Mortgage rates dipped to their lowest level last week since early February, according to the Mortgage Bankers Association’s weekly survey, a welcome milestone for prospective homebuyers plagued by high borrowing costs that have surged in the past two years.
Key Facts
The average 30-year fixed rate last week was 6.84% for home loans less than $766,550, according to the poll of American mortgage brokers, down 18 basis points from last week’s 7.02% and dipping below 7% for the first time since the first week of February.
Mike Fratantoni, the Mortgage Bankers Association’s chief economist, explained in a statement the downward move in mortgage rates came as recent data painted a far more encouraging economic picture for the Federal Reserve to bring down interest rates.
That would likely cause mortgage rates to fall as the central bank’s rates strongly influence the rates set by lenders.
Homebuying activity ramped up as mortgage rates declined, as the Mortgage Bankers Association reported a 7% increase in national mortgage applications, though Fratantoni noted total volume is down about 11% year-over-year.
Key Background
Mortgage rates remain significantly elevated from where they stood for much of the last two decades. The average 30-year fixed mortgage rate was about 3.8% in March 2022 and 3% in March 2021, according to federal mortgage lender Freddie Mac, with the low interest rates coming as the Fed held its target federal funds rate at close to zero in its bid to stimulate the economy in the wake of the Covid-19 pandemic. Still, mortgage rates are significantly below their 23-year peak of 7.8% hit last October. Though individual brokers actually set mortgage rates for individual applicants, the Fed’s monetary policy heavily influences mortgage rates as its target federal funds rate determines the costs at which banks can borrow from one another, setting a standard for the cost of borrowing throughout the economy.
Contra
Last week’s monthly jobs update revealed the highest unemployment rate since January 2022 and lower job growth than previously reported, while Tuesday’s inflation report indicated a significant decline in inflation in the services sector. Though some experts, such as Fratantoni, viewed the weak spots in the reports as a boon, the market remains unconvinced, as 10-year Treasury yields are up as hopes for an interest rate cut in the first half of this year declined.
Surprising Fact
The spread between mortgage rates (about 7%) and U.S, government bond yields (about 4.2%) sits at close to its highest level in more than three decades, an indication that institutional investors are less attracted to the prospect of holding riskier mortgages when safer government bonds are available at high yields.
While reverse mortgage volume in 2024 got off to a rocky start, new data that breaks out retail Home Equity Conversion Mortgage (HECM) endorsements versus wholesale production showed that it was the former that took the bigger hit in the first month of the year, based on new data compiled by Reverse Market Insight (RMI).
According to RMI’s newest HECM Originators report, wholesale endorsements gained 2% from December to January, while retail/direct endorsements fell by 3.7%, dragging the total average HECM endorsements for the month down by 1.7% on a per-unit basis.
“That’s mildly interesting given the lag time for endorsements, but case numbers issued in January rose to their highest level since October,” RMI said in its commentary accompanying the data. “[This is] a much more important signal that reverse is looking up.”
Breaking things down
While HECM case numbers as measured by the Federal Housing Administration (FHA) have been lagging in recent months, the total share rose in January by nearly 30% to 2,923 endorsements. So-called “equity takeout” cases — endorsements that are neither refinances nor purchases — also rose by 23.5% to 2,414.
The HECM for Purchase (H4P) program also managed to gain ground in January, rising 13.5% to 135 loans in what RMI describes as a “seasonally bad month.” The key point of the new data, however, likely rests in HECM-to-HECM (H2H) refinance figures.
“H2H refinance case numbers showed the ongoing alignment of reverse to 10-year [Constant Maturity Treasury (CMT)] rate nuances, rocketing 87.9% to 374,” RMI said. “There are loans to be done here, but keep in mind that with how low volume has been the past two years at the higher expected rates, this isn’t something to build your business around.”
Four of the top 10 industry lenders also gained ground for the month. These increases were led by Goodlife Home Loans (up 25% to 50 loans), followed by Fairway Independent Mortgage Corp. (up 21.6% to 107 loans), Finance of America Reverse (up 17.4% to 682 loans) and Longbridge Financial (up 4.7% to 358 loans).
FAR maintained its position as a market leader for the month, ranking first across retail and wholesale origination metrics over the past 12 months with an industrywide market share of 33%, as well as an even split of 23.9% of the market share across individual channels, according to the data.
Recent trends, LO sentiment
According to outreach conducted by RMD, sentiments expressed by loan originators and managers since the start of the year appears to be reflected in this data. LOs across a variety of housing markets reported that inbound reverse mortgage inquiries appear to have risen since the beginning of the year, keeping them busy.
“I think things have definitely picked up,” said Tane Cabe, a broker with C2 Financial Corp., said in a recent interview. “That seems to be the general feeling. I’ve talked to some leaders in this space recently and they’re telling me they’ve definitely seen an increase in volume. It just seems like the morale is better out there, for sure.”
Also noting a spike in business was David Heilman, principal for HomeGrown Financial in Mount Pleasant, South Carolina.
“I don’t know if there’s really anything to really point to [why that’s the case],” Heilman told RMD in February. “I’ve certainly seen more inquiries already. Typically, this is a slower time for me; January and February have always been slower months. In springtime, people start moving again, but so far in 2024 I feel like I’ve at least been getting more proposals out, which as we all know, results in more applications eventually.”
In some of the nation’s higher-priced housing markets, reverse mortgage professionals also reported a stronger start to business at the start of the year despite the seasonal norm.
The H4P factor
HECM for Purchase is a largely underutilized variation of the HECM product, but after the FHA announced a seller credit for the program late last year — to the delight of many reverse mortgage professionals — LOs in different areas of the country are keeping an eye on it as a path toward growth.
“I’m working with a couple of brokerage firms on a multipart agent training series,” Frank Borg, a Seattle-based originator with Fairway said in a February interview. “I’ve done a lot of CE (continuing education) classes on a one-off, and it’s just not enough to prepare a real estate agent to really even see the opportunities to refer or to speak about the possibilities where a client can use a reverse for purchase.”
Fairway is a lender that is making its intentions in H4P plain, expanding its focus in this area and saying in February that it has a “commitment to leveraging its award-winning service and extensive experience in the purchase market to meet the unique needs of retirees looking to buy homes, setting a new benchmark for excellence and innovation in the reverse mortgage sector.”
ADDISON, Texas, March 21, 2024 (SEND2PRESS NEWSWIRE) — Click n’ Close, a multi-state mortgage lender, today announced its Preferred Partner status with The Mortgage Collaborative (TMC), a leader in mortgage cooperatives dedicated to providing its members with cutting-edge technology and expert mortgage banking resources.
Image caption: Click n’ Close.
As a correspondent investor, Click n’ Close will offer TMC’s Lender Members access to SmartBuy™, a proprietary suite of down payment assistance (DPA) loan programs designed to give homebuyers an advantage in today’s heightened mortgage interest rate environment. This national program combines a USDA or FHA-insured 30-year first mortgage with either a second lien that is fully forgivable after five years or a 10-year repayable second lien amortized up to 30 years. The second lien funds available through both options meet agency minimum required investment guidelines and can be used by the borrower towards their down payment, closing costs, or to buy down the interest rate. SmartBuy also has no income or first-time homebuyer restrictions.
“TMC is one of the preeminent cooperatives serving mortgage lenders in today’s market, and we are delighted to be part of its Preferred Partner network,” said Click n’ Close founder and CEO Jeff Bode. “SmartBuy is a competitive alternative to managing the myriad of state and local programs. SmartBuy has helped more than 6,000 borrowers become homeowners by extending more than $1.5 billion in DPA-related financing. We’re looking forward to expanding both these numbers through our partnership with TMC.”
“TMC is thrilled to have Click n’ Close as a Preferred Partner serving the growing needs of today’s mortgage lenders through its SmartBuy product suite,” said TMC President and COO Melissa Langdale. “This partnership is a testament to TMC’s mission of providing its members with access to the most innovative and reliable solutions in the industry.”
About The Mortgage Collaborative
Based in Austin, Texas, The Mortgage Collaborative was founded in 2013 by four notable industry leaders and is the nation’s largest independent mortgage cooperative network. TMC is singularly focused on creating an environment of collaboration and innovation for small to mid-size mortgage lenders across the country to reduce cost, increase profitability, and better serve the dynamic and changing consumer base in America. For more information, visit http://www.mortgagecollaborative.com/
About Click n’ Close, Inc.
Click n’ Close, Inc., formerly known as Mid America Mortgage, is a multi-state mortgage lender serving consumers and mortgage originators through its wholesale and correspondent channels and is also the nation’s leading provider of Section 184 home loans for Native Americans. In operation since 1940, Click n’ Close has thrived by retaining its entrepreneurial spirit and leading the market in innovation, including its adoption of eClosings and eNotes.
Combining this culture of innovation with a risk management mindset enables Click n’ Close to deliver new products to market that address the challenges facing both borrowers and third-party originators (TPOs). These innovations include its USDA one-time close construction loans, proprietary down payment assistance (DPA) program and reverse mortgage division. Its direct relationships with Fannie Mae, Freddie Mac, Ginnie Mae and private investors afford Click n’ Close direct access to the capital markets, thus ensuring maximum liquidity for its product innovations. By servicing its loan programs in-house, Click n’ Close provides its wholesale and correspondent partners with an additional level of certainty regarding loan salability and superior borrower service over the life of the loan.
SEATTLE, March 19, 2024–(BUSINESS WIRE)–Bellevue, Wash.-based Axia Home Loans, a leading national mortgage lender, has appointed Dan Shanahan as President of Retail Sales. In this role, Shanahan will be responsible for leading the company’s sales teams to achieve continued growth and success.
“We are thrilled to welcome Dan to Axia Home Loans,” said CEO Alex Rosenblum. “His extensive experience and proven track record of success in the mortgage industry make him the ideal person to lead our production team. We are confident that he will play a key role in our continued success.”
Shanahan has nearly 30 years of experience in the mortgage industry, most recently serving as Mortgage Retail Division Manager, a senior vice president role, at Huntington National Bank. While at Huntington, Shanahan held positions with progressively more responsibility and brings extensive experience in sales strategy, business planning, and relationship building to Axia.
“Axia has a strong reputation for providing exceptional service to its customers, and I am committed to building on that tradition,” said Shanahan. “Our aim is to continue filling the organization with excellent LOs who are passionate about helping homeowners.”
ABOUT AXIA HOME LOANS: Founded in 2007, Axia Home Loans is a 100 percent employee-owned company whose mission is to create sustainable home ownership through responsible lending. Axia Home Loans was recently ranked the #1 medium-sized mortgage lender in the country for Customer Satisfaction by Experience.com. More about Axia Home Loans can be found at www.axiahomeloans.com.
View source version on businesswire.com: https://www.businesswire.com/news/home/20240319256756/en/
Average mortgage rates edged higher yesterday. Unfortunately, it was the sixth consecutive business day on which they’ve risen.
Earlier this morning, markets were signaling that mortgage rates today might barely move. However, these early mini-trends frequently alter speed or direction as the hours pass.
Current mortgage and refinance rates
Find your lowest rate. Start here
Program
Mortgage Rate
APR*
Change
Conventional 30-year fixed
7.15%
7.17%
Unchanged
Conventional 15-year fixed
6.57%
6.61%
-0.04
Conventional 20-year fixed
7.16%
7.19%
+0.02
Conventional 10-year fixed
6.63%
6.66%
-0.05
30-year fixed FHA
6.51%
7.19%
Unchanged
30-year fixed VA
6.61%
6.72%
-0.03
5/1 ARM Conventional
6.3%
7.39%
Unchanged
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions See our rate assumptions here.
Should you lock your mortgage rate today?
Tomorrow’s Federal Reserve events (see below) could make a big difference to mortgage rates in the near and medium terms. But, right now, I’m pessimistic about our seeing a sustained downward trend until the summer. And some wonder if the fall might be a more realistic timeframe.
So, for now, my personal rate lock recommendations remain:
LOCK if closing in 7 days
LOCK if closing in 15 days
LOCK if closing in 30 days
LOCK if closing in 45 days
LOCKif closing in 60days
However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So, let your gut and your own tolerance for risk help guide you.
>Related: 7 Tips to get the best refinance rate
Market data affecting today’s mortgage rates
Here’s a snapshot of the state of play this morning at about 9:50 a.m. (ET). The data are mostly compared with roughly the same time the business day before, so much of the movement will often have happened in the previous session. The numbers are:
The yield on 10-year Treasury notes held steady again at 4.32%. (Neutral for mortgage rates. However, yields were rising this morning.) More than any other market, mortgage rates typically tend to follow these particular Treasury bond yields
Major stock indexes were mixed this morning. (Neutral for mortgage rates.) When investors buy shares, they’re often selling bonds, which pushes those prices down and increases yields and mortgage rates. The opposite may happen when indexes are lower. But this is an imperfect relationship
Oil prices increased to $83.18 from $81.35 a barrel. (Bad for mortgage rates*.) Energy prices play a prominent role in creating inflation and also point to future economic activity
Goldprices inched down to $2,156 from $2,159 an ounce. (Neutral for mortgage rates*.) It is generally better for rates when gold prices rise and worse when they fall. Because gold tends to rise when investors worry about the economy.
CNN Business Fear & Greed index — dropped to 69 from 75 out of 100. (Good for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So, lower readings are often better than higher ones
*A movement of less than $20 on gold prices or 40 cents on oil ones is a change of 1% or less. So we only count meaningful differences as good or bad for mortgage rates.
Caveats about markets and rates
Before the pandemic, post-pandemic upheavals, and war in Ukraine, you could look at the above figures and make a pretty good guess about what would happen to mortgage rates that day. But that’s no longer the case. We still make daily calls. And are usually right. But our record for accuracy won’t achieve its former high levels until things settle down.
So, use markets only as a rough guide. Because they have to be exceptionally strong or weak to rely on them. But, with that caveat, mortgage rates today look likely to hold close to steady. However, be aware that “intraday swings” (when rates change speed or direction during the day) are a common feature right now.
Find your lowest rate. Start here
What’s driving mortgage rates today?
Tomorrow
I covered yesterday the three Federal Reserve events due early tomorrow afternoon:
2 p.m. Eastern — Rate announcement and report publications
2 p.m. Eastern — Summary of Economic Projects publication. This occurs only quarterly and includes a dot plot
I’ll brief you more fully on those tomorrow morning. That way you’ll know what to look out for before it’s too late to act.
Personally, I’m not very hopeful about the impact of the Fed’s events on mortgage rates. Of course, I can’t be sure what they’ll bring. But recent economic data has likely reinforced the central bank’s natural caution. And I suspect that it may signal later and fewer cuts in general interest rates this year than markets have been expecting.
If I’m right, that could be seriously bad for mortgage rates. So, let’s hope I’m wrong.
Today and later in the week
I’ll be surprised if today’s economic reports move mortgage rates much. They cover February’s housing starts and building permits. It’s not that those data are unimportant. However, they rarely attract the attention of the investors who largely determine mortgage rates.
We have to wait until Thursday for a couple of reports that sometimes affect mortgage rates. They’re two March purchasing managers’ indexes (PMIs) from S&P. One is for the services sector and the other covers manufacturing. I’ll brief you on those tomorrow morning.
Don’t forget you can always learn more about what’s driving mortgage rates in the most recent weekend edition of this daily report. These provide a more detailed analysis of what’s happening. They are published each Saturday morning soon after 10 a.m. (ET) and include a preview of the following week.
Recent trends
According to Freddie Mac’s archives, the weekly all-time lowest rate for 30-year, fixed-rate mortgages was set on Jan. 7, 2021, when it stood at 2.65%. The weekly all-time high was 18.63% on Sep. 10, 1981.
Freddie’s Mar. 14 report put that same weekly average at 6.74% down from the previous week’s 6.88%. But note that Freddie’s data are almost always out of date by the time it announces its weekly figures.
Expert forecasts for mortgage rates
Looking further ahead, Fannie Mae and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.
And here are their rate forecasts for the four quarters of 2024 (Q1/24, Q2/24 Q3/24 and Q4/24).
The numbers in the table below are for 30-year, fixed-rate mortgages. Fannie’s were updated on Feb. 12 and the MBA’s on Feb. 20.
Forecaster
Q1/24
Q2/24
Q3/24
Q4/24
Fannie Mae
6.5%
6.3%
6.1%
5.9%
MBA
6.9%
6.6%
6.3%
6.1%
Of course, given so many unknowables, both these forecasts might be even more speculative than usual. And their past record for accuracy hasn’t been wildly impressive.
Important notes on today’s mortgage rates
Here are some things you need to know:
Typically, mortgage rates go up when the economy’s doing well and down when it’s in trouble. But there are exceptions. Read ‘How mortgage rates are determined and why you should care’
Only “top-tier” borrowers (with stellar credit scores, big down payments, and very healthy finances) get the ultralow mortgage rates you’ll see advertised
Lenders vary. Yours may or may not follow the crowd when it comes to daily rate movements — though they all usually follow the broader trend over time
When daily rate changes are small, some lenders will adjust closing costs and leave their rate cards the same
Refinance rates are typically close to those for purchases.
A lot is going on at the moment. And nobody can claim to know with certainty what will happen to mortgage rates in the coming hours, days, weeks or months.
Find your lowest mortgage rate today
You should comparison shop widely, no matter what sort of mortgage you want. Federal regulator the Consumer Financial Protection Bureau found in May 2023:
“Mortgage borrowers are paying around $100 a month more depending on which lender they choose, for the same type of loan and the same consumer characteristics (such as credit score and down payment).”
In other words, over the lifetime of a 30-year loan, homebuyers who don’t bother to get quotes from multiple lenders risk losing an average of $36,000. What could you do with that sort of money?
Verify your new rate
Mortgage rate methodology
The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.
How your mortgage interest rate is determined
Mortgage and refinance rates vary a lot depending on each borrower’s unique situation.
Factors that determine your mortgage interest rate include:
Overall strength of the economy — A strong economy usually means higher rates, while a weaker one can push current mortgage rates down to promote borrowing
Lender capacity — When a lender is very busy, it will increase rates to deter new business and give its loan officers some breathing room
Property type (condo, single-family, town house, etc.) — A primary residence, meaning a home you plan to live in full time, will have a lower interest rate. Investment properties, second homes, and vacation homes have higher mortgage rates
Loan-to-value ratio (determined by your down payment) — Your loan-to-value ratio (LTV) compares your loan amount to the value of the home. A lower LTV, meaning a bigger down payment, gets you a lower mortgage rate
Debt-To-Income ratio — This number compares your total monthly debts to your pretax income. The more debt you currently have, the less room you’ll have in your budget for a mortgage payment
Loan term — Loans with a shorter term (like a 15-year mortgage) typically have lower rates than a 30-year loan term
Borrower’s credit score — Typically the higher your credit score is, the lower your mortgage rate, and vice versa
Mortgage discount points — Borrowers have the option to buy discount points or ‘mortgage points’ at closing. These let you pay money upfront to lower your interest rate
Remember, every mortgage lender weighs these factors a little differently.
To find the best rate for your situation, you’ll want to get personalized estimates from a few different lenders.
Verify your new rate. Start here
Are refinance rates the same as mortgage rates?
Rates for a home purchase and mortgage refinance are often similar.
However, some lenders will charge more for a refinance under certain circumstances.
Typically when rates fall, homeowners rush to refinance. They see an opportunity to lock in a lower rate and payment for the rest of their loan.
This creates a tidal wave of new work for mortgage lenders.
Unfortunately, some lenders don’t have the capacity or crew to process a large number of refinance loan applications.
In this case, a lender might raise its rates to deter new business and give loan officers time to process loans currently in the pipeline.
Also, cashing out equity can result in a higher rate when refinancing.
Cash-out refinances pose a greater risk for mortgage lenders, so they’re often priced higher than new home purchases and rate-term refinances.
Check your refinance rates today. Start here
How to get the lowest mortgage or refinance rate
Since rates can vary, always shop around when buying a house or refinancing a mortgage.
Comparison shopping can potentially save thousands, even tens of thousands of dollars over the life of your loan.
Here are a few tips to keep in mind:
1. Get multiple quotes
Many borrowers make the mistake of accepting the first mortgage or refinance offer they receive.
Some simply go with the bank they use for checking and savings since that can seem easiest.
However, your bank might not offer the best mortgage deal for you. And if you’re refinancing, your financial situation may have changed enough that your current lender is no longer your best bet.
So get multiple quotes from at least three different lenders to find the right one for you.
2. Compare Loan Estimates
When shopping for a mortgage or refinance, lenders will provide a Loan Estimate that breaks down important costs associated with the loan.
You’ll want to read these Loan Estimates carefully and compare costs and fees line-by-line, including:
Interest rate
Annual percentage rate (APR)
Monthly mortgage payment
Loan origination fees
Rate lock fees
Closing costs
Remember, the lowest interest rate isn’t always the best deal.
Annual percentage rate (APR) can help you compare the ‘real’ cost of two loans. It estimates your total yearly cost including interest and fees.
Also, pay close attention to your closing costs.
Some lenders may bring their rates down by charging more upfront via discount points. These can add thousands to your out-of-pocket costs.
3. Negotiate your mortgage rate
You can also negotiate your mortgage rate to get a better deal.
Let’s say you get loan estimates from two lenders. Lender A offers the better rate, but you prefer your loan terms from Lender B. Talk to Lender B and see if they can beat the former’s pricing.
You might be surprised to find that a lender is willing to give you a lower interest rate in order to keep your business.
And if they’re not, keep shopping — there’s a good chance someone will.
Fixed-rate mortgage vs. adjustable-rate mortgage: Which is right for you?
Mortgage borrowers can choose between a fixed-rate mortgage and an adjustable-rate mortgage (ARM).
Fixed-rate mortgages (FRMs) have interest rates that never change unless you decide to refinance. This results in predictable monthly payments and stability over the life of your loan.
Adjustable-rate loans have a low interest rate that’s fixed for a set number of years (typically five or seven). After the initial fixed-rate period, the interest rate adjusts every year based on market conditions.
With each rate adjustment, a borrower’s mortgage rate can either increase, decrease, or stay the same. These loans are unpredictable since monthly payments can change each year.
Adjustable-rate mortgages are fitting for borrowers who expect to move before their first rate adjustment, or who can afford a higher future payment.
In most other cases, a fixed-rate mortgage is typically the safer and better choice.
Remember, if rates drop sharply, you are free to refinance and lock in a lower rate and payment later on.
How your credit score affects your mortgage rate
You don’t need a high credit score to qualify for a home purchase or refinance, but your credit score will affect your rate.
This is because credit history determines risk level.
Historically speaking, borrowers with higher credit scores are less likely to default on their mortgages, so they qualify for lower rates.
So, for the best rate, aim for a credit score of 720 or higher.
Mortgage programs that don’t require a high score include:
Conventional home loans — minimum 620 credit score
FHA loans — minimum 500 credit score (with a 10% down payment) or 580 (with a 3.5% down payment)
VA loans — no minimum credit score, but 620 is common
USDA loans — minimum 640 credit score
Ideally, you want to check your credit report and score at least 6 months before applying for a mortgage. This gives you time to sort out any errors and make sure your score is as high as possible.
If you’re ready to apply now, it’s still worth checking so you have a good idea of what loan programs you might qualify for and how your score will affect your rate.
You can get your credit report from AnnualCreditReport.com and your score from MyFico.com.
How big of a down payment do I need?
Nowadays, mortgage programs don’t require the conventional 20 percent down.
Indeed, first-time home buyers put only 6 percent down on average.
Down payment minimums vary depending on the loan program. For example:
Conventional home loans require a down payment between 3% and 5%
FHA loans require 3.5% down
VA and USDA loans allow zero down payment
Jumbo loans typically require at least 5% to 10% down
Keep in mind, a higher down payment reduces your risk as a borrower and helps you negotiate a better mortgage rate.
If you are able to make a 20 percent down payment, you can avoid paying for mortgage insurance.
This is an added cost paid by the borrower, which protects their lender in case of default or foreclosure.
But a big down payment is not required.
For many people, it makes sense to make a smaller down payment in order to buy a house sooner and start building home equity.
Verify your new rate. Start here
Choosing the right type of home loan
No two mortgage loans are alike, so it’s important to know your options and choose the right type of mortgage.
The five main types of mortgages include:
Fixed-rate mortgage (FRM)
Your interest rate remains the same over the life of the loan. This is a good option for borrowers who expect to live in their homes long-term.
The most popular loan option is the 30-year mortgage, but 15- and 20-year terms are also commonly available.
Adjustable-rate mortgage (ARM)
Adjustable-rate loans have a fixed interest rate for the first few years. Then, your mortgage rate resets every year.
Your rate and payment can rise or fall annually depending on how the broader interest rate trends.
ARMs are ideal for borrowers who expect to move prior to their first rate adjustment (usually in 5 or 7 years).
For those who plan to stay in their home long-term, a fixed-rate mortgage is typically recommended.
Jumbo mortgage
A jumbo loan is a mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.
In 2023, the conforming loan limit is $726,200 in most areas.
Jumbo loans are perfect for borrowers who need a larger loan to purchase a high-priced property, especially in big cities with high real estate values.
FHA mortgage
A government loan backed by the Federal Housing Administration for low- to moderate-income borrowers. FHA loans feature low credit score and down payment requirements.
VA mortgage
A government loan backed by the Department of Veterans Affairs. To be eligible, you must be active-duty military, a veteran, a Reservist or National Guard service member, or an eligible spouse.
VA loans allow no down payment and have exceptionally low mortgage rates.
USDA mortgage
USDA loans are a government program backed by the U.S. Department of Agriculture. They offer a no-down-payment solution for borrowers who purchase real estate in an eligible rural area. To qualify, your income must be at or below the local median.
Bank statement loan
Borrowers can qualify for a mortgage without tax returns, using their personal or business bank account as evidence of their financial circumstances. This is an option for self-employed or seasonally-employed borrowers.
Portfolio/Non-QM loan
These are mortgages that lenders don’t sell on the secondary mortgage market. And this gives lenders the flexibility to set their own guidelines.
Non-QM loans may have lower credit score requirements or offer low-down-payment options without mortgage insurance.
Choosing the right mortgage lender
The lender or loan program that’s right for one person might not be right for another.
Explore your options and then pick a loan based on your credit score, down payment, and financial goals, as well as local home prices.
Whether you’re getting a mortgage for a home purchase or a refinance, always shop around and compare rates and terms.
Typically, it only takes a few hours to get quotes from multiple lenders. And it could save you thousands in the long run.
Time to make a move? Let us find the right mortgage for you
Current mortgage rates methodology
We receive current mortgage rates each day from a network of mortgage lenders that offer home purchase and refinance loans. Those mortgage rates shown here are based on sample borrower profiles that vary by loan type. See our full loan assumptions here.
The PROGRESS in Lending Association released the names for its 2024 Innovations Award winners last week, including two vendors that are active in the reverse mortgage industry, according to an announcement.
The organization recognized LoanPASS for its loan pricing software, which can map out forward and reverse mortgage options side by side.
“In this current market, many lenders are looking for new lending products to offer to help expand their offerings and keep the company afloat,” the organization said in its announcement of the award winners.
It went on to state that independent mortgage banks, community banks and credit unions have shown interest in product pricing engines (PPEs) that allow them to price and make decision on nonqualified (non-QM) mortgages, reverse mortgages, fix-and-flip loans, construction loans or portfolio lending products.
This past January, San Diego-based reverse mortgage wholesale lender Smartfi Home Loans forged a partnership with LoanPASS to use the technology company’s software-as-a-service (SaaS) product pricing engine in its reverse lending operations.
“Partnering with LoanPASS to implement their product and pricing engine was an easy decision as it seamlessly aligned with our vision,” Smartfi CEO Gregg Smith said in a statement in January. “Their innovative solution supports our commitment to streamlining the lending process for our partners.”
Also recognized by the PROGRESS in Lending Association was Mortgage Cadence, which was lauded for its technology innovation.
“With reverse mortgages on the rise, Mortgage Cadence knew it was important to include both forward and reverse lending in its platform,” the organization said of its award for Mortgage Cadence. “Lenders are enabled to work more efficiently, leveraging automation and workflow tools that enable an excellent borrower, sales and operational user experience. It was important to the team that this experience was available for reverse lending and not just forward.”
Last month, Mortgage Cadence announced the hiring of reverse mortgage industry veteran George Morales to serve on its sales team. The company is aiming to bring more reverse mortgage technology solutions to potential partners already in the industry, as well as those that have yet to enter.
“I’m standing in a place where I’ve got all this reverse experience, but I’ve also got a lot of forward experience, [having] been in the mortgage industry since 1999,” Morales told RMD in February.
“The reverse experience is particularly interesting right now, because we’re seeing traditional forward mortgage companies really starting to come around on the reverse product a little more than we’ve seen in a while. And so for me, I feel like it’s an opportunity to kind of open the door via technology, to how and what is happening in the reverse space.”
With low down payments, low closing costs and more flexible credit score requirements, it’s no wonder that nearly one in every five home purchases are made using an FHA loan. FHA loans are famous for their flexibility, but sometimes they come with requirements that both the borrower and the property owner must meet. Here’s how to know if an FHA loan is the right fit for you and your unique homeownership goals.
What is an FHA Loan?
FHA stands for the Federal Housing Administration, a government agency created in 1934 by the U.S. Department of Housing and Urban Development (HUD). The FHA was started by HUD as a resource to increase homeownership in America.
An FHA loan sounds like a loan that comes from the FHA, right? This is not true — the FHA does not issue loans directly to homebuyers. Instead, they insure loans offered by private lenders. If a homebuyer can’t pay for their FHA mortgage, the home will be foreclosed on. If that happens, HUD will pay off the loan to the lender and take ownership of the home. This insurance removes some of the risk for lenders, allowing them to offer lower credit score and down payment requirements. In return, more homebuyers may qualify for home loans.
Who Can Get an FHA Loan?
Although FHA loans are a relatively well-known type of mortgage, there are often misconceptions around both eligibility and overall criteria. FHA loans are most common among first-time homebuyers and low-income buyers, though other homeowners can benefit and qualify for this type of mortgage as well.
First-Time Homebuyers
Many first-time homebuyers use FHA mortgages to afford their starter home, especially because these loans offer lower down payments. Plus, the credit score for FHA loan requirements is usually lower than other loan options, which is helpful for new homeowners who have a limited credit history.
FHA loans are not restricted to your first home purchase and can only be used for your primary residence. This means homeowners generally can’t have two FHA loans open at the same time. However, there are several exceptions to this rule, such as a move required for work, or your family outgrowing your current home.
Low-Income Buyers
Many low-to-moderate income buyers who don’t qualify for a traditional loan or need a lower down payment option are still able to get an FHA loan. This is because the FHA allows lenders to be more flexible with potential buyers’ debt-to-income ratios (DTI), even sometimes approving up to a 55% DTI.
Requirements for an FHA Loan
If you think an FHA loan is a good fit for your needs, it’s time to start taking steps towards securing one. To get an FHA loan, you will need to connect with a lender. The requirements that borrowers need to have (and understand) include:
580+ credit score with a minimum down payment of 3.5%
A home appraisal done by an FHA-approved appraiser
A DTI ratio no higher than 50-55% (depending on their credit history)
You must occupy the home as your primary residence
While these are some of the basic requirements, FHA loans look into your overall financial health and history. Now that you have a broad overview, let’s get into the specifics.
FHA Loans And Credit Score
Compared to the required credit score for conventional loans, FHA loans are attractive to buyers for their credit score flexibility. Once you know your credit score, you can see your eligibility for various FHA loan products.
Credit scores are affected by several financial factors, such as:
If you pay your bills on time
How much credit you use (credit utilization)
The type of credit you have, whether on cards, loans, student loans, car loans, etc.
What you owe and any new credit you’ve recently acquired
Credit scores also affect other parts of your FHA loan eligibility, such as your DTI ratio, down payment minimums, interest rates and more. The better your score, the more flexibility there is with other requirements of the loan.
Here is the credit score needed for an FHA loan and the limits as of December 2023:
Minimum Credit Score: Borrowers need at least a credit score of 580 to qualify for an FHA loan
Credit Score of 580 and Higher: Potential buyers with a minimum credit score of 580 may be able to qualify for FHA’s low down payment advantage program, which is currently 3.5% of the purchase price.
Need to estimate your monthly mortgage payment? Use Pennymac’s home loan calculator to get an estimate today.
Down Payments
A down payment is a portion of the price of your home that is paid upfront. For mortgage loans, down payments are typically based on your creditworthiness, meaning the better your credit score is, the lower your down payment is. FHA loans allow you to pay as little as 3.5% for a down payment if you have a qualifying credit score. With a lower credit score, you should expect to put more like 10% down.
Though a larger down payment will lower your future mortgage payments, a primary benefit of FHA loans is getting a lower required down payment. If you are still concerned with making a 10% down payment, homeowners can use gift assistance to cover those funds as long as there is an accurate and credible paper trail.
Income Requirements and DTI Ratios
While your income amount doesn’t directly affect your eligibility, your employment history might. You will need to provide lenders with documents that verify your income, such as W-2s, bank statements, tax return documentation, etc.
Also consider that your DTI ratio will be evaluated. Your DTI compares how much debt you currently have compared to your monthly income. Lenders use this ratio to consider whether or not you can take on any additional debt. DTI includes debt you aren’t actively paying, such as deferred student loans. When determining what your monthly bills are, your lender will usually apply the “1 Percent Rule” to your student loan debt. For example, if you have $25,000 in student loan debt, your lender will assume a 1% ($250) monthly payment.
If your gross income is $3,000 a month, and you have $1,500 a month in debt payment obligations, your DTI is 57%. Many lenders want you to have a DTI ratio of 43% or less, but sometimes, homeowners only need about a 57% DTI to qualify for an FHA loan. Keep in mind that a higher credit score will also lower DTI requirements.
FHA Loan Interest Rates
One of the most important elements of your home loan is your interest rate, which will play a large factor in the affordability of your monthly payment. FHA loan rates are similar to traditional loan rates because they are based on both larger market conditions and the qualifications of the individual buyer. Wondering what your options will be?
View today’s FHA loan rates
FHA Loan Limits
In addition to the limits on your credit score and down payment amounts, there are restrictions on the total mortgage amount that can be offered through an FHA loan. The FHA does have lending limits, and these numbers can differ depending on where you buy a home. Loan limits are established by the FHA and can vary by county.
Mortgage Insurance
When buyers have little invested in a home (whether via down payment or equity), lenders consider the loan (FHA or conventional) to be a bigger risk. Because of this, they typically require those buyers to pay a monthly fee for mortgage insurance, also known as private mortgage insurance (PMI). This insurance is usually required for any buyer who has a loan amount more than 80% of their home’s value. For example, if your home is worth $100,000 and you have a mortgage balance of $90,000, you only have 10% in equity. Your loan is therefore 90% of your home’s value and your lender will require mortgage insurance.
For an FHA loan, the details are a little different. FHA loans don’t have the same standards of a conventional loan, rather, they require the following two kinds of mortgage insurance premiums: one paid in full upfront (or financed into the mortgage) and another paid as a monthly fee, regardless of how much equity you have.
Upfront mortgage insurance premium (UFMIP): This fee must be paid at closing (or added to your loan amount) and is currently 1.75% of your loan amount. For example, this would mean an extra $3,500 due at closing for a $200,000 loan.
Annual Mortgage Insurance Premium (MIP): This additional insurance cost ranges from 0.45% to 1.05% of your loan amount. The yearly cost (based on your loan-to-value ratio and loan length) is divided by 12 and paid as a part of your monthly mortgage payment. On a $200,000 loan, a MIP at 1% will add $167 to your monthly mortgage payment.
Looking to obtain mortgage insurance financing with down payments as low as 3.5%? Learn more here.
FHA Loan Benefits
In addition to expanded eligibility criteria (that makes them easier to qualify for overall), FHA loans offer many other benefits to borrowers:
Open to Buyers with a History of Bankruptcy and/or Foreclosure: A history of bankruptcy or foreclosure is not necessarily a barrier to qualifying for an FHA loan. There is a two-year waiting period after a bankruptcy, and a three-year waiting period after a foreclosure before you can qualify for an FHA loan.
Gift Money: Struggling to save for your down payment? If you have loved ones who want to help you, FHA loans accept gift money as a source of down payment or other funds. There are some limits and additional rules, so be sure to discuss your situation with your lender.
Competitive Interest Rates: FHA loan rates are comparable to conventional mortgage rates.
Credit History and Loan Eligibility: FHA loans can work for many borrowers when traditional loans can’t because they have looser credit score requirements. FHA lenders will look at your complete financial picture, including your ability to pay for things like rent, utilities, auto, student loans and more.
Non-Occupying Co-Borrowers are Allowed: If your debt-to-income ratio is high, a co-borrower (and their income) can help you qualify for a loan you would not otherwise be eligible for. Co-borrowers have ownership interest and are listed on the home’s title. They must sign all loan documents and will be obligated to pay the monthly payments if you ultimately cannot. FHA loans allow you to have a co-borrower who won’t be living with you, such as a family member who lives elsewhere.
FHA Loan Requirements for Single-Family and Other Properties
Once you have met all of the FHA loan requirements, it’s time to look at the property you want to purchase. There are certain requirements that your future home must meet as well. HUD has minimum property requirements to ensure that any home the FHA insures will be a good investment for both the buyer and the lender. Those requirements ensure the home must be:
Safe: Your home must be a healthy, safe place to live
Sound: The structure of your home must be sound, not significantly damaged
Secure: The home must be a secure investment for a lender
Types of FHA Loans
There are different types of FHA loans that range from general home loans to loans that deal with more specific needs of the borrower. The difference between loans often determines how you spend the funds and how homeowners qualify.
Purchase. Standard purchase loans fall into the basic standards outlined in the above requirements. This type of loan is best for borrowers with good credit scores and a low DTI.
Rate/Term Refinance. Refinancing is possible with an FHA loan and is a good option for homeowners who want to take advantage of the lower FHA rates, especially if their credit has been negatively affected by previous mortgages or loans.
Streamline. For borrowers that already have an FHA loan and are current on their loan, FHA Streamline loans allow those homeowners to refinance with some unique advantages. You can often get an even lower mortgage rate, a lower insurance rate, less documentation (like appraisals or income verification), no credit score requirement, etc.
Cash-Out Refinance. It’s possible to do a cash-out refinance with an FHA loan, though borrowers usually need decent credit and must keep a percentage of their equity in their home. It also requires a complete documentation evaluation.
FHA 203(k) Loan. Some lenders offer either standard or limited 203(k) loans, which allow borrowers to buy a home and make renovations under the same loan. There are specific stipulations, such as a minimum of $5,000 for renovations that will be complete within 6 months.
FHA Loan Alternatives
As common as FHA loans are, it’s important to remember that they are not the only option available to most homebuyers. Whether you are trying to avoid the 1 Percent Rule for student debt, want to buy an ineligible condo, or are looking for very specific loan terms, there are many situations where a conventional mortgage may be a better fit for you than an FHA loan. A credit score for conventional loan requirements will be higher, but this type of loan may meet the rest of your financial and purchasing needs. It’s important to discuss your situation with your lender, and carefully compare all of your choices.
FHA Loan Final Checklist
Once you have found your dream home and have gone through the application and underwriting process for an FHA loan, there are a few final items you will need to have in order to ensure a smooth closing process.
Homeowners Insurance Policy: Your homeowners insurance will protect one of your biggest investments — your house, its contents and your loved ones. The cost of this policy will be included in your monthly payment and paid annually by your lender, so make sure your lender has your insurance information before closing.
Identification: At your closing, you will need two forms of identification. One must be government-issued, photo I.D. — your driver’s license or passport are good options. The other must only have your name printed on it, such as a Social Security card, credit card, debit card or insurance card.
Title Insurance Policy: Title insurance protects you and your lender from any costs or other issues that may come from unknown liens, encumbrances or other issues with the title or legal ownership of your home.
Closing Funds: Finally, you will need the money you are using for your down payment, and any other closing costs you are paying. Talk to your lender to determine the total amount and the form (cashier’s check, wire transfer, etc.) in which the funds will need to be paid.
Ready to crunch your numbers and get your questions answered? Check out our current FHA Purchase Loan Options.
Finance Your Home Today with an FHA Loan
FHA loans are used by many homebuyers every year. From more flexible qualification requirements to greater flexibility with down payment amounts, FHA insured mortgages can help you buy your first home, last home and any home in between. If you’ve found your dream home and are ready to buy, reach out to a Pennymac Loan Expert to get BuyerReady Certified for an FHA loan today.
Mumbai: Bank of India has slashed interest rates for home loans to 8.3% from 8.45% earlier as part of a festival scheme. Union Bank of India and Bank of Maharashtra offer home loans at 8.35%, while SBI has rates starting at 8.4%. TNN
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You finally own your home free and clear. And now, you want to put that ownership stake to use. Is this even possible?
Fortunately, the answer is yes. You can take equity out of your home even after your mortgage is paid off. One of the easier ways to do so is to sell your home, but there are also financial products that allow you to extract equity from your paid-off home quickly without having to pick up and move.
Each has its pluses and minuses. So let’s look at the options.
Can you take equity out of a paid-off house?
“It is definitely possible to take equity out of your home after you’ve paid off a previous mortgage,” says Jeffrey Brown, branch manager with Axia Home Loans in Bellevue, Wash. “Assuming you qualify, you can access that equity at any time.”
Actually, those means of access are pretty much the same for a paid-off house as for one that still has a mortgage on it. You can take equity out of your home using one of these tools:
home equity loan
home equity line of credit (HELOC)
reverse mortgage
cash-out refinance
shared equity investment
When should you tap equity on a paid-off house?
Why would anyone pursue fresh financing after finally paying off a mortgage? Well, why not? Your home is an asset, and you can make it work for you. And when you own it free and clear, its tappable potential is at its greatest (see Pros, below).
Viable reasons abound for borrowing against your ownership stake, from funding a major home improvement project to investing in a business to purchasing more property. Or, frankly, for whatever you need. However, since your home will serve as the collateral for the debt, you should be judicious in how you tap it. Two good rules to follow: Use your equity in ways that improve your finances or work as an investment and don’t take out more than you can afford to lose.
How to get equity out of a paid-off house
Cash-out refinance on a paid-off home
Let’s say you were still paying off your mortgage, had adequate equity and needed cash. You’d likely do a cash-out refinance, which typically has a relatively lower interest rate compared to other types of loans.
You can do the same now, even though you’ve paid off your mortgage. You’ll simply take out a new mortgage and pocket the equity in the form of cash at closing. As with any refinance, however, you’ll be on the hook for closing costs, which can run 2 percent to 5 percent of the amount you’re borrowing and any escrow payments.
“A cash-out refinance generally results in the lowest interest rate and offers the highest loan amounts you can borrow,” says Matt Hackett, operations manager for Equity Now, a mortgage lender headquartered in Mamaroneck, New York. “It can be a fixed- or adjustable-rate loan, and it is fairly straightforward to apply and qualify for.”
Home equity loan on a paid-off home
Alternatively, you could apply for a house-paid-off home equity loan.
Like a cash-out refinance, a home equity loan is secured by your property (the collateral for the loan) and enables you to extract a large amount of equity because you have no other debt attached to the residence. You’ll also likely need to pay closing costs, and as with any mortgage, you risk losing your home if you can’t pay it back.
The upsides: Home equity loans typically come with fixed interest rates, which are usually much lower than personal loan rates. Plus, if you use the money on home improvements, you can deduct the interest on your taxes.
HELOC on a paid-off home
Many homeowners like the flexibility of a home equity line of credit (HELOC), which works more like a credit card you can use when you need it.
“HELOCs come with adjustable interest rates, often based on the prime rate,” says Hackett. “They offer the opportunity to draw funds and pay back funds during the initial draw period, which is more flexible than a standard first mortgage.”
What’s more, you’re only responsible for repaying the amount you use versus the fixed obligation of a cash-out refinance or home equity loan, says Vikram Gupta, executive vice president and head of home equity for PNC Bank.
Do read the fine print of your agreement, though. “Additionally, some HELOCs may have various fees associated with them such as annual fees, early closure fees, and origination fees, so borrowers should pay close attention to these when evaluating their total financing costs,” says Gupta.
On the downside: HELOCs aren’t as easily attainable — you need a strong credit score — and, given their fluctuating interest rates, can mean variable monthly repayments.
Reverse mortgage on a paid-off home
If you’re 62 or older, you could be eligible for a reverse mortgage. This financing vehicle gets you regular payments from a mortgage lender in exchange for your home’s equity.
“A reverse mortgage can be a great way for seniors to access the equity in their homes to pay for monthly living expenses and keep them living independently, especially if they don’t have monthly income in retirement,” says Brown.
Reverse mortgages have pros and cons, though. You’ll still need to keep up with homeowners insurance, property tax and HOA dues payments to avoid foreclosure, and there’s a limit to how much money you can get. You can’t let the home fall into disrepair either — you’ll still be responsible for maintenance.
Most of all: “It’s important for the borrower’s survivors to understand that the entire [reverse mortgage] balance, plus interest and fees, is due if the borrower passes away,” says Gupta. “The borrower’s house may need to be sold if their estate cannot repay the reverse mortgage loan.”
Shared equity agreement on a paid-off home
With a shared equity agreement — a relatively new method of liquidating equity — you’ll sell a portion of your future home equity in exchange for a one-time cash payment.
“The details on how this works and what it costs will vary from investor to investor,” says Andrew Latham, CFP, CPFC, content director and managing editor for SuperMoney.com. “Let’s say you have a property worth $600,000 with $200,000 in equity built up. A home equity investor might offer you $100,000 for a 25 percent share in the appreciation of your home.”
If your home’s value increases to $1 million after 10 years — the typical term for a home equity investment — you’d have to return the $100,000 investment plus 25 percent of the appreciation, which in this case would be $100,000. You’d also need to return the investment plus the share of appreciation if you sell the home.
“The advantage here is that you can tap into your home’s equity without getting into debt,” says Latham, “and there are no monthly payments, which is a great plus for homeowners struggling with cash flow.”
In effect, you’ll have a silent partner in your home, so you’ll need to be comfortable with that and the rights that partner has to protect their investment.
Pros of tapping equity on a paid-off house
Easier to get approved
On the plus side, it can be relatively easy to qualify for a home equity loan on a paid-off house since you already have a solid track record of paying off your first mortgage, which likely means you’re older and have good credit and possibly a higher income. This ups your creditworthiness as a borrower, making you a preferred candidate to lenders and lowering the interest rate you’ll pay.
You also won’t have to worry about the size of your ownership stake or loan-to-value ratio — two other criteria that lenders look at, and that affect how much you’re able to borrow.
No-strings money
Furthermore, you can use your equity for any reason. Most lenders won’t care, for instance, if the money will be put toward funding retirement, seeding a new business or making a down payment on an investment property.
“Many seek to pay for their children’s educational expenses, fund their retirement or pay for an unexpected medical emergency like cancer care for a loved one,” says Kelly McCann, an attorney specializing in construction and real estate with Burnside Law Group in Portland, Ore.
Avoid capital gains taxes
In addition to being able to use the money for nearly any purpose and being more likely to qualify, tapping into your home equity also has the potential to save you money on your income tax.
“It may be smarter to tap into your equity than selling your home and downsizing,” says McCann. “If you have capital gains on your home of more than $250,000 (or more than $500,000 if you are a married couple) you must pay taxes on that gain after the sale of your home. However, if you borrow against your home by, for example, taking out a home equity loan, you don’t have to pay taxes on the loan proceeds — you get the money tax-free.”
Cons of tapping equity on a paid-off house
Risk of losing your home
Of course, if you choose a form of financing wherein your home is used as collateral, like a cash-out refinance or home equity loan, there’s always the risk that you could lose your home if you can’t repay.
Upfront expenses
While they often carry lower interest rates than unsecured loans, home equity products aren’t free. Most have upfront expenses and many of those good old closing costs that you remember all-too-well from your first mortgage. You’ll have to come up with the funds to pay for expenses like origination fees and a home appraisal, to name a few. The whole process could be paperwork-heavy and time-consuming, too.
Being frivolous with funds
You’ve got a tempting chunk of change there in your home. But you’ve worked long and hard to acquire this asset, so don’t blow it on one-time, discretionary expenses. Buying a car (a depreciating asset), paying for a wedding or taking a vacation — these are not-so-good reasons to deplete your equity stake.
How much equity am I able to cash out of my home if it’s fully paid off?
Even if your home mortgage has been paid in full, which means you have 100 percent equity, you cannot borrow all of that money. Generally, lenders allow for borrowing up to 80 to 85 percent of a home’s appraised value. That means if your home is worth $500,000 you may be able to access as much as $425,000 of that equity. However, the specific limit also varies by lender.
Bottom line on getting equity out of a paid-off home
Determining whether it makes sense to pull equity out of a house you’ve already paid off really comes down to your unique circumstances and financial picture, as well as your short- and long-term goals. It’s also important to consider whether you’d be able to make the payments on the loan if your financial circumstances were to change unexpectedly.
“Homeowners should ask themselves: ‘What is the purpose of the funds needed?’ They also need to assess their individual financial situations to ensure they have the cash flow to pay off the loan in the future, particularly as they approach retirement,” says Gupta.
If you decide to proceed, make sure to practice the due diligence you would apply to any other financial transaction—shop around with several lenders and find the best terms for your needs.
FAQs
A home equity line of credit, or HELOC, is typically the most inexpensive way to tap into your home’s equity. When opening a HELOC, you only pay interest on the money you actually use. As an added bonus, when using a HELOC, you won’t pay all the closing costs that come with a home equity loan or a cash-out refinance on a paid off home.
Lenders typically look for credit scores of at least 620 on home equity loan applications. You’ll qualify for an even better rate with a score of 700 or above.