Uncommon Knowledge
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Families who manage to save up for a down payment and get approved for a mortgage often get an unwelcome surprise: closing costs that all too often are full of junk fees. Closing costs are the fees you pay on the day you finalize the purchase of your home, and they include things like title insurance, credit report and appraisal fees, origination fees, and more. The Consumer Financial Protection Bureau (CFPB) is working to ensure that consumers can navigate the closing process more easily, shop around, and save money.
While home prices and interest rates often command our attention, closing costs also contribute to borrowers’ monthly burdens. One measure of closing costs is total loan costs. Total loan costs include origination fees, appraisal and credit report fees, title insurance, discount points, and other fees. From 2021 to 2022, median total loan costs rose sharply, increasing by 21.8 percent on home purchase loans.
In 2022, the median amount paid by borrowers was nearly $6,000 in these costs and fees. That’s a substantial upfront cost on what is already a major financial undertaking. Homeowners can choose to pay closing costs out of pocket, but that can reduce their down payment amount. Lenders sometimes give borrowers a “credit” to cover closing costs, but then charge the borrower a higher interest rate on the mortgage. Sometimes sellers pay closing costs but increase the sale price on the home. Often, closing costs are simply rolled into the total loan amount, racking up interest for the life of the loan. Borrowers who can’t bring cash to the table often have to pay more, through higher interest rates or mortgage insurance payments.
Many of these costs are fixed and do not fluctuate with interest rates or change based on the size of the loan. As a result, they have an outsized impact on borrowers with smaller mortgages, such as lower income borrowers, first-time homebuyers, and borrowers living in Black and Hispanic communities. A 2021 study found that nearly 15 percent of lower income homebuyers had closing costs that exceeded the amount of their down payment.
We are paying particular attention to the recent rise in discount points. A higher percentage of borrowers reported paying discount points in 2022 than any other years since this data point was first reported in 2018. In 2022 about 50.2 percent of home purchase borrowers paid some discount points, up from 32.1 in 2021. Borrowers are also paying more in discount points. The median discount points paid for home purchase loans in 2022 was $2,370 in 2022, up from $1,225 in 2021. Lenders sell discount points to borrowers to reduce interest rates. These points may not always save borrowers money, however, and may indeed add to borrowers’ costs. The CFPB is continuing to monitor market trends in this area.
It appears that some closing costs are high and increasing because there is little competition. Borrowers are required to pay for many of the costs associated with closing a home loan but cannot pick the provider and do not benefit from the service. In many cases, the lender simply picks from a very small universe of providers, and the costs are then passed on to the borrower.
Lender’s title insurance is one example of a fee borrowers face at closing where the borrower has no control over cost. Title insurance is meant to protect against someone else laying claim to a borrower’s property. A lender’s title insurance policy protects only the lender against these possible claims, not the borrower. Instead of paying this fee themselves, lenders make borrowers pay the cost. The amount that borrowers pay for lender’s title insurance is often much greater than the risk.
Fees for credit reports are another example. The credit reporting industry is highly concentrated, with just a handful of dominant players dictating the price of credit reports and scores. Borrowers pay the fee for lenders to pull credit reports for each loan applicant from three nationwide credit reporting companies. Mortgage lenders have recently reported steep increases in the price of the scores and reports used for mortgage underwriting. The CFPB has heard reports of recent costs spiking 25 percent to as much as 400 percent. At the same time, we estimate that nationwide credit reporting companies made over $1.3 billion annually. These steep increases in a market that lacks competition and choice warrant further scrutiny.
The CFPB is tackling housing affordability using all our tools. We are working on:
In the coming months, the CFPB will continue working to analyze mortgage closing costs, seek public input and, as necessary, issue rules and guidance to improve competition, choice, and affordability. We will also continue using our supervision and enforcement tools to make it safer for people to purchase homes and to hold companies accountable when they violate the law. Our research findings and market insights guide our work, as well as information from consumers that helps us better understand how issues like mortgage closing costs affect households and families.
If you have problem with your mortgage or closing costs and need a response from a company, you can submit a complaint with the CFPB. If you don’t need a response from the company and want to share your experience with us, you can tell your story.
Source: consumerfinance.gov
President Joe Biden has proposed an annual tax credit that would give Americans $400 a month for the next two years to put towards their mortgages.
Addressing the affordability crisis in the housing market in his State of the Union address on Thursday, Biden said: “I know the cost of housing is so important to you. Inflation keeps coming down, and mortgage rates will come down as well.
“But I’m not waiting. I want to provide an annual tax credit that will give Americans $400 a month for the next two years as mortgage rates come down, to put towards their mortgage when they buy their first home, or trade up for a little more space.”
Home prices skyrocketed during the pandemic, driven by relatively low mortgage rates, high demand and low inventory. At their peak, the median listed price for a home in the U.S. reached $465,000 in June 2022, according to data from the Federal Reserve Bank of St. Louis (FRED).
While the housing market experienced a price correction between late summer 2022 and spring 2023, prices remain historically high, propped up by lingering low supply. In June 2023, the median listed price for a home in the U.S. was $448,000. As of January 2024, this was $409,500, according to data from FRED.
While home prices have stayed high for the past three years, a rise in mortgage rates driven by the Federal Reserve’s aggressive hike rate campaign last year has led to many aspiring homebuyers being completely squeezed out of the market. In December last year, the reserve said that it would have stopped rising rates, but mortgages are yet to significantly come down.
High mortgage rates, together with the historic shortage of homes in the U.S.—due to the fact that the country hasn’t built enough homes to meet demand since the housing crash of 2008—have contributed to the current affordability crisis.
In late 2023, J.P. Morgan said that, based on then-current trends, housing affordability could be restored in 3.5 years. Newsweek contacted J.P. Morgan for comment by email on Friday morning.
Biden is now calling on Congress to provide a one-year tax credit of up to $10,000 to middle-class families who sell their starter home—a home below the median home price of the area where it is located—to another owner or occupant. The White House said that this proposal could help nearly 3 million American families.
On Friday, Biden’s announcement on the tax credit was met with a standing ovation and roaring applause by Democratic lawmakers, while about half of the House stayed seated.
The president also mentioned other measures to address the housing affordability crisis in the U.S. These included down-payment assistance for first-generation homeowners, tax credit to build more housing, and lowering costs by building and preserving millions of homes.
“My administration is also eliminating title insurance on federally backed mortgages,” Biden told lawmakers on Friday.
“When you refinance your home, you can save $1,000 or more as a consequence. We’re cracking down on big landlords who break antitrust laws by price-fixing and driving up rents. We’ve cut red tape, so builders can get federal financing,” the president said among the cheering of some lawmakers.
Update, 3/8/24, 8 a.m. ET: The headline on this article was updated.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Source: newsweek.com
Over the life of a $350,000 mortgage with a 7% interest rate, borrowers could expect to pay from $216,229 to $488,233 in total interest, depending on whether they opt for a 15-year or 30-year loan term. But the actual cost of a mortgage depends on several factors, including the interest rate, and whether you have to pay private mortgage insurance.
Besides interest, homebuyers need to account for a down payment, closing costs, and the long-term costs of taxes and insurances that are included in a $350,000 mortgage payment.
When you finance a home purchase, you have to pay back more than the borrowed amount, known as the loan principal. The total cost of taking out a $350,000 mortgage is $838,281 with a 30-year term at a 7% interest rate. This comes out to $488,233 worth of interest, assuming there aren’t any late monthly mortgage payments or pre-payments.
When you buy a home, there are usually some upfront costs you’ll have to pay, too. Mortgages often require a down payment, calculated as a percentage of home purchase price, that’s paid out of pocket to secure financing from a lender. The required amount varies by loan type and lender, but average down payments range from 3% – 20%.
Closing costs, including home inspections, appraisals, and attorney fees, represent another upfront cost for real estate transactions. They typically sum up to 3% to 6% of the loan principal, or $10,500 to $21,000 on a $350,000 mortgage.
The total down payment on $350,000 mortgages also impacts the total cost of taking out a home loan. Unless buyers put 20% or more down on a home purchase, they’ll have to pay private mortgage insurance (PMI) with their monthly mortgage payment. The annual cost of PMI is generally between 0.5% – 1.5% of the loan principal. Borrowers can get out of paying PMI with a mortgage refinance or when they reach 20% equity in their home. If this is your first time in the housing market, consider reading up on tips to qualify for a mortgage.
💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.
The monthly payment on a $350K mortgage won’t always be the same amount. You’ll need to factor in your down payment, interest rate, and loan term to estimate your $350,000 mortgage monthly payment.
With a 30-year loan term and 7% interest rate, borrowers can expect to pay around $2,328 a month. Whereas a 15-year term at the same rate would have a monthly payment of approximately $3,146. However, these estimates only account for the loan principal and interest. Monthly mortgage payments also include taxes and insurances, but these costs can differ considerably by location and based on a home’s assessed value.
There are also different types of mortgages to consider. Whether you opt for a fixed vs adjustable-rate mortgage, for instance, will affect your monthly payment.
To get a clearer idea of what your monthly payment might be with different down payments and loan terms, try using a mortgage calculator.
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Homebuyers have many options in terms of lenders, including banks, credit unions, mortgage brokers, and online lenders.
The homebuying process can be stressful, so it may be tempting to go with the first mortgage offer you receive. However, shopping around and getting loan estimates from multiple lenders lets you choose the one that’s the most competitive and cost-effective.
Even a fraction of a percentage point difference on an interest rate can add up to thousands in savings over the life of a mortgage. Besides the interest rate, assess the fees, terms, and closing costs when comparing mortgage offers.
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When taking out a mortgage, it’s important to consider the total cost of the loan. You’ll need cash on hand for a down payment and closing costs, plus sufficient income and funds to cover the monthly payment and other homeownership costs.
Before applying for a $350,000 mortgage, crunching the numbers in a housing affordability calculator can give a better understanding of how these costs will work with your finances.
It’s also helpful to see how $350,000 mortgage monthly payments are applied to the loan interest and principal over the life of the loan. The majority of the monthly mortgage payment goes toward interest rather than paying off the loan principal, as demonstrated by the amortization schedules below.
Here’s the mortgage amortization schedule for a 30-year $350,000 mortgage with a 7% interest rate — which would amount to $488,233 in interest. For comparison, we’ve also included the mortgage amortization schedule for a 15-year $350,000 mortgage with a 7% interest rate. A $350,000 mortgage payment, 15 years’ out, would add up to $216,229 in interest. When weighing a 30-year vs 15-year loan term, the shorter loan term carries a higher monthly payment but less than half the total interest over the life of the loan.
Amortization Schedule, 30-year Mortgage at 7%
Year | Beginning Balance | Total Interest Paid | Total Principal Paid | Remaining Balance |
---|---|---|---|---|
1 | $350,000 | $24,386 | $3,555 | $346,425 |
2 | $346,425 | $24,129 | $3,812 | $342,613 |
3 | $342,613 | $23,853 | $4,088 | $338,525 |
4 | $338,525 | $23,558 | $4,383 | $334,142 |
5 | $334,142 | $23,241 | $4,700 | $329,442 |
6 | $329,442 | $22,901 | $5,040 | $324,402 |
7 | $324,402 | $22,537 | $5,404 | $318,998 |
8 | $318,998 | $22,146 | $5,795 | $313,203 |
9 | $313,203 | $21,717 | $6,214 | $306,989 |
10 | $306,989 | $21,278 | $6,663 | $300,326 |
11 | $300,326 | $20,796 | $7,145 | $293,182 |
12 | $293,182 | $20,280 | $7,661 | $285,520 |
13 | $285,520 | $19,726 | $8,215 | $277,306 |
14 | $277,306 | $19,132 | $8,809 | $268,497 |
15 | $268,497 | $18,496 | $9,446 | $259,051 |
16 | $259,051 | $17,813 | $10,128 | $248,923 |
17 | $248,923 | $17,081 | $10,861 | $238,062 |
18 | $238,062 | $16,295 | $11,646 | $226,417 |
19 | $226,417 | $15,454 | $12,488 | $213,929 |
20 | $213,929 | $14,551 | $13,390 | $200,539 |
21 | $200,539 | $13,583 | $14,358 | $186,181 |
22 | $186,181 | $12,545 | $15,396 | $170,784 |
23 | $170,784 | $11,432 | $16,509 | $154,275 |
24 | $154,275 | $10,238 | $17,703 | $136,573 |
25 | $136,573 | $8,959 | $18,982 | $117,590 |
26 | $117,590 | $7,586 | $20,355 | $97,236 |
27 | $97,236 | $6,115 | $21,826 | $75,409 |
28 | $75,409 | $4,537 | $23,404 | $52,006 |
29 | $52,006 | $2,845 | $25,096 | $26,910 |
30 | $26,910 | $1,031 | $26,910 | $0 |
Amortization Schedule, 15-year Mortgage at 7%
Year | Beginning Balance | Total Interest Paid | Total Principal Paid | Remaining Balance |
---|---|---|---|---|
1 | $350,000 | $24,065 | $13,684 | $336,296 |
2 | $336,296 | $23,076 | $14,673 | $321,624 |
3 | $321,624 | $22,015 | $15,733 | $305,890 |
4 | $305,890 | $20,878 | $16,871 | $289,020 |
5 | $289,020 | $19,658 | $18,090 | $270,929 |
6 | $270,929 | $18,351 | $19,398 | $251,531 |
7 | $251,531 | $16,948 | $20,800 | $230,731 |
8 | $230,731 | $15,445 | $22,304 | $208,427 |
9 | $208,427 | $13,832 | $23,916 | $184,510 |
10 | $184,510 | $12,103 | $25,645 | $158,865 |
11 | $158,865 | $10,249 | $27,499 | $131,366 |
12 | $131,366 | $8,261 | $29,487 | $101,879/td> |
13 | $101,879 | $6,130 | $31,619 | $70,260 |
14 | $70,260 | $3,844 | $33,904 | $36,355 |
15 | $36,355 | $1,393 | $36,355 | $0 |
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To qualify for a $350,000 mortgage, borrowers will need to meet the income, credit, and down payment requirements. It’s also important to have an adequate budget for long-term housing costs and other financial goals and obligations like savings and debt.
Using the 28/36 rule, a monthly mortgage payment shouldn’t be more than 28% of your monthly gross income and 36% of your total debt to be considered affordable. With a $2,328 monthly mortgage payment, you’d need a minimum gross monthly income of at least $8,300, or annual income of $96,600, to follow the 28% rule. Similarly, your total debt could not exceed $660 to keep housing and debt costs from surpassing 36%.
Home mortgage loans, with the exception of certain government-backed loans, require a minimum credit score of 620 to qualify. However, a higher credit score can help secure more competitive rates. If you qualify as a first-time homebuyer, you could get a FHA loan with a credit score of 500 or higher, though borrowers with a credit score below 580 will have to make a 10% down payment.
As mentioned above, it’s a good idea to compare lenders and loan types to find the most favorable rate and loan terms. From there, getting preapproved for a home loan is a logical next step to determine the loan amount and interest rate you qualify for. It also puts you in a better position to demonstrate you’re a serious buyer when making an offer on a property.
After putting in an offer, completing the mortgage application requires many of the same forms used for preapproval, plus an earnest money deposit.
💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.
Buying a home is the largest purchase many Americans make in their lifetime. How much you’ll end up paying for a $350,000 mortgage depends on the interest rate and loan term. On a $350,000 mortgage, the monthly payment can range from $2,328 to $3,146 based on these factors.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
The cost of a $350,000 monthly mortgage payment is influenced by the loan term and interest rate. On a $350K mortgage with 7% interest, the monthly payment ranges from $2,328 to $3,146 depending on the loan term.
Income requirements can vary by lender. But using the 28/36 rule, a borrower who isn’t burdened by lots of other debts should make $99,600 a year to afford the monthly payment on a $350,000 mortgage.
The down payment amount depends on the loan type and lender terms. FHA loans require down payments of 3.5% or 10%, while buyers could qualify for a conventional loan with as little as 3% down.
It may be possible to afford a $350,000 house with a $70,000 salary, but only if you are able to make a sizable down payment to lessen the amount of money you need to borrow. Having a good credit score and minimal debt would also better your chances.
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
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Source: sofi.com
Roughly 72% of potential homebuyers say homeownership would be financially feasible if mortgage rates fell below 5%, according to a recent survey from Realtor.com. That means mortgage rates would need to drop by at least 2% to unlock today’s unaffordable housing market.
But there’s a problem. Major forecasts don’t call for mortgage rates to slip under 6% until 2025.
Between last November and early January, the average rate for a 30-year fixed mortgage, the most popular home loan type, fell from a high of 8.01% to the mid-6% range, according to Bankrate, CNET’s sister site. However, throughout February, rates have gone up and kept steady at around 7.25%.
Though mortgage rates aren’t expected to fall dramatically this year, any dip is good news for homebuyers. If home loan rates manage to reach the low-6% range by the end of the year, it would increase housing affordability for a large number of families who have been stuck on the sidelines.
Will 6% be the magic mortgage rate to kick-start the housing market? Or will we need to wait for 5% rates a year from now? Here’s what experts are saying.
The recent surge in mortgage rates was fueled by hotter-than-expected inflation and labor data, which sent the 10-year Treasury yield (a key benchmark for the 30-year fixed mortgage rate) higher. But in some ways, rates were just recalibrating to an appropriate level.
“Investors got a little ahead of themselves in terms of expectations for lower rates this year,” said Keith Gumbinger, vice president of mortgage site HSH.com. Given the state of the economy — like sticky inflation and the Federal Reserve’s reactive monetary policy — financial markets may have been overly optimistic in projecting when interest rate cuts would start.
After nearly two years of aggressive interest rate hikes to tame inflationary pressures, the Fed signaled in December it would likely cut rates three times in 2024. Though the Fed doesn’t directly set mortgage rates, a lower federal funds rate, combined with cooler inflation, would help mortgage rates go down.
Overall forecasts still project mortgage rates to decline, but exactly when and by how much is murkier. Before adjusting the federal funds rate, the central bank wants to see inflation steady at its 2% year-over-year target.
Even if economic data points to a slowdown, mortgage rate movement will likely be slow and gradual, so 5% rates aren’t in the cards this year.
Read more: Mortgage Predictions: How Labor Data Could Impact Mortgage Rates in 2024
Mortgage rates tend to be volatile and preemptive. Rate movement depends not on what’s happening now, but on what investors and lenders believe will happen in the future, according to Orphe Divounguy, senior economist at Zillow Home Loans.
“Today’s mortgage rates, to some extent, already reflect expectations of slowing economic growth and future Fed rate cuts,” Divounguy said.
While next month’s economic data could change the equation, expectations for mortgage rates haven’t changed much. Rates in the low-6% range are still possible in 2024, just not in time for the spring homebuying season.
“If we’ve learned anything over the past few years, it is that mortgage rates and other financial conditions can shift rapidly as conditions change. My base expectation is that mortgage rates will decline more gradually and not break below 6% in 2024.”
“As the Federal Reserve holds interest rates steady before beginning to slowly cut rates in May, the spread on the 30-year fixed-rate loan and the 10-year Treasury bond will normalize, and mortgage rates gradually will fall. That said, forecasting mortgage rates is challenging, and near-term volatility is likely. While the rate will trend lower, there is uncertainty in the month-to-month movement in rates.”
“A 6-8% range can be a possible outcome if inflation remains stickier and higher than expectations, and the Fed does not cut until much later than the second half of this year. If the soft landing scenario occurs, then we could see a range closer to 5-7% once the Fed starts to cut rates later in 2024.”
“I don’t think present conditions change the overall forecast for mortgage or other interest rates all that much, but sustained higher economic growth or more persistent inflation would.”
Today’s mortgage rates feel high, even if they’re not in a broad historical sense.
Most prospective first-time homebuyers have witnessed low rates over the past decade, especially when they hit rock bottom in the 2% to 3% range during the pandemic. Current buyers likely weren’t on the market for a home in the 1980s, when rates peaked above 18%.
What’s considered an affordable mortgage rate depends on your financial situation. Broadly speaking, a good mortgage rate is generally at or below the national average. The median 30-year mortgage rate since 1971 is 7.4%, according to Freddie Mac.
For many homeowners, the mortgage rate they start with is only temporary: They refinance to a lower rate when mortgage rates drop.
Mortgage rates feel so high nowadays because of the housing market’s overall affordability crisis. Home prices keep rising, inflation is cutting into wages, and debt from credit cards and student loans continue to chip away at savings. All those factors combined have put homeownership out of reach for middle-income and low-income Americans.
If you’ve been waiting for rates to plummet before buying a home, doing some basic calculations might change your perspective. Yes, a 6% mortgage is higher than just four years ago. But it’s still a better deal than an 8% or even 7% mortgage rate.
Does a 1% drop in mortgage rates make a difference in your monthly payment? The answer is yes. What about a 2% drop? Even more.
Using CNET’s mortgage calculator, we did the math to demonstrate what a 1% or 2% difference can make on your home loan payment. In the chart above, we assumed a 20% down payment on a $500,000 home, making a total loan amount of $400,000 with a 30-year fixed term comparing a 6%, 7% and 8% rate.
Getting a home loan at a 6% interest rate versus a 7% rate gives you savings of $263 a month. That’s $3,156 a year and $94,683 in total interest over the life of your loan.
The savings are even bigger when comparing a 6% interest rate with an 8% rate: The lower rate saves you $537 per month, $6,444 per year and $193,267 in total interest paid.
Pro Tip: Even if you’re getting a lower interest rate, pay attention to lender fees and other costs. Excessive fees or mortgage “discount” points are often hidden and can offset the savings.
For example, a lender might advertise a below-average rate, let’s say 6%. But that’s often based on the borrower having an excellent credit score and paying discount points in exchange for that low rate, which can cost thousands of dollars upfront. Each mortgage discount point results in a 0.25% decrease in your rate but will typically cost 1% of the loan amount.
While it’s important to keep track of current mortgage rate trends, the best thing to do is focus on doing things like improving your credit score, paying off debt and saving for a bigger down payment.
Many mortgage lenders advertise lower-than-average interest rates. But to qualify for those low rates, you’ll need to have excellent credit, a low debt-to-income ratio and (typically) a down payment of at least 20%.
Experts also recommend comparing loan offers from at least two different mortgage lenders to help you secure the best deal.
Source: cnet.com
First-time home buyers worrying about housing affordability face two obstacles: high home prices and high mortgage rates.
Home prices have continued to rise in over 85% of U.S. cities, and according to a recent Redfin report, a homebuyer must earn $115,000 to afford a typical home, which is $40,000 more than the average American household earns.
One way for this gap to correct is for mortgage rates to go down, but this is something that Bank of America Corp. (NYSE:BAC) CEO Brian Moynihan does not foresee anytime soon.
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Compared to historical mortgage rates today’s rates might not be so bad, Moynihan said. People likely will get used to mortgage rates of 6% to 7%, given that mortgage rates were over 18% in the 1980s during the Federal Reserve’s inflation-fighting efforts, he told CNBC.
Given this backdrop, Moynihan argues that today’s mortgage rates are more normal than during the unorthodox rate policy in the 15 years after the Great Financial Crisis, saying, “For 15 years, we had no real rate structure, you know, rate structure in the United States and around the world.”
For consumers hoping to catch a break with lower mortgage rates, Goldman Sachs signals caution as well.
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It extended its first expected rate cut past the Fed’s May meeting after Federal Reserve policymakers have pushed back on the market’s expectation of rate cuts this year, citing a need to see more consistent evidence of inflation stabilizing around the 2% target.
However, lower mortgage rates influenced by future Fed cuts aren’t the only way buyers can hope for a lower rate.
U.S. consumers have been able to afford homes by purchasing newly built houses from home builders that have been willing to buy down buyers’ mortgage rates to allow them to afford them. Homebuilders cannot wait for the Fed to lower rates to continue their business in the same way an individual homebuyer might be more willing to wait.
About 75% of homebuilders are offering mortgage rates lower than a homebuyer could get from a traditional financial institution, according to John Burns Research & Consulting. Whether the trend of homebuilders aggressively buying down mortgage rates to encourage home sales is set to continue is up for debate, but one big investor has shaken up his portfolio regarding homebuilder stocks.
Warren Buffett’s Berkshire Hathaway Inc. has recently been optimistic about the prospects of U.S. homebuilders, disclosing its stake in three major companies in the second quarter of 2023: D.R. Horton Inc. (NYSE:DHI), NVR Inc. (NYSE:NVR) and Lennar Corp. (NYSE:LEN).
However, Buffett switched course quickly on D.R. Horton, which was once his largest homebuilder stock. In the fourth quarter last year, Berkshire Hathaway announced it sold out of D.R. Horton while keeping both NVR and Lennar.
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Source: finance.yahoo.com
Mortgage rates continued their upward trend this week, nearing 7% and piling on the unaffordability crisis that threatens to dampen the typical spring buying frenzy.
Freddie Mac’s latest Primary Mortgage Market Survey released Thursday showed that the average rate on the benchmark 30-year fixed mortgage climbed to 6.9% this week, up from 6.77% last week. The average rate on a 30-year loan was 6.50% a year ago.
The rate on the 15-year fixed mortgage also increased, averaging 6.29% after coming in last week at 6.12%. One year ago, the rate on the 15-year fixed note averaged 5.76%.
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“Historically, the combination of a vibrant economy and modestly higher rates did not meaningfully impact the housing market,” Freddie Mac chief economist Sam Khater said in a statement. “The current cycle is different than historical norms, as housing affordability is so low that good economic news equates to bad news for homebuyers, who are sensitive to even minor shifts in affordability.”
Buying activity tends to pick up in the spring following slower winter months, but elevated rates and sky-high home prices have stalled the housing market as more would-be buyers and sellers are priced out or opting not to move.
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“Recent surges in new listing activities suggested that we might have a busy spring ahead,” said Realtor.com economist Jaiyi Xu. “However, the recent increase in mortgage rates has the potential to slow the market by disrupting the plans of many buyers, especially in a market where a significant number of consumers are anticipating lower mortgage rates, not higher.”
Robert Frick, a corporate economist at Navy Federal Credit Union, says rates are climbing because the futures markets have temporarily lost faith in the Federal Reserve cutting the federal funds rate soon, and in a “higher for longer” scenario that means higher mortgage rates, too.
“But market expectations can turn on a dime, and are always just one Fed meeting or data drop away from shifting,” Frick told FOX Business. “We saw that mortgage rates around 7% in January actually boosted existing home sales, and if rates fall below 6% this year, as many forecast, home sales volume should accelerate.”
Original article source: Mortgage rates rise again, threatening to slow spring housing market
Source: aol.com
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The economy has been doing surprisingly well so far this year, and it’s pushing mortgage rates back up.
Average 30-year mortgage rates rose 13 basis points to 6.90% this week, according to Freddie Mac. This is the closest this rate has been to 7% since mid-December.
Average 15-year mortgage rates also increased to 6.29% this week, a 17-point jump.
“Strong incoming economic and inflation data has caused the market to re-evaluate the path of monetary policy, leading to higher mortgage rates,” Sam Khater, Freddie Mac’s chief economist, said in a press release. “Historically, the combination of a vibrant economy and modestly higher rates did not meaningfully impact the housing market. The current cycle is different than historical norms, as housing affordability is so low that good economic news equates to bad news for homebuyers, who are sensitive to even minor shifts in affordability.”
Once the Federal Reserve starts lowering the federal funds rate, mortgage rates are expected to go down as well. But the Fed is waiting for more data showing that inflation is coming down sustainably. Based on the data we’ve seen so far, we might not get a Fed cut until later this year.
Currently, investors believe that we won’t see the Fed cut rates until June at the earliest, according to the CME FedWatch Tool. And depending on how inflation continues to trend, we may need to wait even longer.
This means we may be in for a much more subdued homebuying season than what was initially expected. If you’re committed to buying a home this year even if rates remain high, you may benefit from less competition on the market.
But if you’re waiting for rates to drop before you buy, it may be wise to use this time to pad your down payment savings, so when the time comes to jump into the market, you’re able to make strong, competitive offers.
Mortgage type | Average rate today |
Mortgage type | Average rate today |
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By clicking on “More details,” you’ll also see how much you’ll pay over the entire length of your mortgage, including how much goes toward the principal vs. interest.
Mortgage rates started ticking up from historic lows in the second half of 2021 and increased dramatically in 2022 and throughout most of 2023.
Many forecasts expect rates to fall this year now that inflation has been coming down. In the last 12 months, the Consumer Price Index rose by 3.1%, a significant slowdown compared when it peaked at 9.1% in 2022. But we’ll likely need to see more slowing before rates can drop substantially.
For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease. Check out some of our best HELOC lenders to start your search for the right loan for you.
A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you’d do with a cash-out refinance.
Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans.
We aren’t likely to see home prices drop this year. In fact, they’ll probably rise.
Fannie Mae researchers expect prices to increase 3.20% in 2024 and 0.30% in 2025, while the Mortgage Bankers Association expects a 4.10% increase in 2024 and a 3.30% increase in 2024.
Sky high mortgage rates have pushed many hopeful buyers out of the market, slowing homebuying demand and putting downward pressure on home prices. But rates have since eased, removing some of that pressure. The current supply of homes is also historically low, which will likely push prices up.
House prices usually drop during a recession, but not always. When it does happen, it’s generally because fewer people can afford to purchase homes, and the low demand forces sellers to lower their prices.
A mortgage calculator can help you determine how much house you can afford. Play around with different home prices and down payment amounts to see how much your monthly payment could be, and think about how that fits in with your overall budget.
Typically, experts recommend spending no more than 28% of your gross monthly income on housing expenses. This means your entire monthly mortgage payment, including taxes and insurance, shouldn’t exceed 28% of your pre-tax monthly income.
The lower your rate, the more you’ll be able to borrow, so shop around and get preapproved with multiple mortgage lenders to see who can offer you the best rate. But remember not to borrow more than what your budget can comfortably handle.
Source: businessinsider.com
Mortgage rates continued their ascension toward 7% this week, raising doubts about the approaching spring homebuying season.
The 30-year fixed-rate mortgage averaged 6.90% as of Feb. 22, an increase from last week’s figure of 6.77%, according to Freddie Mac’s Primary Mortgage Market Survey released on Thursday.
Meanwhile, the 15-year fixed rate averaged 6.29% this week, up from 6.12% during the prior week. And HousingWire’s Mortgage Rates Center showed that Polly’s average 30-year fixed rate for conventional loans was 7.19% on Thursday, up from 7.09% at the same time last week.
“Strong incoming economic and inflation data has caused the market to re-evaluate the path of monetary policy, leading to higher mortgage rates,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
“Historically, the combination of a vibrant economy and modestly higher rates did not meaningfully impact the housing market. The current cycle is different than historical norms, as housing affordability is so low that good economic news equates to bad news for homebuyers, who are sensitive to even minor shifts in affordability.”
Even though the Federal Reserve’s Federal Open Market Committee (FOMC) expressed cautious optimism at its meeting in January, policymakers are in no rush to apply rate cuts in 2024. In the FOMC minutes released on Wednesday, members of the committee indicated that no cuts should be expected until the rate-setting body held “greater confidence” that inflation was receding.
Recent surges in new listings bode well for a strong homebuying season this spring. But rising mortgage rates could disrupt the plans of many rate-sensitive buyers, especially in a market where consumers were anticipating lower mortgage rates, according to Realtor.com economist Jiayi Xu.
“Consequently, it is crucial for homebuyers to safeguard their budget against rate fluctuations by utilizing a mortgage calculator to comprehend the impact of mortgage rate changes on their payments and purchasing plans,” Xu said in a statement.
Source: housingwire.com
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