National mortgage rates were mostly lower compared to a week ago, according to rate data collected by Bankrate. Rates for 30-year fixed, 15-year fixed and jumbo mortgages each moved lower, while rates for adjustable rate mortgages rose.
While it’s expected that rates will gradually come down this year, it may not be a straight downward path.
At its Jan. 31 meeting, the Federal Reserve announced it would hold off changing rates, but could cut rates in the future. The Fed meets again on March 20, where they’ll announce an updated outlook. Rate fluctuations affect many areas of the economy, including the 10-year Treasury, a key benchmark for fixed-rate mortgages.
“Where the 10-Year Treasury yield goes, mortgage rates will follow,” says Ken Johnson of Florida Atlantic University. “In roughly the last two months, the 10-year Treasury yield is up 50 basis points. Depending on the source, the 30-year mortgage rate is up 48 basis points. Treasurys’ path remains a coin toss at this point.”
Rates last updated March 5, 2024.
These rates are marketplace averages based on the assumptions here. Actual rates displayed within the site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Tuesday, March 5th, 2024 at 7:30 a.m.
30-year mortgage retreats, -0.09%
Today’s average rate for the benchmark 30-year fixed mortgage is 7.25 percent, a decrease of 9 basis points over the last week. Last month on the 5th, the average rate on a 30-year fixed mortgage was lower, at 7.10 percent.
At the current average rate, you’ll pay principal and interest of $682.18 for every $100,000 you borrow. That’s $6.11 lower, compared with last week.
The 30-year mortgage is the most popular option for borrowers. It has a number of advantages. Among them:
Lower monthly payment: Compared to a shorter term, such as 15 years, the 30-year mortgage offers lower, more affordable payments spread over time.
Stability: With a 30-year fixed mortgage, you lock in a set principal and interest payment, making it easier to plan your housing expenses for the long term. Keep in mind: Your monthly housing payment can still change if your homeowners insurance premiums and property taxes go up or, less likely, down.
Buying power: With lower payments, you might qualify for a larger loan amountor a more expensive home.
Flexibility: Lower monthly payments can free up some of your monthly budget for other goals, like building an emergency fund, contributing to retirement or college tuition, or saving for home repairs and maintenance.
Learn more: What is a fixed-rate mortgage and how does it work?
15-year mortgage rate eases, -0.06%
The average rate you’ll pay for a 15-year fixed mortgage is 6.70 percent, down 6 basis points from a week ago.
Monthly payments on a 15-year fixed mortgage at that rate will cost roughly $882 per $100,000 borrowed. The bigger payment may be a little more difficult 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 more quickly.
5/1 ARM rate moves higher, +0.12%
The average rate on a 5/1 adjustable rate mortgage is 6.31 percent, up 12 basis points over the last week.
Adjustable-rate mortgages, or ARMs, are mortgage loans that come with a floating interest rate. To put it another way, the interest rate will change at regular intervals, unlike fixed-rate mortgages. These types of loans are best for those who expect to sell or refinance 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 6.31 percent would cost about $620 for each $100,000 borrowed over the initial five years, but could increase by hundreds of dollars afterward, depending on the loan’s terms.
Current jumbo mortgage rate retreats, -0.10%
The average jumbo mortgage rate today is 7.28 percent, down 10 basis points over the last seven days. This time a month ago, the average rate on a jumbo mortgage was lesser at 7.16 percent.
At the average rate today for a jumbo loan, you’ll pay $684.21 per month in principal and interest for every $100,000 you borrow. That’s lower by $6.81 than it would have been last week.
Refinance rates
Current 30 year mortgage refinance rate climbs, +0.01%
The average 30-year fixed-refinance rate is 7.25 percent, up 1 basis point from a week ago. A month ago, the average rate on a 30-year fixed refinance was lower at 7.19 percent.
At the current average rate, you’ll pay $682.18 per month in principal and interest for every $100,000 you borrow. That’s $0.68 higher compared with last week.
Where are mortgage rates heading?
With inflation still above the Fed’s 2 percent goal and the job market holding strong, the Fed isn’t likely to cut rates at its March meeting.
“The Federal Reserve will not cut interest rates in the first half of this year, in my view,” says Lawrence Yun, chief economist of the National Association of Realtors, “but rate cuts of three, four or even five rounds will be possible in the second half of the year as rent measures will be much more well-behaved.”
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. As a borrower, you could be quoted a higher or lower rate compared to the trend.
What these rates mean for you and your mortgage
While mortgage rates change daily, it’s unlikely we’ll see rates back at 3 percent anytime 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.
To help you uncover the best deal, get 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?”
More on current mortgage rates
Methodology
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.
Average mortgage rates just inched lower yesterday. And they were effectively unchanged over the last seven days.
Next week, the direction those rates take will probably hinge almost entirely on Friday’s jobs report and appearances before Congress of the Federal Reserve’s chair. (More on those below.) Of course, nobody knows what they will say. So, once again, I’m forced to say mortgage rates next week could go either way.
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Current mortgage and refinance rates
Program
Mortgage Rate
APR*
Change
Conventional 30-year fixed
7.27%
7.29%
-0.02
Conventional 15-year fixed
6.68%
6.71%
-0.02
Conventional 20-year fixed
7.11%
7.14%
-0.02
Conventional 10-year fixed
6.59%
6.61%
-0.03
30-year fixed FHA
6.31%
6.98%
-0.08
30-year fixed VA
6.64%
6.75%
Unchanged
5/1 ARM Conventional
6.31%
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.
Find and lock a low rate
Should you lock a mortgage rate today?
There’s no such thing as certainty in future mortgage rates. However, the chances of their gently gliding lower in 2024 are good. Unfortunately, it’s looking unlikely that the happy trend will arrive before late spring, and possibly well into the summer.
So, my personal rate lock recommendations are now:
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.
What’s moving current mortgage rates
Next week’s jobs report
Two monthly economic reports vie for the top spot as the most consequential for mortgage rates. One, the jobs report, is due next Friday. And the other, the consumer price index (CPI), is scheduled for the following Tuesday.
We’ll deal with the CPI next week. But let’s look at what the jobs report (formally called the employment situation report) for February might do.
With almost all economic data, mortgage rates tend to fall when the figures in a report are lower than markets are expecting. One exception crops up in the jobs report. It’s better for mortgage rates when the unemployment rate is higher than expected.
Before each report, analysts come up with a consensus forecast. And many investors trade ahead of publication based on the forecast, pricing it into mortgage rates and assets. So, when the forecast is wrong, investors are left scrambling to buy or sell assets as they rebalance their portfolios to reflect reality. The asset that largely determines mortgage rates is a type of bond called a mortgage-backed security (MBS).
So, let’s see what markets are expecting, according to MarketWatch, from the jobs report:
Nonfarm payrolls (new jobs added during the month) — 210,000 in February, down from 353,000 in January
Unemployment rate — 3.7% in February, unchanged from January
Hourly wages — 0.2% in February, down from 0.6% in January
To be clear, mortgage rates tend to fall when economic data are worse than expected. So, we’d like nonfarm payrolls to be below 210,000, hourly wages to have risen more slowly than 0.2%, and the unemployment rate to be higher than 3.7%.
Chances are, the jobs report will on Friday swamp the effects of all the other economic reports next week. But a few of the lesser ones might cause some volatility earlier in the week.
Other important reports next week
The ones most likely to do so are:
January factory orders on Tuesday — Expected to fall to -3.1% from December’s +0.2%
February purchasing managers’ index (PMI) from the Institute for Supply Management (ISM) — Expected to fall slightly
February ADP employment report for the private sector on Wednesday — Expected to rise to 150,000 from 107,000 in January. Sometimes seen as a bellwether for the jobs report
January job openings and labor turnover survey (JOLTS) on Wednesday — Openings are expected to dip slightly to 8.9 million from 9 million in December. A helpful peek under the labor market’s hood
Second reading of productivity during the last quarter of 2023 (Q4/23) on Thursday — Expected to be a shade lower than the first reading at 3.1% compared to 3.2%
We’d need to see big variations from the analysts’ consensus forecasts for these to move mortgage rates far or for long. But any of these might push those rates up or down.
The Fed
Although these and other reports routinely move mortgage rates even when inflation and the Federal Reserve are not front of mind, things are different now. Investors tend to view the data through the prism of how they might affect the Fed’s decisions on the timing and scope of future cuts to general interest rates.
One way they can gauge that is by listening to what top Fed officials say in public. And those have nine speaking engagements next week.
Most importantly, Fed Chair Jerome Powell is due to provide evidence to Congress next Wednesday and Thursday. His voice is highly influential and his testimony could easily move mortgage rates.
The Fed will next decide on rate policy on Mar. 20. Very few expect it to cut general interest rates that day. But Wall Street hopes it will strongly hint at cuts at the May or June meetings of its rate-setting committee.
Economic reports next week
See above for details about the more important economic reports next week.
In the following list of next week’s reports, only those in bold typically have the potential to affect mortgage rates appreciably. The others probably won’t have much impact unless they contain shockingly good or bad data.
Monday — Nothing
Tuesday — February ISM PMI. Also factory orders for January
Wednesday — Fed Chair Jerome Powell testifies to Congress. Also February’s ADP employment report and January’s JOLTS
Thursday — Fed Chair Jerome Powell testifies to Congress (again). Plus productivity in Q4/23. And initial jobless claims for the week ending Mar. 2
Friday — February jobs report
The jobs report is by far the most important publication next week. But watch out, too, for the Fed chair’s appearances before Congress.
Time to make a move? Let us find the right mortgage for you
Mortgage rates forecast for next week
Once again, mortgage rates are unpredictable next week. Whether they move higher or lower will largely depend on the jobs report (which regularly confounds analysts’ forecasts) and on what Fed Chair Jerome Powell tells Congress.
How your mortgage interest rate is determined
A bond market generally determines mortgage and refinance rates. It’s the one where trading in mortgage-backed securities takes place.
And that’s highly dependent on the economy. So mortgage rates tend to be high when things are going well and low when the economy’s in trouble. But inflation rates can undermine those tendencies.
Your part
But you play a big part in determining your own mortgage rate in five ways. And you can affect it significantly by:
Shopping around for your best mortgage rate — They vary widely from lender to lender
Boosting your credit score — Even a small bump can make a big difference to your rate and payments
Saving the biggest down payment you can — Lenders like you to have real skin in this game
Keeping your other borrowing modest — The lower your other monthly commitments, the bigger the mortgage you can afford
Choosing your mortgage carefully — Are you better off with a conventional, conforming, FHA, VA, USDA, jumbo or another loan?
Time spent getting these ducks in a row can see you winning lower rates.
Remember, they’re not just a mortgage rate
Be sure to count all your forthcoming homeownership costs when you’re working out how big a mortgage you can afford. So, focus on something called you “PITI.” That stands for:
Principal — Pays down the amount you borrowed
Interest — The price of borrowing
Taxes — Specifically property taxes
Insurance — Specifically homeowners insurance
Our mortgage calculator can help with these.
Depending on your type of mortgage and the size of your down payment, you may have to pay mortgage insurance, too. And that can easily run into three figures every month.
But there are other potential costs. So, you’ll have to pay homeowners association dues if you choose to live somewhere with an HOA. And, wherever you live, you should expect repairs and maintenance costs. There’s no landlord to call when things go wrong!
Finally, you’ll find it hard to forget closing costs. You can see those reflected in the annual percentage rate (APR) that lenders will quote you. Because that effectively spreads them out over your loan’s term, making that rate higher than your straight mortgage rate.
But you may be able to get help with those closing costs and your down payment, especially if you’re a first-time buyer. Read:
Down payment assistance programs in every state for 2023
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 result is a good snapshot of daily rates and how they change over time.
Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.
Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.
The VA home loan: Unbeatable benefits for veterans
For many who qualify, VA home loans are some of the best mortgages available.
Verify your VA loan eligibility. Start here
Backed by the U.S. Department of Veterans Affairs, VA loans are designed to help active-duty military personnel, veterans and certain other groups become homeowners at an affordable cost.
The VA loan asks for no down payment, requires no mortgage insurance, and has lenient rules about qualifying, among many other advantages.
Here’s everything you need to know about qualifying for and using a VA loan.
In this article (Skip to…)
Top 10 VA loan benefits
1. No down payment on a VA loan
Most home loan programs require you to make at least a small down payment to buy a home. The VA home loan is an exception.
Verify your VA loan eligibility. Start here
Rather than paying 5%, 10%, 20% or more of the home’s purchase price upfront in cash, with a VA loan you can finance up to 100% of the purchase price.
The VA loan is a true no-money-down home mortgage opportunity.
2. No mortgage insurance for VA loans
Typically, lenders require you to pay for mortgage insurance if you make a down payment that’s less than 20%.
This insurance — which is known as private mortgage insurance (PMI) for a conventional loan and a mortgage insurance premium (MIP) for an FHA loan — would protect the lender if you defaulted on your loan.
VA loans require neither a down payment nor mortgage insurance. That makes a VA-backed mortgage very affordable upfront and over time.
3. VA loans have a government guarantee
There’s a reason why the VA loan comes with such favorable terms.
The federal government guarantees these loans — meaning a portion of the loan amount will be repaid to the lender even if you’re unable to make monthly payments for whatever reason.
This guarantee encourages and enables private lenders to offer VA loans with exceptionally attractive terms.
4. You can shop for the best VA loan rates
VA loans are neither originated nor funded by the VA. They are not direct loans from the government. Furthermore, mortgage rates for VA loans are not set by the VA itself.
Instead, VA loans are offered by U.S. banks, savings-and-loans institutions, credit unions, and mortgage lenders — each of which sets its own VA loan rates and fees.
This means you can shop around and compare loan offers and still choose the VA loan that works best for your budget.
5. VA loans don’t allow a prepayment penalty
A VA loan won’t restrict your right to sell the property partway through your loan term.
There’s no prepayment penalty or early-exit fee no matter within what time frame you decide to sell your home.
Furthermore, there are no restrictions regarding a refinance of your VA loan.
You can refinance your existing VA loan into another VA loan via the agency’s Interest Rate Reduction Refinance Loan (IRRRL) program, or switch into a non-VA loan at any time.
6. VA mortgages come in many varieties
A VA loan can have a fixed rate or an adjustable rate. In addition, you can use a VA loan to buy a house, condo, new-built home, manufactured home, duplex, or other types of properties.
Or, it can be used for refinancing your existing mortgage, making repairs or improvements to your home, or making your home more energy-efficient.
The choice is yours. A VA-approved lender can help you decide.
Verify your VA loan eligibility. Start here
7. It’s easier to qualify for VA loans
Like all mortgage types, VA loans require specific documentation, an acceptable credit history, and sufficient income to make your monthly payments.
But, compared to other loan programs, VA loan guidelines tend to be more flexible. This is made possible because of the VA loan guarantee.
The Department of Veterans Affairs genuinely wants to make the loan process easier for military members, veterans, and qualifying military spouses to buy or refinance a home.
8. VA loan closing costs are lower
The VA limits the closing costs lenders can charge to VA loan applicants. This is another way that a VA loan can be more affordable than other types of loans.
Money saved on closing costs can be used for furniture, moving costs, home improvements, or anything else.
9. The VA offers funding fee flexibility
VA loans require a “funding fee,” an upfront cost based on your loan amount, your type of eligible service, your down payment size, and other factors.
Funding fees don’t need to be paid in cash, though. The VA allows the fee to be financed with the loan, so nothing is due at closing.
And, not all VA borrowers will pay it. VA funding fees are normally waived for veterans who receive VA disability compensation and for unmarried surviving spouses of veterans who died in service or as a result of a service-connected disability.
10. VA loans are assumable
Most VA loans are “assumable,” which means you can transfer your VA loan to a future home buyer if that person is also VA-eligible.
Assumable loans can be a huge benefit when you sell your home — especially in a rising mortgage rate environment.
If your home loan has today’s low rate and market rates rise in the future, the assumption features of your VA become even more valuable.
VA loan rates
The VA loan is viewed as one of the lowest-risk mortgage types available on the market.
Verify your VA loan eligibility. Start here
This safety allows banks to lend to veteran borrowers at lower interest rates.
Today’s VA loan rates*
Loan Type
Current Mortgage Rate
VA 30-year FRM
% (% APR)
Conventional 30-year FRM
% (% APR)
VA 15-year FRM
% (% APR)
Conventional 15-year FRM
% (% APR)
*Current rates provided daily by partners of the Mortgage Reports. See our loan assumptions here.
VA rates are more than 25 basis points (0.25%) lower than conventional rates on average, according to data collected by mortgage software company Ellie Mae.
Most loan programs require higher down payment and credit scores than the VA home loan. In the open market, a VA loan should carry a higher rate due to more lenient lending guidelines and higher perceived risk.
Yet the result of the Veterans Affairs efforts to keep veterans in their homes means lower risk for banks and lower borrowing costs for eligible veterans.
VA mortgage calculator
Eligibility
Am I eligible for a VA home loan?
Contrary to popular belief, VA loans are available not only to veterans, but also to other classes of military members.
Find and lock a low VA loan rate today. Start here
The list of eligible VA borrowers includes:
Active-duty service members
Members of the National Guard
Reservists
Surviving spouses of veterans
Cadets at the U.S. Military, Air Force or Coast Guard Academy
Midshipmen at the U.S. Naval Academy
Officers at the National Oceanic & Atmospheric Administration.
A minimum term of service is typically required.
Minimum service required for a VA mortgage
VA home loans are available to active-duty service members, veterans (unless dishonorably discharged), and in some cases, surviving family members.
To be eligible, you need to meet one of these service requirements:
You’ve served 181 days of active duty during peacetime
You’ve served 90 days of active duty during wartime
You’ve served six years in the Reserves or National Guard
Your spouse was killed in the line of duty and you have not remarried
Your eligibility for the VA home loan program never expires.
Veterans who earned their VA entitlement long ago are still using their benefit to buy homes.
The VA loan Certificate of Eligibility (COE)
What is a COE?
In order to show a mortgage company you are VA-eligible, you’ll need a Certificate of Eligibility (COE). Your lender can acquire one for you online, usually in a matter of seconds.
Verify your VA home loan eligibility. Start here
How to get your COE (Certificate of Eligibility)
Getting a Certificate of Eligibility (COE) is very easy in most cases. Simply have your lender order the COE through the VA’s automated system. Any VA-approved lender can do this.
Alternatively, you can order your certificate yourself through the VA benefits portal.
If the online system is unable to issue your COE, you’ll need to provide your DD-214 form to your lender or the VA.
Does a COE mean you are guaranteed a VA loan?
No, having a Certificate of Eligibility (COE) doesn’t guarantee a VA loan approval.
Your COE shows the lender you’re eligible for a VA loan, but no one is guaranteed VA loan approval.
You must still qualify for the loan based on VA mortgage guidelines. The guarantee part of the VA loan refers to the VA’s promise to the lender of repayment if the borrower defaults.
Qualifying for a VA mortgage
VA loan eligibility vs. qualification
Being eligible for VA home loan benefits based on your military status or affiliation doesn’t necessarily mean you’ll qualify for a VA loan.
You still have to qualify for a VA mortgage based on your credit, debt, and income.
Verify your VA loan eligibility. Start here
Minimum credit score for a VA loan
The VA has established no minimum credit score for a VA mortgage.
However, many VA mortgage lenders require minimum FICO scores of 620 or higher — so apply with many lenders if your credit score might be an issue.
Even VA lenders that allow lower credit scores don’t accept subprime credit.
VA underwriting guidelines state that applicants must have paid their obligations on time for at least the most recent 12 months to be considered satisfactory credit risks.
In addition, the VA usually requires a two-year waiting period following a Chapter 7 bankruptcy or foreclosure before it will insure a loan.
Borrowers in Chapter 13 must have made at least 12 on-time payments and secure the approval of the bankruptcy court.
Verify your VA loan home buying eligibility. Start here
VA loan debt-to-income ratios
The relationship of your debts and your income is called your debt-to-income ratio, or DTI.
VA underwriters divide your monthly debts (car payments, credit cards, and other accounts, plus your proposed housing expense) by your gross (before-tax) income to come up with your debt-to-income ratio.
For instance:
If your gross income is $4,000 per month
And your total monthly debt is $1,500 (including the new mortgage, property taxes and homeowners insurance, plus other debt payments)
Then your DTI is 37.5% (1500/4000=0.375)
A DTI over 41% means the lender has to apply additional formulas to see if you qualify under residual income guidelines.
VA residual income rules
VA underwriters perform additional calculations that can affect your mortgage approval.
Factoring in your estimated monthly utilities, your estimated taxes on income, and the area of the country in which you live, the VA arrives at a figure which represents your “true” costs of living.
It then subtracts that figure from your income to find your residual income (e.g. your money “left over” each month).
Think of the residual income calculation as a real-world simulation of your living expenses.
It is the VA’s best effort to ensure that military families have a stress-free homeownership experience.
Here is an example of how residual income works, assuming a family of four which is purchasing a 2,000 square-foot home on a $5,000 monthly income.
Future house payment, plus other debt payments: $2,500
Monthly estimated income taxes: $1,000
Monthly estimated utilities at $0.14 per square foot: $280
This leaves a residual income calculation of $1,220.
Now, compare that residual income to for a family of four:
Northeast Region: $1,025
Midwest Region: $1,003
South Region: $1,003
West Region: $1,117
The borrower in our example exceeds VA’s residual income standards in all parts of the country.
Therefore, despite the borrower’s debt-to-income ratio of 50%, the borrower could get approved for a VA loan.
Verify your VA loan eligibility. Start here
Qualifying for a VA loan with part-time income
You can qualify for this type of financing even if you have a part-time job or multiple jobs.
You must show a 2-year history of making consistent part-time income, and stability in the number of hours worked. The lender will make sure any income received appears stable. See our complete guide to getting a mortgage when you’re self-employed or work part-time.
VA funding fees and loan limits
About the VA funding fee
The VA charges an upfront fee to defray the costs of the program and make it sustainable for the future.
Veterans pay a lump sum that varies depending on the loan purpose and down payment amount.
The fee is normally wrapped into the loan. It does not add to the cash needed to close the loan.
Find out if you qualify for a VA loan. Start here
VA home purchase funding fees
Type of Military Service
Down Payment
Fee for First-Time Use
Fee for Subsequent Use
Active Duty, Reserves, and National Guard
None
2.3%
3.6%
5% or more
1.65%
1.65%
10% or more
1.4%
1.4%
VA cash-out refinance funding fees
Type of Military Service
Fee for First-Time Use
Fee for Subsequent Uses
Active Duty, Reserves, and National Guard
2.3%
3.6%
VA streamline refinances (IRRRL) & assumptions
Type of Military Service
Fee for First-Time Use
Fee for Subsequent Uses
Active Duty, Reserves, and National Guard
0.5%
0.5%
Manufactured home loans not permanently affixed
Type of Military Service
Fee for First-Time Use
Fee for Subsequent Uses
Active Duty, Reserves, and National Guard
1.0%
1.0%
VA loan limits in 2024
VA loan limits have been repealed, thanks to the Blue Water Navy Vietnam Veterans Act of 2019.
There is no maximum amount for which a home buyer can receive a VA loan, at least as far as the VA is concerned.
However, private lenders may set their own limits. So check with your lender if you are looking for a VA loan above local conforming loan limits.
Verify your VA loan eligibility. Start here
Eligible property types
Houses you can buy with a VA loan
VA mortgages are flexible about what types of property you can and can’t purchase. A VA loan can be used to buy a:
Detached house
Condo
New-built home
Manufactured home
Duplex, triplex or four-unit property
Find out if you qualify for a VA loan. Start here
You can also use a VA mortgage to refinance an existing loan for any of those types of properties.
VA loans and second homes
Federal regulations limit loans guaranteed by the Department of Veterans Affairs to “primary residences” only.
However, “primary residence” is defined as the home in which you live “most of the year.”
Therefore, if you own an out-of-state residence in which you live for more than six months of the year, this other home, whether it’s your vacation home or retirement property, becomes your official “primary residence.”
For this reason, VA loans are popular among aging military borrowers.
Buying a multi-unit home with a VA loan
VA loans allow you to buy a duplex, triplex, or four-plex with 100% financing. You must live in one of the units.
Buying a home with more than one unit can be challenging.
Mortgage lenders consider these properties riskier to finance than traditional, single-family residences, so you’ll need to be a stronger borrower.
VA underwriters must make sure you will have enough emergency savings, or cash reserves, after closing on your house. That’s to ensure you’ll have money to pay your mortgage even if a tenant fails to pay rent or moves out.
The minimum cash reserves needed after closing is six months of mortgage payments (covering principal, interest, taxes, and insurance – PITI).
Your lender will also want to know about previous landlord experience you’ve had, or any experience with property maintenance or renting.
If you don’t have any, you may be able to sidestep that issue by hiring a property management company. But that’s up to the individual lender.
Your lender will look at the income (or potential income) of the rental units, using either existing rental agreements or an appraiser’s opinion of what the units should fetch.
They’ll usually take 75% of that amount to offset your mortgage payment when calculating your monthly expenses.
VA loans and rental properties
You cannot use a VA loan to buy a rental property. You can, however, use a VA loan to refinance an existing rental home you once occupied as a primary home.
For home purchases, in order to obtain a VA loan, you must certify that you intend to occupy the home as your principal residence.
If the property is a duplex, triplex, or four-unit apartment building, you must occupy one of the units yourself. Then you can rent out the other units.
The exception to this rule is the VA’s Interest Rate Reduction Refinance Loan (IRRRL).
This loan, also known as the VA Streamline Refinance, can be used for refinancing an existing VA loan on a home where you currently live or where you used to live, but no longer do.
Check your VA IRRRL eligibility. Start here
Buying a condo with a VA loan
The VA maintains a list of approved condo projects within which you may purchase a unit with a VA loan.
At VA’s website, you can search for the thousands of approved condominium complexes across the U.S.
If you are VA-eligible and in the market for a condo, make sure the unit you’re interested in is approved.
As a buyer, you are probably not able to get the complex VA-approved. That’s up to the management company or homeowner’s association.
If a condo you like is not approved, you must use other financing like an FHA or conventional loan or find another property.
Note that the condo must meet FHA or conventional guidelines if you want to use those types of financing.
Veteran mortgage relief with the VA loan
The U.S. Department of Veterans Affairs, or VA, provides home retention assistance. The VA intervenes when a veteran is having trouble making home loan payments.
The VA works with loan servicers to offer loan options to the veteran, other than foreclosure.
Find out if you qualify for a VA loan. Start here
In fiscal year 2019, the VA made over 400,000 contact actions to reach borrowers and loan servicers. The intent was to work out a mutually agreeable repayment option for both parties.
More than 100,000 veteran homeowners avoided foreclosure in 2019 alone thanks to this effort.
The initiative has saved the taxpayer an estimated $2.6 billion. More importantly, vast numbers of veterans and military families got another chance at homeownership.
When NOT to use a VA loan
If you have good credit and 20% down
A primary advantage to VA home loans is the lack of mortgage insurance.
However, the VA guarantee does not come free of charge. Borrowers pay an upfront funding fee, which they usually choose to add to their loan amount.
The fee ranges from 1.4% to 3.6%, depending on the down payment percentage and whether the home buyer has previously used his or her VA mortgage eligibility. The most common fee is 2.3%.
Find out if you qualify for a VA loan. Start here
On a $200,000 purchase, a 2.3% fee equals $4,600.
However, buyers who choose a conventional mortgage and put 20% down get to avoid mortgage insurance and the upfront fee. For these military home buyers, the VA funding fee might be an unnecessary expense.
The exception: Mortgage applicants whose credit rating or income meets VA guidelines but not those of conventional mortgages may still opt for VA.
If you’re on the “CAIVRS” list
To qualify for a VA loan, you must prove you have made good on previous government-backed debts and that you have paid taxes.
The Credit Alert Verification Reporting System, or “CAIVRS,” is a database of consumers who have defaulted on government obligations. These individuals are not eligible for the VA home loan program.
If you have a non-veteran co-borrower
Veterans often apply to buy a home with a non-veteran who is not their spouse.
This is okay. However, it might not be their best choice.
As the veteran, your income must cover your half of the loan payment. The non-veteran’s income cannot be used to compensate for the veteran’s insufficient income.
Plus, when a non-veteran owns half the loan, the VA guarantees only half that amount. The lender will require a 12.5% down payment for the non-guaranteed portion.
The Conventional 97 mortgage, on the other hand, allows down payments as low as 3%.
Another low-down-payment mortgage option is the FHA home loan, for which 3.5% down is acceptable.
The USDA home loan also requires zero down payment and offers similar rates to VA loans. However, the property must be within USDA-eligible areas.
If you plan to borrow with a non-veteran, one of these loan types might be your better choice.
Explore your mortgage options. Start here
If you apply with a credit-challenged spouse
In states with community property laws, VA lenders must consider the credit rating and financial obligations of your spouse. This rule applies even if he or she will not be on the home’s title or even on the mortgage.
Such states are as follows.
Arizona
California
Idaho
Louisiana
Nevada
New Mexico
Texas
Washington
Wisconsin
A spouse with less-than-perfect credit or who owes alimony, child support, or other maintenance can make your VA approval more challenging.
Apply for a conventional loan if you qualify for the mortgage by yourself. The spouse’s financial history and status need not be considered if he or she is not on the loan application.
Verify your VA loan home buying eligibility. Start here
If you want to buy a vacation home or investment property
The purpose of VA financing is to help veterans and active-duty service members buy and live in their own home. This loan is not meant to build real estate portfolios.
These loans are for primary residences only, so if you want a ski cabin or rental, you’ll have to get a conventional loan.
If you want to purchase a high-end home
Starting January 2020, there are no limits to the size of mortgage a lender can approve.
However, lenders may establish their own limits for VA loans, so check with your lender before applying for a large VA loan.
Spouses and the VA mortgage program
What spouses are eligible for a VA loan?
What if the service member passes away before he or she uses the benefit? Eligibility passes to an unremarried spouse, in many cases.
Find and lock a low VA loan rate today. Start here
For the surviving spouse to be eligible, the deceased service member must have:
Died in the line of duty
Passed away as a result of a service-connected disability
Been missing in action, or a prisoner of war, for at least 90 days
Been a totally disabled veteran for at least 10 years prior to death, and died from any cause
Also eligible are remarried spouses who married after the age of 57, on or after December 16, 2003.
In these cases, the surviving spouse can use VA loan eligibility to buy a home with zero down payment, just as the veteran would have.
VA loan benefits for surviving spouses
Surviving spouses have an additional VA loan benefit, however. They are exempt from the VA funding fee. As a result, their loan balance and monthly payment will be lower.
Surviving spouses are also eligible for a VA streamline refinance when they meet the following guidelines.
The surviving spouse was married to the veteran at the time of death
The surviving spouse was on the original VA loan
VA streamline refinancing is typically not available when the deceased veteran was the only applicant on the original VA loan, even if he or she got married after buying the home.
In this case, the surviving spouse would need to qualify for a non-VA refinance, or a VA cash-out loan.
A cash-out mortgage through VA requires the military spouse to meet home purchase eligibility requirements.
If this is the case, the surviving spouse can tap into the home’s equity to raise cash for any purpose, or even pay off an FHA or conventional loan to eliminate mortgage insurance.
Qualifying if you receive (or pay) child support or alimony
Buying a home after a divorce is no easy task.
If, prior to your divorce, you lived in a two-income household, you now have less spending power and a reduced monthly income for purposes of your VA home loan application.
With less income, it can be harder to meet both the VA Home Loan Guaranty’s debt-to-income (DTI) guidelines and the VA residual income requirement for your area.
Receiving alimony or child support can counteract a loss of income.
Mortgage lenders will not require you to provide information about your divorce agreement’s alimony or child support terms, but if you’re willing to disclose, it can count toward qualifying for a home loan.
Different VA-approved lenders will treat alimony and child support income differently.
Typically, you will be asked to provide a copy of your divorce settlement or other court paperwork to support the alimony and child support payments.
Lenders will then want to see that the payments are stable, reliable, and likely to continue for another 36 months, at least.
You may also be asked to show proof that alimony and child support payments have been made in the past reliably, so that the lender may use the income as part of your VA loan application.
If you are the payor of alimony and child support payments, your debt-to-income ratio can be harmed.
Not only might you be losing the second income of your dual-income households, but you’re making additional payments that count against your outflows.
VA mortgage lenders make careful calculations with respect to such payments.
You can still get approved for a VA loan while making such payments — it’s just more difficult to show sufficient monthly income.
VA loan assumption
What is VA loan assumption?
One benefit for home buyers is that VA loans are assumable. When you assume a mortgage loan, you take over the current homeowner’s monthly payment.
Verify your VA loan home buying eligibility. Start here
That could be a big advantage if mortgage rates have risen since the original owner purchased the home. The buyer would be able to acquire a low-rate, affordable loan — and it could make it easier for the seller to find a willing buyer in a tough market.
VA loan assumption savings
Buying a home via an assumable mortgage loan is even more appealing when interest rates are on the rise.
For example:
Say a seller-financed $200,000 for their home in 2013 at an interest rate of 3.25% on a 30-year fixed loan
Using this scenario, their principal and interest payment would be $898 per month
Let’s assume current 30-year fixed rates averaged 4.10%
If you financed $200,000 at 4.10% for a 30-year loan term, your monthly principal and interest payment would be $966 per month
Additionally, because the seller has already paid four years into the loan term, they’ve already paid nearly $25,000 in interest on the loan.
By assuming the loan, you would save $34,560 over the 30-year loan due to the difference in interest rates. You would also save roughly $25,000 thanks to the interest already paid by the sellers.
That comes out to a total savings of almost $60,000!
How to assume (take on) a VA loan
There are currently two ways to assume a VA loan.
The new buyer is a qualified veteran who “substitutes” his or her VA eligibility for the eligibility of the seller
The new home buyer qualifies through VA standards for the mortgage payment. This is the safest method for the seller as it allows the loan to be assumed knowing that the new buyer is responsible for the loan, and the seller is no longer responsible for the loan
The lender and/or the VA needs to approve a loan assumption.
Loans serviced by a lender with automatic authority may process assumptions without sending them to a VA Regional Loan Center.
For lenders without automatic authority, the loan must be sent to the appropriate VA Regional Loan Center for approval. This loan process will typically take several weeks.
When VA loans are assumed, it’s the servicer’s responsibility to make sure the homeowner who assumes the property meets both VA and lender requirements.
VA loan assumption requirements
For a VA mortgage assumption to take place, the following conditions must be met:
The existing loan must be current. If not, any past due amounts must be paid at or before closing
The buyer must qualify based on VA credit and income standards
The buyer must assume all mortgage obligations, including repayment to the VA if the loan goes into default
The original owner or new owner must pay a funding fee of 0.5% of the existing principal loan balance
A processing fee must be paid in advance, including a reasonable estimate for the cost of the credit report
Find out if you qualify for a VA loan. Start here
Finding assumable VA loans
There are several ways for home buyers to find an assumable VA loan.
Believe it or not, print media is still alive and well. Some home sellers advertise their assumable home for sale in the newspaper, or in a local real estate publication.
There are a number of online resources for finding assumable mortgage loans.
Websites like TakeList.com and Zumption.com give homeowners a way to showcase their properties to home buyers looking to assume a loan.
With the help of the Multiple Listing Service (MLS), real estate agents remain a great resource for home buyers.
This applies to home buyers specifically searching for assumable VA loans as well.
How do I apply for a VA loan?
You can easily and quickly have a lender pull your certificate of eligibility (COE) to make sure you’re able to get a VA loan.
Most mortgage lenders offer VA home loans. So you’re free to shop and compare rates with just about any company that catches your eye.
Getting a VA loan for your new home is similar in many ways to securing any other purchase loan. Once you find an ideal home in your price range, you make a purchase offer, and then undergo VA appraisal and underwriting.
VA appraisal ensures that the home meets its minimum property requirements (MPRs) and is structurally sound and safe for occupancy.
What’s more, VA-specific mortgage lenders are actually some of the highest-rated (and lowest-priced) on the market. Here are a few we’d recommend checking out.
Time to make a move? Let us find the right mortgage for you
Construction loans are short-term loans that you can use to build a new home.
Some construction loans can be converted to mortgages after your home is finished.
Construction loans typically have tougher criteria than conventional mortgages for existing homes.
If you can’t find the right home to buy, you might be thinking about building a house instead. Financing this type of project is somewhat different than getting a mortgage to move into an existing property. Instead of a mortgage, you take on a construction loan (also known as a construction mortgage). Here’s what to know about construction loans.
What are construction loans?
Construction loans are loans that fund the building of a residential home (aka a stick-built house), from the land purchase to the finished structure. Common types are a standalone construction loan — a short-term loan (generally with a year-long term) — which only finances the building phase, and a construction-to-permanent loan, which converts into a mortgage once the construction is done. Borrowers who take out a standalone construction loan often get a separate mortgage to pay it off when the principal falls due.
You can use a construction loan to cover such costs as:
The land
Contractor labor
Building materials
Permits
How do construction loans work?
The initial term on a construction loan generally lasts a year or less, during which time you must finish the project. Because construction loans work on such a short timetable and are dependent on the project’s progress, you (or your general contractor) must provide the lender with a construction timeline, detailed plans and a realistic budget. Based on that, the lender will release funds at various phases of the project, usually directly to the contractor.
Construction loan statistics
Construction loans typically require 20 percent down, at minimum.
As of the second quarter of 2023, commercial and non-commercial construction loan volume totaled $488.54 billion, according to S&P Global Market Intelligence.
Currently, the top five construction loan lenders, in terms of number of loans, are (in order): Wells Fargo, JP Morgan Chase, Bank of America, U.S. Bank and Bank OZK, reports S&P.
Construction loans vs. traditional mortgages
Beyond the cost and repayment timeline, construction loans and mortgages have a few main differences:
The funds distribution: Unlike mortgages and personal loans that provide funds in a lump-sum payment, the lender pays out the money for a construction loan in stages as work on the new home progresses. These draws tend to happen when major milestones are completed — for example, when the foundation is laid, or the framing of the house begins.
The repayments: With a mortgage, you start paying back the principal and interest right away. With construction loans, your lender will typically expect you to make interest payments only during the construction stage. Additionally, borrowers are typically only obligated to repay interest on any funds drawn to date until construction is completed.
Inspection/appraiser involvement: While the home is being built, the lender has an appraiser or inspector check the house during the various construction stages. As the work is approved, the lender makes additional payments to the contractor, known as draws. Expect to have between four and six inspections to monitor the progress.
Requirements: Construction loan requirements include being financially stable and having the ability to make a down payment. Lenders also want to see a construction plan, which you can read more about below.
Interest rates: Construction loan interest rates are typically higher than traditional mortgage rates. This is often because you’re not providing collateral to back the loan, which means the lender is taking on more risk.
Types of construction loans
There are different types of construction loans available to borrowers, which are designed to suit various financial needs.
Construction-to-permanent loan
With a construction-to-permanent loan, you borrow money to pay for the cost of building your home. Once the house is complete and you move in, the loan is converted to a permanent mortgage.
In essence, the loan becomes a traditional mortgage, typically with a loan term of 15 to 30 years. You can opt for a fixed-rate or an adjustable-rate mortgage.
Then, you start making payments that cover interest and the principal. (During the construction loan phase, your lender disburses the funds based upon the percentage of the project completed, and you’re only responsible for interest payments on the money drawn). While many construction loans are conventional loans — entirely privately originated and financed — there are government versions as well. Your other options include an FHA construction-to-permanent loan — with less-stringent approval standards that can be especially helpful for some borrowers — or a VA construction loan if you’re an eligible veteran.
Whatever the type, the big benefit of the construction-to-permanent approach is that you have only one set of closing costs to pay, reducing your overall expenses. “There’s a one-time closing so you don’t pay duplicate settlement fees,” says Janet Bossi, senior vice president at OceanFirst Bank in New Jersey.
Construction-only loan
A construction-only loan provides the funds necessary to build the home, but the borrower is responsible for repaying the loan in full at maturity (typically one year or less). You can settle the debt either in cash or by obtaining a mortgage to pay it off.
Construction-only loans can ultimately be costlier than their construction-to-permanent cousins, especially if you have to finance the repayment. That’s because you complete two separate loan transactions and pay two sets of fees. Closing costs tend to equal thousands of dollars, so it helps to avoid another set. And, of course, you have to invest time and energy shopping for a mortgage.
Another consideration: Your financial situation might worsen during the construction process. If you lose your job or face some other hardship, you might not be able to qualify for a mortgage later on — and might not be able to move into your new house.
Renovation loan
If you want to upgrade an existing home rather than build one, you can compare home renovation loan options. These come in a variety of forms depending on the amount of money you’re spending on the project.
“If a homeowner is looking to spend less than $20,000, they could consider getting a personal loan or using a credit card to finance the renovation,” says Steve Kaminski, head of U.S. Residential Lending at TD Bank. “For renovations starting at $25,000 or so, a home equity loan or line of credit may be appropriate, if the homeowner has built up equity in their home.”
Another viable option in a low mortgage rate environment is a cash-out refinance, whereby a homeowner would take out a new mortgage in a higher amount than their current loan and receive the extra as a lump sum. As rates tick up, though, cash-out refis become less appealing.
With any of these options, the lender generally does not require disclosure of how the homeowner will use the funds. The homeowner manages the budget, the plan and the payments. With other forms of financing, the lender will evaluate the builder, review the budget and oversee the draw schedule.
Owner-builder construction loan
Owner-builder loans are construction-to-permanent or construction-only loans in which the borrower also acts in the capacity of the home builder.
Most lenders won’t allow the borrower to act as their own builder because of the complexity of constructing a home and the experience required to comply with building codes. Lenders typically only allow it if the borrower is a licensed builder by trade.
End loan
An end loan simply refers to the homeowner’s mortgage once the property is built, says Kaminski. You use a construction loan during the building phase and repay it once the construction is completed. You’ll then have a regular mortgage to pay off, also known as the end loan.
“Not all lenders offer a construction-to-permanent loan, which involves a single loan closing,” says Kaminski. “Some require a second closing to move into the permanent mortgage, or an end loan.”
Construction loan rates
Unlike traditional mortgages, which carry fixed rates, construction loans usually have variable rates that fluctuate with the prime rate. That means your monthly payment can also change, moving upward or downward based on rate changes.
Construction loan rates are also typically higher than traditional mortgage rates. That’s partially because they’re unsecured (backed by an asset). With a traditional mortgage, your home acts as collateral — if you default on your payments, the lender can seize your home. With a home construction loan, the lender doesn’t have that option, so they tend to view these loans as bigger risks.
On average, you can expect interest rates for construction loans to be about 1 percentage point higher than those of traditional mortgage rates.
Construction loan requirements
The companies that offer construction loans usually require borrowers to:
Be financially stable. To get a construction loan, you’ll need a low debt-to-income ratio and proof of sufficient income to repay the loan. You also generally need a credit score of at least 680.
Make a down payment. You need to make a down payment when you apply for the loan, just as you do with most mortgages. The amount will depend on the lender you choose and the amount you’re trying to borrow to pay for construction, but construction loans usually require at least 20 percent down.
Have a construction plan. Lenders will want you to work with a reputable construction company and architect to come up with a detailed plan and schedule.
Get a home appraisal. Whether you’re getting a construction-only loan or a construction-to-permanent loan, lenders want to be certain that the home is (or will be) worth the money they’re lending you. The appraiser will assess the blueprints, the value of the lot and other details to arrive at an accurate figure. For construction-to-permanent loans, the home will serve as collateral for the mortgage once construction is complete.
How to get a construction loan
Getting approval for a construction loan might seem similar to the process of obtaining a mortgage, but getting approved to break ground on a brand-new home is a bit more complicated. Generally, you should follow these four steps:
Find a licensed builder: Lenders will want to know that your chosen builder has the expertise to complete the home. If you have friends who have built their own homes, ask for recommendations. You can also turn to the NAHB’s directory of local home builders’ associations to find contractors in your area. Just as you would compare multiple existing homes before buying one, it’s wise to compare different builders to find the combination of price and expertise that fits your needs.
Find a construction loan lender: Check with several experienced construction loan lenders to obtain details about their specific programs and procedures. If you have trouble finding a lender willing to work with you, check out smaller regional banks or credit unions. Compare construction loan rates, terms and down payment requirements to ensure you’re getting the best possible deal for your situation.
Get your documents together: A lender will likely ask for a contract with your builder that includes detailed pricing and plans for the project. Be sure to have references for your builder and any necessary proof of their business credentials. You will also likely need to provide many of the same financial documents as you would for a traditional mortgage, like pay stubs and tax statements, that offer proof of income, assets and employment.
Get preapproved: Getting preapproved for a construction loan can provide a helpful understanding of how much you will be able to borrow for the project. This can be an important step to avoid paying for plans from an architect or drawing up blueprints for a home that you will not be able to afford.
Get homeowners insurance: Even though you may not live in the home yet, your lender will likely require a prepaid homeowners insurance policy that includes builder’s risk coverage. This way, if something happens during the construction process — the halfway-built property catches on fire, or someone vandalizes it, for example — you are protected.
Construction loan FAQ
Construction loans cover the costs of building a home. Typically, that means the expenses associated with construction, such as contractor fees, labor and permits. But you can also use the funds to purchase land. However, construction loans do not cover design costs. If you want to hire a professional to design your home, you’ll need to cover that cost on your own.
Ask your lender how money gets disbursed from your loan amount. Some lenders allow for monthly draws, while others will only authorize a draw after a passed inspection. Inquire about any processes or documentation required to pull money from your construction loan so that you can pay the bills in a timely fashion as they come in.
Understanding this process — and ensuring your contractor does, too — can help to avoid delays because of insufficient funds.
There are benefits and drawbacks to construction loans. These types of loans tend to have higher interest rates than those associated with a mortgage, for instance. In addition, the funds provided by a construction loan are only released in stages as work on your home progresses rather than in a lump sum upfront. However, construction loans often only require interest payments while your home is being built, which can be easier on your budget. The loan terms may also be more flexible than those that come with a traditional loan.
Talk to your contractor and discuss the timeline of building the home and what sort of factors could slow down the job. Delays could result in changes to your loan’s interest rate, which can lead to higher payments. Delays can also lead to delays in fund disbursement for construction-only loans.
If your project takes longer than expected, work with your contractor to try to resolve any bottlenecks. You should also keep in touch with your lender to let them know what’s going on. Clear and consistent communication can help avoid major issues with the loan.
In general, it is harder to qualify for a construction loan than for a traditional mortgage. Most lenders require a credit score of at least 680 — which is higher than what you’d need for most conventional, VA and FHA loans. It’s also typical for lenders to ask for a minimum down payment of 20 percent on construction loans, so you may have trouble qualifying if you can’t get that much money together upfront.
Mortgage servicers, regulators and economists are closely watching the delinquency rates for Federal Housing Administration (FHA) loans following a spike in the fourth quarter of 2023.
Industry experts say that although there’s a correlation between unemployment and delinquency rates, some homeownership costs — including insurance — have increased significantly over the past two or three years, which has had a strong financial impact on homeowners. But experts also say the situation is not as bad as the one experienced during the COVID-19 pandemic.
The sources spoke about these issues during this week’s Mortgage Bankers Association (MBA) Servicing Solutions Conference & Expo in Orlando.
The latest MBA data shows that the delinquency rate for one- to four-unit properties rose to 3.88% at the end of 2023, compared to 3.62% in the third quarter, but still below the historic average of 5.25%. Meanwhile, the FHA-insured loan delinquency rate recorded a larger jump during the same period to 10.81%, up from 9.5%, the highest level since Q3 2021.
“We are seeing a bit of a pickup for two quarters in a row, but it’s very important to keep in mind that we were at the absolute lowest point in delinquencies in the third quarter of 2023,” Marina Walsh, MBA vice president of industry analysis, research and economics, said in a market outlook session.
According to Walsh, the delinquency rate for FHA loans increased by 130 basis points from the third to fourth quarters, but the current level is “certainly not nearly where it was at the height of COVID-19.”
In addition, she said that foreclosures are not picking up, so borrowers are either paying off their loans before entering the severe delinquency stage, or if they are in the serious delinquency stage, they are entering a workout.
“The question I posed to all of you is, ‘Is this a blip or a bigger trend?’” Walsh said, adding that based on data MBA has received from the industry, she believes the delinquency rate could come down a bit in first-quarter 2024 following the end of the busy holiday shopping season.
“All these increases in costs impact people’s ability to pay, without question,” Steven R. Bailey, senior managing director and chief servicing officer at PennyMac Financial Services, said in an executives’ perspective session. “But we still see the strongest correlation is between unemployment and delinquency.”
Bailey said that although increases in delinquencies are not a trend that servicers want to see, “I don’t look at it with the same fear that I used to look like.”
Homeowners insurance
According to industry experts, one of the costs affecting homeowners is their insurance, which can lead to increases in delinquencies. California and Florida are among the states where the situation is more evident.
Seven of the 12 largest insurers in California have either paused or restricted new policies over the past 18 months, including State Farm and Allstate. In September, the state’s top insurance regulator announced that new rules are in the works to persuade insurers to remain.
In Florida, the departure of many insurers and reinsurers has resulted in homeowners paying an average of nearly $4,000 a year, almost three times the U.S. average, according to estimates from the Insurance Information Institute. In some instances, homeowners have seen their insurance costs more than triple, but a new bill seeks to help them.
“That’s a combination of both rates from a carrier perspective, as well as just the increase in home values,” Patrick A. Sullivan, vice president of industry relations and compliance at Assurant, said in a session about homeowners insurance.
Sullivan said reinsurance is another factor weighing on homeowners insurance costs, a function of the global capital markets. He added that reinsurance costs have more than tripled over the past three years.
“Homeowners insurance is certainly a problem we need to tackle together,” John Bell, executive director of loan guaranty service at the U.S. Department of Veteran Affairs (VA), said during a regulatory session.
“I hope that there are others on this panel and others out there that want to work together to try to solve some of those rising prices that our homeowners just can’t absorb, and at some point in time, it’s going to hurt the market.”
Bell said that if a home costs $800 per month more than last year, the industry needs to figure out how to solve it. Bell and the VA are working to move forward with options to help veterans avoid foreclosure, including a partial claim solution.
FHA Commissioner Julia Gordon, who announced the agency’s new payment supplement partial claim during the conference, added that the issue of homeowners insurance will take a village to tackle.
“And that’s going to take real work in the states also, which is hard, and we just have to do it if we want people to be protected,” Gordon said.
Mortgage rates rose for all types of loans compared to a week ago, according to data compiled by Bankrate. Rates for 30-year fixed, 15-year fixed, 5/1 ARMs and jumbo loans moved higher.
Mortgage rates could gradually come down this year, according to Greg McBride, CFA, Bankrate chief financial analyst. As the Federal Reserve stopped raising rates in 2023, mortgages rates started to drop at the end of Q4. At its Jan. 31 meeting, the central bank announced it would hold off changing rates and pointed to three rate cuts this year. Rate hikes and cuts affect many areas of the economy, including 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 as of February 14, 2024.
The rates listed above are averages based on the assumptions here. Actual rates available within the site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Wednesday, February 14th, 2024 at 7:30 a.m.
30-year fixed-rate mortgage moves up, +0.15%
The average rate for a 30-year fixed mortgage for today is 7.25 percent, up 15 basis points over the last week. Last month on the 14th, the average rate on a 30-year fixed mortgage was lower, at 7.01 percent.
At the current average rate, you’ll pay principal and interest of $682.18 for every $100,000 you borrow. That’s an additional $10.15 per $100,000 compared to last week.
The 30-year mortgage is the most popular option for borrowers. It has a number of advantages. Among them:
Lower monthly payment: Compared to a shorter term, such as 15 years, the 30-year mortgage offers lower, more affordable payments spread over time.
Stability: With a 30-year fixed mortgage, you lock in a set principal and interest payment, making it easier to plan your housing expenses for the long term. Remember: Your monthly housing payment can change if your homeowners insurance premiums and property taxes go up or, less likely, down.
Buying power: With lower payments, you might qualify for a larger loan amount or a more expensive home.
Flexibility. Lower monthly payments can free up some of your monthly budget for other goals, like building an emergency fund, contributing to retirement or college tuition, or saving for home repairs and maintenance.
15-year fixed mortgage rate advances, +0.13%
The average rate for the benchmark 15-year fixed mortgage is 6.61 percent, up 13 basis points from a week ago.
Monthly payments on a 15-year fixed mortgage at that rate will cost around $877 per $100,000 borrowed. The bigger payment may be a little tougher to find room for in your monthly budget than a 30-year mortgage payment, but it comes with some big advantages: You’ll come out several thousand dollars ahead over the life of the loan in total interest paid and build equity much faster.
5/1 adjustable rate mortgage moves higher, +0.03%
The average rate on a 5/1 ARM is 6.14 percent, rising 3 basis points over the last week.
Adjustable-rate mortgages, or ARMs, are mortgage terms that come with a floating interest rate. To put it another way, the interest rate will change at regular intervals, unlike fixed-rate mortgages. These types of loans are best for those who expect to refinance or sell before the first or second adjustment. Rates could be considerably 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 6.14 percent would cost about $609 for each $100,000 borrowed over the initial five years, but could ratchet higher by hundreds of dollars afterward, depending on the loan’s terms.
Jumbo loan interest rate advances, +0.16%
The average rate you’ll pay for a jumbo mortgage is 7.32 percent, up 16 basis points over the last week. This time a month ago, the average rate for jumbo mortgages was lesser at 7.06 percent.
At the current average rate, you’ll pay a combined $686.93 per month in principal and interest for every $100,000 you borrow. That’s up $10.85 from what it would have been last week.
Mortgage refinance rates
30-year mortgage refinance advances, +0.09%
The average 30-year fixed-refinance rate is 7.28 percent, up 9 basis points from a week ago. A month ago, the average rate on a 30-year fixed refinance was lower at 7.22 percent.
At the current average rate, you’ll pay $684.21 per month in principal and interest for every $100,000 you borrow. Compared with last week, that’s $6.10 higher.
Where are mortgage rates heading?
At its meeting concluding Jan. 31, the Federal Reserve announced it was maintaining its current rate due to a resilient economy and strong jobs numbers. Policymakers also signaled the potential for three rate cuts in 2024.
“Inflation is coming down faster than has been expected but that will need to be sustained before the Fed feels comfortable cutting short-term interest rates,” says McBride. “Easing inflation pressures will help mortgage rates now, no waiting.”
Still, don’t expect rates to change drastically anytime soon.
“The budget deficit remains high, and the various inflation metrics remain above the comfort level,” says Lawrence Yun, Chief Economist with the National Association of Realtors. “That means the mortgage rates will likely be in the 6 percent to 7 percent range for most of the year.”At its meeting concluding Jan. 31, the Federal Reserve announced it was maintaining its current rate due to a resilient economy and strong jobs numbers. Policymakers also signaled the potential for three rate cuts in 2024.
“Inflation is coming down faster than has been expected but that will need to be sustained before the Fed feels comfortable cutting short-term interest rates,” says McBride. “Easing inflation pressures will help mortgage rates now, no waiting.”
Still, don’t count on mortgage rates plummeting in the near future.
“The budget deficit remains high, and the various inflation metrics remain above the comfort level,” says Lawrence Yun, Chief Economist with the National Association of Realtors. “That means the mortgage rates will likely be in the 6 percent to 7 percent range for most of the year.”
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.
What current rates mean for you and your mortgage
While mortgage rates change daily, it’s unlikely we’ll see rates back at 3 percent anytime 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.
To help you uncover the best deal, get 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?”
More on current mortgage rates
Methodology
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.
When closing on your home, you signed loan documents agreeing to specific mortgage terms. One of those documents likely included an agreement to maintain continuous homeowners insurance coverage. If your insurance lapses or gets canceled, your lender may step in and obtain lender-placed insurance (LPI) — also known as forced-placed insurance — to safeguard the property.
Let’s dive deeper into LPI’s role, how it works, and how you can potentially avoid it.
Understanding Lender-Placed Insurance
Several factors are causing insurance carriers to suspend new policies or not renew existing ones in areas they have deemed “high-risk.” Rising disaster losses, construction costs, reinsurance rates and restrictive state regulatory environments are to blame in areas like Florida, Louisiana, and California. This trend is leaving some homes unprotected.
Borrowers with lapsed or canceled homeowners policies or with policies deemed insufficient will be subject to a lender-placed insurance plan. It’s a policy paid for by the borrower.
What Is Lender-Placed Insurance?
A lender-placed insurance policy is a policy that’s added to your mortgage if there’s a lapse in insurance coverage safeguarding your home. The lender is placing a policy to ensure the property remains protected. This limited insurance typically comes with a higher cost and provides less coverage than a policy you can obtain on your own. For example, it does not protect against losses to personal property.
When and Why Is LPI Implemented?
Lenders utilize LPI to bridge any insurance gaps and uphold the continuous coverage required by your home loan agreement. This coverage ensures that the property remains protected, safeguarding the lender’s financial stake in it. The cost of LPI is debited from the escrow account and collected in the monthly mortgage payment.
Key Players Involved
Mortgage companies, insurance providers and borrowers all play distinct roles in the lender-placed insurance process.
Lenders
Uphold the homeowner’s requirement to maintain homeowners insurance
Initiate LPI to protect the home and their financial investment in the property
Charge and collect premiums, which are added to the homeowner’s escrow account, resulting in an increased mortgage payment amount
Insurance Providers
Provide LPI coverage at the request of a lender
Manage LPI policies, including collecting premiums from the lender, processing claims and maintaining coverage
Ensure compliance with applicable laws and regulations
Borrowers
Are responsible for maintaining adequate homeowners insurance coverage to protect their property and comply with the mortgage agreement
Should communicate with the lender to ensure the lender has the most up to date insurance information
Seek assistance from an insurance company, agent, or broker if they are facing challenges securing insurance
How Lender Placed Insurance Works
Borrowers need to understand the importance of fulfilling their obligation to maintain homeowners insurance. Here’s an overview of the steps involved when a borrower does not maintain the required property coverage:
Lenders regularly monitor a borrower’s insurance coverage. Upon discovering a lapse or inadequacy in the homeowner’s insurance, they will initiate the process of obtaining LPI. A lender typically will first notify the homeowner before purchasing LPI, and then will send a Certificate of Coverage to inform the homeowner once LPI is in place.
The LPI premiums are added to the homeowner’s mortgage balance, increasing the monthly mortgage payments. These premiums are often much higher than those of standard homeowners insurance.
Lenders will maintain LPI coverage until the homeowner secures adequate homeowners insurance.
Once the homeowner obtains satisfactory homeowners insurance, the lender discontinues LPI coverage and the associated charges from the escrow account.
Triggers for LPI Placement
Lenders initiate lender-placed insurance when there is a lapse in the required insurance coverage on a property that serves as collateral for a loan. Common situations that trigger this include:
1. Expired or Canceled Homeowners Insurance
If the existing insurance policy on the property lapses or is canceled, leaving the property uninsured, the lender may initiate LPI.
Why would a policy be canceled? Insurers may drop homeowners insurance for a variety of reasons. Often, underwriting standards change, and insurers decide not to cover properties in certain areas. Policies can also be canceled due to non-payment of premiums, frequent or fraudulent claims, or changes in property usage, such as turning a home into a rental property.
2. Incorrect Mortgagee Listed
LPI also may be triggered when the insurance company does not have the lender listed as the mortgagee. It is important to list the correct mortgagee so the insurance company can send automatic renewals directly to the lender.
3. Inadequate Coverage
A lender may impose LPI if a borrower does not obtain or maintain the insurance coverage required by the loan agreement. A great example of this is wind coverage. If a homeowner’s policy excludes wind, it may be deemed insufficient, requiring them to obtain a separate policy or additional coverage.
The Role of Lender-Placed Insurance
The primary role of lender-placed insurance is to protect the home and the lender’s investment in the property by ensuring it’s adequately insured against potential losses due to damage or destruction. It’s a backup measure if the homeowner does not maintain their homeowners insurance policy.
Cost and Coverage
There are significant differences between standard homeowners insurance and LPI in terms of coverage, costs and flexibility.
Comparison with Standard Homeowners Insurance
Coverage Limits and Scope: LPI provides limited coverage, often only covering the dwelling or sometimes only up to the mortgage balance. Standard homeowners insurance usually offers broad coverage, including liability, personal property and additional living expenses.
Premiums. LPI is often more expensive than insurance obtained directly by the borrower. That’s because homeowners have the flexibility to choose their own insurer and policy with regular homeowners insurance. Whereas lenders do not have the same ability to negotiate lower premiums for lender-placed insurance, as they are not the policyholders.
Flexibility: Standard insurance is chosen by the borrower, so the homeowner has more flexibility in deciding which provider and policy to select. With LPI, the lender has to select the insurer and policy, which may not be the best fit for each borrower.
Risks and Controversies
LPI is not uncommon but it does come with drawbacks, so reputable lenders make efforts to help homeowners avoid it. Some reasons to avoid LPI include:
Higher costs, which can place a financial burden on homeowners
Less comprehensive coverage than standard insurance, which leaves homeowners insurance with less protection in case of a loss
Lack of control since the lender chooses the LPI policy and terms
It’s important to note that LPI is considered a protective, backup measure. Lenders typically prefer that homeowners maintain their own insurance policies.
Alternatives to Lender Placed Insurance
It’s always in your best interest to maintain your own insurance policy, as it’s more affordable and provides more coverage. However, when necessary, LPI serves to fill gaps in coverage to keep the home protected. Let’s look at some strategies for potentially avoiding lender-placed insurance.
Maintain Homeowners Insurance or Replace as Soon as Possible
Homeowners should maintain their standard homeowners insurance policy. If your insurance lapses or is canceled, replace the required insurance on your property as soon as possible and send proof of insurance to us. Pennymac will update your insurance information within 3-5 business days from the time we receive the request and insurance confirmation. Once completed, the new insurance information will be displayed in the Escrow section of your online account.
Exploring Other Insurance Options
If you’re denied coverage due to being in a “high-risk” area, talk to your neighbors about what insurance companies they use. If you’re moving into a new home, your lender or real estate agent may suggest options. If you still need help securing insurance, find out if you live in a state that offers FAIR (Fair Access to Insurance Requirements) plans.
FAIR plans are government-mandated property insurance plans that provide coverage to individuals and businesses who can’t obtain insurance in the regular market. These plans typically include basic coverage for properties considered high-risk or difficult to insure due to factors such as location, age or type of construction.
If you’re turned down or non-renewed by your current insurance company or are otherwise in need of coverage, you may apply for coverage under the FAIR Plan through an agent or broker licensed to sell FAIR property insurance. You may want to contact your insurance agent/company to understand exactly what is and isn’t covered under the FAIR plan.
Keep in mind, though, that while FAIR plan insurance policies can be a lifeline for those with no other options, they may be costly and may offer limited coverage. It’s optimal to try to maintain your own homeowners insurance policy to adequately protect your interests and assets. If you have to carry a FAIR plan, talk to your insurance agent/company about obtaining supplemental coverage that may not be covered under the FAIR plan.
Communication and Transparency
Communication and transparency are essential for both the borrower and the lender. You should notify the insurance company promptly if you encounter difficulties maintaining mandatory insurance. Prompt and proactive communication can give you time to explore options that may help you avoid LPI.
Your lender also will be committed to ensuring you are promptly notified and receive information that is helpful regarding costs and coverage, and they should be available to help if you have concerns.
Take Steps to Avoid Lender-Placed Insurance
At Pennymac, our goal is to help you take action to avoid lender-placed insurance. If you’re facing a possible lapse of sufficient homeowners insurance coverage, visit mycoverageinfo.com/pennymac for information that can potentially help you avoid the extra expense and reduced coverage of LPI.
Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.