to do your taxes and receiving multiple form 1098s.
This is why you have to be especially careful when you purchase a home with a mortgage or refinance your existing mortgage. The last thing you’ll want to do is miss a monthly payment right off the bat.
So keep an eye out for a loan ownership change form in the mail shortly after your mortgage closes. If your loan is sold, it will spell out the new loan servicer’s contact information, as well as when your first payment to them is due.
Now back to portfolio loans. If you’re having a tough time getting approved for a mortgage, or finding a particular type of loan, consider a portfolio lender.
As noted, these types of mortgage lenders can offer things the competition can’t because they’re willing to keep the loans on their books, instead of relying on an investor to buy the loans shortly after origination.
They also offer mortgages that fall outside the guidelines of Fannie Mae, Freddie Mac, the FHA, the VA, and the USDA.
That’s why you might hear that a friend or family member was able to get their mortgage refinanced with U.S. Bank or a similar portfolio lender despite having a low credit score or a high LTV.
So if you’re in need of a $5 million jumbo loan, or an interest-only mortgage, or something else that might be considered unique, look to portfolio lending to solve your financing woes.
They may also be able to work with you if you’ve experienced a recent credit event, such as a late mortgage payment, a short sale, or a foreclosure. Really, anything that falls outside the box might be considered by one of these lenders.
Some of the largest portfolio lenders include Chase, U.S. Bank, and Wells Fargo, but there are many smaller players like Bank of Internet, BancorpSouth, Caliber Home Loans, and Wintrust Mortgage.
Now let’s talk about portfolio loan mortgage rates, which as you might suspect, may not be as low as the competition.
Ultimately, many mortgages originated today are commodities because they tend to fit the same underwriting guidelines of an outside agency like Fannie, Freddie, and the FHA.
As such, the differentiating factor is often rate and closing costs, since they’re all basically selling the same thing. You may also see customer service, or in the case of Rocket Mortgage by Quicken Loans, a quirky ad campaign and some unique technology.
For portfolio lenders who offer a truly unique product, loan pricing could be entirely up to them, within what is reasonable. If the loan program is really special, and only offered by them, expect rates significantly higher than what a typical market rate might be.
If their portfolio home loan program is just slightly more flexible than what the agencies mentioned above allow, mortgage rates may be comparable or just a bit higher.
It really depends on your particular loan scenario, how risky it is, if others lenders offer similar financing, and so on.
At the end of the day, a portfolio loan is a solution that isn’t offered by every bank, so you should go into it expecting a higher rate. But if you can get the deal done, it might be a win regardless.
Source: thetruthaboutmortgage.com
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Luxury home prices have hit an all-time high, rising at twice the pace of non-luxury homes, Redfin wrote in a report on Wednesday. While high mortgage rates have crushed the rest of the housing market, wealthy buyers have enough cash to pay for a home upfront, free from the rate “lock-in effect.”
“Luxury prices are rising at twice the rate of non-luxury prices largely because so many affluent buyers are able to buy homes in cash, rendering today’s elevated mortgage rates irrelevant,” the release stated. “High mortgage rates have a more chilling effect on the rest of the market, upping interest payments and keeping price increases modest.”
A typical US luxury home cost $1.17 million as of the end of last year, up 8.8% from a year earlier. Compare that to the price of a non-luxury home, which rose 4.6% to a record $340,000.
Redfin defines a luxury home as “those estimated to be in the top 5% of their respective metro area based on market value.” Non-luxury homes fall in the 35th to 65th percentile.
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The share of rich homebuyers paying all cash in the luxury home market rose to a record 46.5% in the fourth quarter of 2023. That’s up from 40% a year ago.
“A lot of luxury buyers are coming in with cash, snapping up expensive homes,” a Redfin Premier agent, Heather Mahmood-Corley, said. “High-end homes are selling fast, especially in desirable areas like luxurious Scottsdale, or Tempe, which West Coast transplants love because it’s centrally located. One client recently bought a house in Tempe, flipped it, and it sold for $1.4 million in two days.”
What’s driving the surge is not just the fact that wealthy Americans can skip taking out a home loan. It’s also that the supply of luxury homes is still low, driving up competition and pushing bid prices higher.
The luxury housing market as a whole is performing well, and new luxury listings have risen 19.7% year-on-year — the biggest jump in two years, according to Redfin. The total number of luxury homes on the market also rose by 13%. Sales dipped by 1.7%, but that’s the smallest decline the market has seen since 2021.
Source: businessinsider.com
National mortgage rates were mostly down compared to a week ago, according to rates data collected by Bankrate. Average rates for 30-year fixed, 5/1 ARMs and jumbo loans receded, while rates for 15-year mortgages increased.
Mortgage rates could gradually come down this year, according to Greg McBride, CFA, Bankrate chief financial analyst. Rates began retreating in the back half of 2023 as inflation continued to cool and the Federal Reserve halted rate increases. The central bank now forecasts rate cuts in 2024 — a move that would have broad economic impact, including on the 10-year Treasury, a key benchmark for fixed-rate mortgages.
“The 10-year Treasury yield that serves as a baseline for fixed mortgage rates will have a bouncy journey lower, moving back above 4 percent early in 2024 but trending lower as inflation cools and the Fed gets closer to cutting rates,” says McBride. “For mortgage rates, that portends a general downtrend — albeit with fits and starts — in 2024.”
Rates accurate as of January 29, 2024.
The rates listed here are marketplace averages based on the assumptions shown here. Actual rates available on-site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Monday, January 29th, 2024 at 7:30 a.m.
The average rate you’ll pay for a 30-year fixed mortgage today is 6.99 percent, down 4 basis points over the last week. Last month on the 29th, the average rate on a 30-year fixed mortgage was unchanged, at 6.99 percent.
At the current average rate, you’ll pay principal and interest of $664.63 for every $100,000 you borrow. That’s down $2.69 from what it would have been last week.
The 30-year mortgage is the most popular home loan, and it has a number of advantages. Among them:
The average rate for the benchmark 15-year fixed mortgage is 6.50 percent, up 1 basis point over the last week.
Monthly payments on a 15-year fixed mortgage at that rate will cost approximately $871 per $100,000 borrowed. The bigger payment may be a little harder to find room for in your monthly budget than a 30-year mortgage payment, but it comes with some big advantages: You’ll save thousands of dollars over the life of the loan in total interest paid and build equity much faster.
The average rate on a 5/1 ARM is 6.12 percent, down 26 basis points over the last week.
Adjustable-rate mortgages, or ARMs, are mortgage loans that come with a floating interest rate. In other words, the interest rate will change at regular intervals, unlike fixed-rate mortgages. These types of loans are best for people who expect to refinance or sell before the first or second adjustment. Rates could be materially higher when the loan first adjusts, and thereafter.
While borrowers shunned ARMs during the pandemic days of super-low rates, this type of loan has made a comeback as mortgage rates have risen.
Monthly payments on a 5/1 ARM at 6.12 percent would cost about $607 for each $100,000 borrowed over the initial five years, but could increase by hundreds of dollars afterward, depending on the loan’s terms.
The average jumbo mortgage rate today is 7.02 percent, down 5 basis points from a week ago. A month ago, the average rate was above that, at 7.05 percent.
At the average rate today for a jumbo loan, you’ll pay a combined $666.65 per month in principal and interest for every $100,000 you borrow. That represents a decline of $3.36 over what it would have been last week.
The average 30-year fixed-refinance rate is 7.19 percent, down 3 basis points over the last seven days. A month ago, the average rate on a 30-year fixed refinance was lower, at 7.14 percent.
At the current average rate, you’ll pay $678.11 per month in principal and interest for every $100,000 you borrow. That’s a decline of $2.03 from last week.
The Federal Reserve has signaled that it intends to cut rates in 2024, depending on inflation and employment data and other factors. The Fed meets again on Jan. 31.
Current average 30-year mortgage rates are slightly below 7 percent as of mid-January. As the year progresses, expect rates to slowly trend downward, says McBride.
“Mortgage rates will spend the bulk of the year in the 6s, with movement below 6 percent confined to the back half of the year,” says McBride.
The rates on 30-year mortgages mostly follow the 10-year treasury, which shifts continuously as economic conditions dictate, while the cost of variable-rate home loans mirror the Fed’s moves. These broader factors influence overall rate movement. The specific rate you’d qualify for is tied to your credit score, loan type and other variables.
While mortgage rates change daily, it’s unlikely we’ll see rates back at 3 percent any time soon. If you’re shopping for a mortgage now, it might be wise to lock your rate when you find an affordable loan. If your house-hunt is taking longer than anticipated, revisit your budget so you’ll know exactly how much house you can afford at prevailing market rates.
You could save serious money on interest by getting at least three loan offers, according to Freddie Mac research. You don’t have to stick with your bank or credit union, either. There are many types of mortgage lenders, including online-only and local, smaller shops.
“All too often, some [homebuyers] take the path of least resistance when seeking a mortgage, in part because the process of buying a home can be stressful, complicated and time-consuming,” says Mark Hamrick, senior economic analyst for Bankrate. “But when we’re talking about the potential of saving a lot of money, seeking the best deal on a mortgage has an excellent return on investment. Why leave that money on the table when all it takes is a bit more effort to shop around for the best rate, or lowest cost, on a mortgage?”
Bankrate displays two sets of rate averages that are produced from two surveys we conduct: one daily (“overnight averages”) and the other weekly (“Bankrate Monitor averages”).
The rates on this page represent our overnight averages. For these averages, APRs and rates are based on no existing relationship or automatic payments.
Learn more about Bankrate’s rate averages, editorial guidelines and how we make money.
Source: bankrate.com
Purchasing a home can be a daunting task, especially for first-time homebuyers. There is often a great deal of pressure to find a home that meets your preferences and is in good condition, as well as obtaining approval for a mortgage. Even those with experience in real estate may feel overwhelmed by the process.
Plus, even if you find the home of your dreams, you still have to put in an offer and hope that it’s accepted with no competition from other buyers.
Luckily, there’s a way to not only stand out from other home buyers, but also to expedite your mortgage approval process. By getting preapproved for a mortgage before you even put in an offer on a home, you can significantly increase your chances of having your offer selected.
A mortgage preapproval refers to a letter from your lender indicating that you meet the standards for a mortgage loan within a certain price range.
The lender has thoroughly reviewed your credit history, income, and other financial indicators and put them through the automated underwriting system. Mortgage preapprovals are typically valid between 60 and 90 days.
There are a couple of benefits to getting preapproved in advance of viewing houses. One of the most significant factors is that it strengthens your offer when bidding on a home that you love.
Many deals fall through because of financing issues, even after the seller accepts an offer. If you have a preapproval letter to submit as well, the seller knows that the deal is more likely to close by accepting your offer than someone else’s.
Furthermore, real estate agents typically want to see that you’ve been preapproved before they show you houses. They don’t want to waste their time showing clients houses if they cannot buy a home.
Getting a mortgage preapproval letter also gives you a chance to see how large of a home loan you’ll be approved for, helping to narrow down your home search to the suitable price range.
You’ll also find out what types of home loans you qualify for, whether it be a conventional, FHA, VA, or other type of mortgage. Some of these loans have certain restrictions on the type of property you can purchase and what condition it must be in. Some also require a certain down payment percentage.
The content of a preapproval letter may vary depending on the lender. Generally, the letter includes details such as the purchase price, loan program, interest rate, origination fees, loan amount, down payment amount, expiration date, and property address. This letter is typically included with an offer to purchase a new home.
If your down payment is less than 20%, you’ll likely have to pay private mortgage insurance (PMI), which is also based on the loan amount. Getting preapproved helps you financially prepare for the full cost of your new home and your monthly mortgage payment.
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Once you determine your target loan amount, you’ll know what your monthly principal, interest, and mortgage payments will look like. When you know that, you can then look at individual properties to determine how much property tax and even homeowner’s insurance you’ll need to tack on to each month’s payment.
You need to consider all of your fees before finalizing your maximum home price. Otherwise, you could be unpleasantly surprised when you get your first mortgage bill.
Before you talk to a lender about getting preapproved for a mortgage, the best thing to do is to check both your credit report and credit score.
You can access your credit reports from each of the three credit bureaus for free once every twelve months. So get started a few months before you’ll be house hunting to give yourself time to address any issues.
You might have outdated information lingering on your credit report or even incorrect items. The dispute process can take some time. You want to make sure your credit score is as strong as possible. That way, you can get approved and get the best mortgage rates possible when the time comes.
There are a couple of free websites like Credit Karma that provide you with access to your credit score. It might not be the same credit score your lender will use, but it still lets you know what ballpark you’re in. If your credit score is lower than you’d like to see, you have time to make some quick fixes.
For example, you can get a higher credit card limit to decrease your credit utilization ratio or pay down extra debt to lower your debt-to-income ratio. A little planning can help strengthen your chances for preapproval before you even contact a lender.
When you’re ready to start the mortgage preapproval process, the loan officer will ask you for several pieces of information. You will need to provide income tax returns from the past two years, pay stubs to verify your employment and gross monthly income, and bank statements.
You’ll also have to provide your Social Security number and sign a form giving the lender permission to perform a hard inquiry on your credit report.
At that time, the lender will also perform a credit check and review your credit score to use in the evaluation process. Because underwriting systems are now automated, you can get preapproved in a matter of minutes.
When the underwriting process is completed, you’ll either receive one of four responses.
Here’s what they are and what they mean:
Many mortgage lenders state that it’s actually quite rare to be preapproved for a mortgage with no conditions on your first attempt. So, don’t be disheartened if this happens to you—you’re in good company!
Even a suspended application isn’t the end of the road. And if the lender declines your mortgage preapproval, make sure to ask them why so that you can take targeted steps to improve the weak areas in your application.
When you first contact a lender about qualifying for a mortgage, you’ll probably discuss your basic financial picture to help you determine how much of a loan you’re likely to get approved for.
This is referred to as prequalification for a home loan. The mortgage lender doesn’t access your credit report or request financial documentation. Instead, they give you an idea of loans you’d qualify for based on the information you provide.
If you provide false information, your mortgage application will definitely fall apart in the underwriting process, so it’s important to be honest and as accurate as possible. Otherwise, it’s a waste of your time. Getting prequalified is a smart move to inform yourself of your mortgage options, but it’s not strong enough to submit with an offer on a house.
On the other hand, getting preapproved for a mortgage prove to sellers that you’ve already been through the preliminary underwriting process, and your financing is likely to go through all the way.
In this instance, you submit all necessary financial documentation to your lender. Not only does it strengthen your offer when you find a home you like, but it also speeds up the next steps in the mortgage process so that you can close more quickly.
Getting a prequalification before a preapproval may seem like an unnecessary step, but it’s a great way to interview the lender as much as they’re interviewing you.
At the end of the day, mortgage lenders compete for your business, so don’t just choose the first one who gives you a prequalification or preapproval. There are several factors to consider before you make this critical decision. You should speak to multiple lenders and compare interest rates and loan options to find the best one for your financial situation.
Start with an interest rate comparison. You should be able to get quotes based on your basic financial information without the lender performing a hard pull on your credit report.
Furthermore, consider how much money the lender says you can afford. They don’t know how much your other bills are or how much you’re comfortable spending.
If they try to pressure you into a loan amount that seems like it would be too expensive based on the monthly payments, they may not have your best interests at heart. A good lender wants to make sure you can afford your payments every month and is transparent about costs beyond your principal and interest.
You can also ask lenders what kind of perks they offer. For example, some give their clients one free float down before closing. This means, if interest rates have dropped since you locked in your rate, you can get that lower rate without having to pay any additional fees or points.
Others offer discounts on closing costs to clients in public service professions, such as teachers, police officers, and firefighters. Even if a particular lender doesn’t offer any of these services, you can reference another one that does to negotiate your own special deal.
Lenders will take a look at your credit score and verify your employment and income. They will also consider your debt-to-income ratio (DTI), which is the percentage of your monthly income that goes towards paying off debts.
To get a mortgage, it is generally advisable to have a DTI of 50% or lower. The required DTI for a loan may vary depending on the type of loan you are seeking.
By applying to multiple lenders, you can compare interest rates and fees to find the deal with the most favorable terms. This can save you a lot of money over the life of the loan.
To find a mortgage that works for your financial situation, you should do your research and weigh all of your options.
Yes, it is possible to get preapproved for a mortgage online. Many lenders allow you to provide your financial information and documentation through the lender’s website or over the phone.
You will typically need to provide the lender with information such as your monthly income, monthly debts, and credit history. After reviewing this information, the lender will determine how much they are willing to lend you and provide you with a preapproval letter.
No, getting preapproved for a mortgage does not guarantee that you will receive a loan. The lender will still need to evaluate the property you are interested in buying and your financial information at the time of the loan application.
There are several factors to consider when determining how much house you can afford, including your income, debts, down payment, and the type of mortgage you can qualify for. A general rule of thumb is to aim for a home that costs no more than three to five times your annual household income.
To calculate how much you can afford, you’ll need to consider your debt-to-income ratio (DTI). This is a measure of how much of your income goes towards paying off debts. Lenders typically look for a DTI of 50% or lower when determining how much you can borrow.
You’ll also need to consider your down payment and the type of mortgage you qualify for. A larger down payment can help you qualify for a better mortgage rate, and a shorter loan term (such as a 15-year mortgage) can also lower your monthly payments.
It’s a good idea to work with a lender to get a more detailed assessment of how much you can afford. They can help you understand your options and guide you towards a mortgage that works for your budget.
It may be more difficult to get mortgage preapproval with bad credit, but it is not impossible. Some lenders may require a higher down payment or charge a higher interest rate for borrowers with lower credit scores.
Source: crediful.com
Whether you dream of a snowbird lifestyle where you spend winter in warm sunshine and summer enjoying gentle breezes, want a lakeside vacation retreat, or hope to establish financial security with income from a rental property, you’ll need a budget and a plan to accomplish your goal of buying a second home.
If you already own your primary residence, you have some experience with the process of buying a home. But buying a second home typically requires more cash up front, a stronger credit profile, and an understanding of the tax implications of the purchase.
Let’s explore what it takes and what you need to know to buy a second home.
Read more: 13 steps to buying a house
A second home can be used for a variety of purposes besides vacations or as an investment. Some people spend time in two locations for work and prefer to own property in both places. Others are preparing for a future retirement in a new location and want to build equity in a home there. Some people buy a second home near a university where their children can live while in school.
While your goals for your second home are personal, how you intend to use the property has tax implications and will affect your mortgage options to finance the purchase.
Just like when you purchased your primary residence, you’ll need to consider all the costs of buying a second home. In addition to the mortgage principal and interest, you’ll need to budget for:
Homeowner’s insurance. Insurance rates vary by location and can be higher in some areas popular for vacation homes, such as coastal Florida or mountain regions in the West. In addition, rates may be higher or lower depending on whether you rent the property for short-term stays or long-term leases or whether the property is often empty.
Property taxes. Get an estimate before finalizing your offer.
Homeowner association dues. Some communities charge homeowners fees for maintenance and amenities.
Maintenance. A common rule of thumb is to save at least 1% of the home’s value for maintenance and emergencies. If your second home is farther away or you have renters, you may need to budget for professional maintenance services.
Property manager. If you choose to rent a property, especially to short-term renters, you may want to hire a manager to handle the details. That typically runs 8% to 12% of your rental income.
Utilities. Your costs will depend on how often the property is occupied.
Vacancy. If you’re counting on rental income, make sure you have the resources to cover expenses when the property is empty between tenants.
Travel costs. If you buy a second home at a distance from your primary residence, consider how much it will cost in gas or airfare for visits.
Your loan options vary according to whether your second home is for personal use or as an investment.
Typically, second-home buyers apply for a conventional loan or a jumbo loan to finance their purchase. Government-backed loans from the FHA and VA are usually not an option for second homes or investment properties.
Lenders usually classify a home as a second home rather than an investment property if it’s rented for a maximum of 14 days annually.
However, if you finance the purchase with a conventional loan, most lenders will allow you to rent the property to tenants for up to six months if you don’t use the estimated rental income to qualify for the loan.
If you need a jumbo loan, most lenders will limit you to renting the property for a maximum of 14 days to be considered a second home.
Both jumbo and conventional loans are available to finance an investment property, but they typically have stricter qualification guidelines than second home loans. However, you may be able to use some of the estimated rental income to qualify for the loan.
If you rent your property full-time to others and don’t use it yourself, that’s considered an investment property by the IRS. In addition, the IRS rules say that your second home can be considered a residence if you use it the greater of either 14 days per year or “10% of the total days you rent it to others.”
The IRS explains it this way: If you use the second home one month per year, it’s considered a residence rather than an investment property, unless you rent it for 300 or more days per year.
Consult a tax professional to estimate deductions for your second home or rental property.
Generally, lender requirements to qualify to buy a second home are stricter than to finance a primary residence. Rates, terms and guidelines vary by lender and according to your individual circumstances, so you should shop around to compare them.
Typical requirements are:
Credit score: A minimum of 620 to 680 or above for a second home loan; 700 or above for an investment loan.
Down payment: A minimum of 5% to 10% for a second home loan; 15% to 25% for an investment loan.
Debt-to-income ratio: 43% to 45% for both loan types.
If you’d rather not apply for a mortgage to buy a second home, there are other options to consider:
Cash: If you have significant savings or investments to sell, you may want to pay cash for your second home.
Cash-out refinancing: Depending on how much equity you have in your primary home, you may be able to refinance that loan and use your equity to buy a second home.
Home equity loan. If you have plenty of equity in your primary residence, you could borrow against it to purchase a second home. However, the interest rates on a home equity loan may be higher.
Home equity line of credit: Alternatively, you could open a home equity line of credit (HELOC) to pay for a second home. Typically, a HELOC has a higher interest rate, but as you pay down the balance you gain access again to your equity.
Source: finance.yahoo.com