Hovnanian: Higher Mortgage Rates Will Just Lead to Smaller Homes

Posted on July 2nd, 2013

During an interview with CNBC this morning, Ara Hovnanian of K. Hovnanian Homes expressed that he’s not worried about higher mortgage rates hurting the housing market.

In fact, the mega home builder’s CEO actually thinks we’re in the “early innings” of the housing recovery, noting that housing starts are still way below the expected average for this decade.

He said we’re currently at a pace of around 900,000 annual starts, up from 500,000 just two years ago, but nowhere close to the 1.5-1.6 million expected.

At the same time, mortgage rates are still insanely cheap, as I pointed out yesterday.

Hovnanian recalled conditions back in 1983, when mortgage rates averaged 13.4% and housing starts were at a staggering 1.7 million.

So if you look at things from a mortgage rate point of view, there’s not enough supply to keep up with demand.

That would explain some of the recent home price gains, which are slated to keep increasing at a steady clip.

All in all, he didn’t seem too concerned about mortgage rates rising, so long as they don’t rise by some obscene amount in a short period of time.

Funnily enough, he actually called for 3% mortgage rates back in 2008 to solve the problem of supply and demand. Looks like he got his wish…

Customers Want Bigger Homes While Rates Are Cheap

At the moment, Hovnanian says customers have been buying the largest of their offerings, perhaps because housing is so affordable.

In fact, they’ve had to design larger homes to add to their lineup to keep up with that trend.

In Houston, customers can buy a 4,000 square foot home for $250,000, which is pretty darn huge (and cheap).

Seeing that rates on the 30-year fixed are averaging close to 4.5%, you’d be looking at a monthly mortgage payment of just over $1,000 if you put 20% down.

So it’s no wonder people will go bigger if they can. But if rates rise to say 5.5%, Hovnanian said the same customer might go with a 3,000 square feet house. If rates really shoot up, he said customers could even settle for a townhouse instead.

In other words, he doesn’t think higher mortgage rates will cool the housing market per se, they will just dictate what prospective buyers can afford.

[Check out my mortgage payment graphs to assess affordability.]

People Need Shelter…

Hovnanian seems to believe that the need for shelter is what’s driving the market recovery, though you have to wonder if it’s just that pesky bubble mentality creeping back in, what with home prices still “on sale” and rates so attractive.

Of course, inventory constraints seem to be the real issue, and Hovnanian is clearly pleased that the private equity funds are buying up scores of single-family homes throughout the United States.

Thanks to the likes of Blackstone and Colony American Homes, demand for his company’s homes is probably that much higher.

And he doesn’t think they’ll flip the homes they buy – conversely, he sees them holding and renting for years to come, and slowly unloading as prices rise.

However, he does think managing such a large number of homes will be challenging.

Finally, Hovnanian weighed in on potential winning real estate markets throughout the country, naming both Northern and Southern California, along with Phoenix and “many of the land-constrained Florida markets.”

Other winners in his eyes included Washington D.C., New Jersey, and suburban New York.

Of course, this should all be taken with a grain of salt, seeing that he’s the head of a major home building company. But he does have some decent points about rates and supply.

Maybe there is a lot more upside ahead, so long as the distressed inventory doesn’t rear its ugly head.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Home Buyers Are More Worried About Rising Mortgage Rates than Prices

Posted on July 10th, 2013

A new survey from Trulia revealed that rising mortgage rates are the chief concern among those who plan to buy a home sometime in the future.

The company polled 2,000 people in late June after the uptick in mortgage rates, and found that 41% said their biggest worry was mortgage rates rising before they closed on their home purchase.

Amazingly, it beat out of the next biggest concern, which was rising home prices. Only 37% of respondents listed that as their number one issue, which tells you how important low mortgage rates are to consumers these days.

The third biggest concern for prospective buyers was simply finding a suitable property to purchase, seeing that inventory is so poor at the moment.

13% Believe a Mortgage Rate at 4% Is Already Too Expensive

Perhaps the Fed went too far in its quest to push mortgage rates lower, as it seems to have led to a major distortion of reality.

In fact, 13% of those surveyed by Trulia indicated that a 4% mortgage rate was enough to discourage a home purchase. Talk about being bearish on housing…

For the record, mortgage rates on the 30-year fixed are already around 4.5% or higher, so we know some would-be buyers are apparently out already.

And another fifth of respondents said a 5% mortgage rate would push them out of the game, or at least discourage them.

If rates were to rise to 6%, another 22% said they’d be discouraged to buy a home.

Taken together, more than half of those surveyed (56%) would be lukewarm about a home purchase if rates shot up to 6%, which is a historically low rate and more than realistic over the next several years.

After all, rates hovered around that level for much of the 2000s, so returning to 6% wouldn’t be all that unheard of.

For renters who plan to buy a home eventually, 62% said they’d be discouraged if rates hit 6%.

Talk about spoiling consumers with super low mortgage rates.

[Check out mortgage payments at different rates.]

Did the Low Mortgage Rates Create a False Recovery?

As far as I’m concerned, this calls into question the validity of the supposed housing recovery we’ve all been so convinced about lately.

Yes, housing has improved on a number of fronts, with both distressed and non-distressed inventory down considerably, and mortgage delinquencies lower.

But do we only have the artificially low mortgage rates to thank for that? Did the low rates alone convince more homeowners to stay put, as opposed to walk away? And did they push more would-be buyers to scoop up homes when housing was completely unfashionable?

I hate to say it, but without mortgage rates on the clearance rack, this housing recovery may have never taken flight.

As others have noted, home prices relative to income are still historically high, meaning it is only the low mortgage rates that making housing affordable today.

And if rates rise back to historical norms, monthly mortgage payments wouldn’t be cheap compared to renting in many markets.

Sure, they’d have to rise to 7% to make the median home unaffordable, per Freddie Mac, but that doesn’t mean it would make sense to buy a home. And most hot markets are already unaffordable, even with the low rates.

Unfortunately, home prices have already shot back to recent highs in a lot of markets, so if rates also continue to rise, things won’t be so rosy anymore.

Perhaps we’re looking at a major housing cool-down over the next few years, now that the low rate party is over, and prices aren’t nearly as cheap as they once were.

So if you can come to terms with less-than-stellar home price appreciation, maybe that new home is for you. Just don’t buy with the sole expectation of exponential home price gains. They may have already come and gone.

Read more: Home prices vs. mortgage rates

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Prospective Buyers Are Beginning to Walk Away from Home Purchases

Last updated on August 29th, 2018

Over the past few years, the term “walking away” was synonymous with strategic default. In short, homeowners who were underwater on their mortgages had very little hope of turning things around.

As a result, they would simply walk away from the property (and the mortgage), accepting whatever consequences came with that. Typically, a big fat credit hit and the need to find a new place to dwell.

Interestingly, some of these same borrowers now qualify for mortgages again because so many years have passed since that phenomenon began.

And those able to prove extenuating circumstances, such as a temporary job loss that led to a short sale or foreclosure (or even bankruptcy) can now get an FHA loan just one year later.

So despite many calling the mortgage market too conservative, there are ample opportunities for those with checkered pasts to obtain financing.

The New Walk Away Is an Affordability Thing

I cautioned a while back that affordability was set to fall off a cliff, given the dramatic rise in mortgage rates, coupled with higher asking prices.

And now it’s causing would-be home buyers to walk away from deals. A new Bloomberg report cites several examples where prospective buyers are backing out because of affordability concerns.

One couple in Seattle thought they could afford a $400,000 home because that’s what the math told them back in February when their home search began.

Today, their housing payment is roughly $300 higher than it would have been had they closed before rates surged. As a result, they’re looking at a smaller home instead.

Another family in Portland tried to back out of a home purchase because rates have both increased their proposed housing payment and made it more difficult to sell their existing home. Talk about a double whammy.

This is apparently a trend, according to a Redfin economist cited in the article, who said a lot of agents are dealing with buyers who were in escrow that can no longer afford to buy. All the more reason to make sure your buyer is qualified, even if rates go up.

One Redfin agent said his client is waiting to buy in fall once competition dies down, though there’s the risk that interest rates could be even higher then. And prices.

[First Sign of Mortgage Rate Impact as New Home Sales Disappoint]

Just How Bad Are the Higher Mortgage Rates?

You’d think that a couple hundred dollars wouldn’t derail someone’s ability to qualify for a loan, but apparently it does.

When it comes down to it, DTI ratios limit how much a prospective homeowner can afford, so those on the cusp can easily run into trouble if they don’t lock their rate at the outset when they may have been originally pre-approved.

I created some mortgage payment charts to quickly eyeball interest rate changes and their impact on monthly payments.

For smaller loan amounts, the difference in payment is still pretty minimal. On a $200,000 loan amount, the monthly mortgage payment on a 30-year fixed at 4.5% versus 3.5% is only about $115 more.

On a $500,000 loan, the difference jumps to nearly $300, which is a bit more devastating to the old wallet.

This probably explains why homeowners are either looking for smaller and/or cheaper homes, or considering the use of hybrid ARMs, such as the 5/1 or 10/1 to keep payments at bay.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Pros and Cons of Refinancing Your Mortgage Right Now

Since April 1, 2009, roughly 16.2 million American homeowners have refinanced their mortgages, according to the latest Housing Scorecard released by HUD.

But as you may or may not know, there are still millions of homeowners who have not, for one reason or another.

Some may not be eligible, while others may be going through foreclosure or have simply given up on making payments.

[Reasons why you can’t refinance.]

And hey, some just may have procrastinated, or simply aren’t that interested in their mortgage.

For example, Obama hasn’t refinanced his mortgage in seven years, but Bernanke has been all about it in recent years.

If you look at the chart below, you’ll notice that refinancing has been pretty steady since the lull in 2008 (when lending came to a standstill), but it’s still nowhere close to that seen in 2003 when things were bubbling up toward implosion.

refinanced

Yet, mortgage rates are at all time lows, and continue to fall seemingly every week, month, etc., not that anyone seems to care.

So if you’re on the fence about refinancing, let’s look at a few pros and cons of refinancing now vs. later.

Con: Home Prices Rising

Home prices have been on the rise for a while now, and are expected to keep climbing nationwide.

The Housing Scorecard also noted that rising property values have brought homeowner equity to its highest point since the third quarter of 2008.

That pushed 1.3 million homeowners out of an underwater position. That’s great for those looking to refinance, as it should make it easier.

equity

But higher home prices also make refinancing even more attractive to those with equity because their loan-to-value ratio may fall to a lower threshold, pushing their qualifying mortgage rate even lower.

So for those who believe their home value will keep increasing, pumping the brakes on refinancing might be a good move, especially if you’re right on the cusp of a LTV threshold such as 80%, where you can ditch mortgage insurance.

Pro: Record Low Rates

On the flip side of that argument, one could argue that mortgage rates are at unprecedented levels, and you’d be a fool not to refinance now.

After all, what if mortgage rates tick higher and you “miss your chance” at snagging a 30-year fixed near 3%?

You might kick yourself a few times for missing the boat. And how low can mortgage rates really fall?

Con: Even Lower Rates

Well, the housing pundits have said that month after month, and week after week, only to grab their erasers and pretend they didn’t call a mortgage rate bottom.

I’ll admit that I’ve been one of those people.

Yes, rates are absurdly low, but no, they probably haven’t bottomed. There is still so much uncertainty out there that can push rates even lower.

Europe is still unraveling, and whether there has been much improvement locally is still a big question mark.

With the Fed pledging to buy mortgage securities until the cows come home, waiting could pay off.

Pro: Lower Payments Today

But, the longer you wait to refinance, the more you’ll pay each month in the form of a higher interest rate.

So if you keep riding it out, waiting for that perfect time to refinance, you’re essentially missing out on a lower payment during those months (or years).

Make sure you factor in all that money once you finally make the decision to refinance. The savings could be skewed as a result.

Con: Big Picture Savings

Of course, you might just say, “hey, I might be spending more each month now, but once I get a 2.50% 30-year fixed, I’ll be ahead in no time.”

That could be true, and someone who waits a bit longer could wind up with an even better rate and a lower monthly payment, which could spell bigger savings over the years ahead.

[Locking vs. floating]

After all, refinancing costs money (unless it’s a no cost loan), and serially refinancing isn’t always possible (nor fun), especially if your credit takes a hit or something else makes you ineligible.

Pro: You’re Eligible Now

Speaking of, if you’re eligible now, and the interest rate is dynamite, letting it ride might not be the best move.

What if something does bar your eligibility, such as unemployment, a mindless missed payment that leads to a lower credit score, or simple program changes?

There’s been talk about all types of stuff on the horizon, like a qualified mortgage, which Romney mentioned in the first presidential debate.

You wouldn’t want to be caught out by a future change or misstep, would you?

In summary, you can’t really go wrong by refinancing right now, assuming it saves you money, but yes, waiting could prove to be better.

In any case, take the time to really think it over!

Source: thetruthaboutmortgage.com

Mortgage Rate History: Check Out These Charts from the Early 1900s

Last updated on February 5th, 2019

Today we’ll take a brief look at some mortgage rate history to gain a little context. It’s always helpful to know what came before so you can better guess what might come after.

Just about everyone knows that mortgage rates hit all-time record lows over the past year. But do you know what mortgage rates were like in the 1900s?

The 30-year fixed averaged 3.31% during the week ending November 21, 2012, its lowest point in history.

Later, the 15-year fixed hit the lowest point ever, sinking to 2.56% during the week ending May 2, 2013.

Freddie Mac’s Mortgage Rate Statistics Started in 1971

historic mortgage rates

  • Most mortgage rate statistics are tied to Freddie Mac’s archive
  • Unfortunately, it only goes back to the year 1971
  • I wanted to drill down a bit deeper to see what things were like
  • Prior to the 70s and earlier on the century to gain more perspective

Both figures above come from Freddie Mac’s Primary Mortgage Market Survey, which only dates back to 1971.

For the record, back in April of 1971, the first month they began tracking 30-year fixed mortgage rates, the national average was 7.31%.

It went as high as 18.45% in October 1981 and as low as 3.31% in November 2012. That’s quite a range.

Note that the graph above charts rates based on their January average of each year, so it appears they don’t exceed 18%.

The 15-year fixed has only been tracked by Freddie Mac since September 1991, when rates averaged 8.69%.  In that same month the 30-year fixed averaged 9.01%.

Anyway, I remember a while back when fixed rates were in the low 4% range that the media was going on about how rates hadn’t been this low since the 1950s.

I never really took the time to see how low rates were back then, but I finally decided to do some digging to get a little more information.

A Little Bit of Mortgage Rate History

  • Mortgage rate history stretches back nearly a century
  • But the best records only go back to the early 1970s
  • The 30-year fixed gained in popularity around the 1950s
  • And rates reached a low around 1945 before hitting new lows in 2012

That brought me to several out-of-print volumes from the National Bureau of Economic Research, which seems to have the best records out there.

Unfortunately, the details are still quite murky at best. You see, back then there were different types of mortgages, not like the ones used today.

While I don’t know when the very first 30-year fixed mortgage was created and issued (someone please tell me), they were believed to become widespread in the 1950s, which is why media references that decade.

Before that time, it was common for entities like commercial banks and life insurance companies to issue short-term balloon mortgages, often with terms as short as three to five years, which would be continually refinanced and never paid off.

These loans were also underwritten at LTV ratios around 50%, meaning it was pretty difficult to get a home loan.

Later, once the Great Depression struck, home prices nosedived and scores of foreclosures flooded the housing market because no one could afford to make large payments on their mortgages, especially if they didn’t have jobs.

Then came FDR’s New Deal, which included the Home Owners’ Loan Corporation (HOLC) and the National Housing Act of 1934, both of which aimed to make housing more affordable.

The HOLC, established in 1933, could explain why long-term fixed-rate mortgages are in existence today.

The purpose of the HOLC was to refinance those old balloon mortgages into long-term, fully amortized loans, with terms typically ranging from 20 to 25 years.

Rates Came Down as Loan Terms and LTVs Increased

  • Homeownership became more affordable over time
  • Thanks to lower interest rates
  • Longer loan terms
  • And higher LTVs (lower down payments)

A year later, the FHA and the Federal Savings and Loan Insurance Corporation were created, and in 1938, Fannie Mae was born. All of these entities essentially expanded credit availability and led to more liberal lending standards.

Over time, mortgage interest rates came down while LTV ratios and loan terms increased, as you can see from the charts below.

Historical Mortgage Rates

early 1900s lending

While it’s hard to get an apples-to-apples comparison of mortgage rates before the advent of the 30-year fixed, the National Bureau of Economic Research does have a chart detailing rates from 1920 to 1956.

From about 1920 until 1934, conventional mortgage rates averaged close to 6%, and then began to decline to a low point of just under 4.5%. This is probably the reference point the media uses when they say rates haven’t been this low in 60 years.

Mortgage Rates in the 1920s to 1950s

  • We see a steady drop in interest rates
  • From around 1935 to 1945
  • Before rates began their ascent
  • Perhaps as the result of World War II ending

early 1900s mortgage rates

However, it’s unclear what types of mortgages these were over this extensive time period, and when the 30-year fixed actually became the standard. But it does provide for a little bit of context.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Freddie Chief Economist ‘Pretty Certain’ 30-Year Fixed Mortgage Rates Will Hit 5% by Mid-2014

Last updated on August 27th, 2018

During the latest radio interview with Real Estate Today Radio, Freddie Mac Vice President and Chief Economist Frank Nothaft weighed in on the direction of mortgage rates, as he normally does for his own company.

While he typically speaks about rates in the past tense, host Gil Gross pressed him to make a prediction about where mortgage rates might be headed in the near future, in an edition fittingly titled, “The Five Percent Show.”

Specifically, he asked Nothaft if mortgage rates would hit five percent, a seemingly important psychological threshold, and if so, when.

Here’s what Nothaft said, after joking that it’d be a lot easier to simply answer the first part of the question, and not so much the when part:

I don’t believe it will be this year. But I do feel pretty certain that it will be sometime in 2014. So if you were to try to pin me down, I would say by the middle of 2014 we will already see 30-year fixed rate mortgage rates up around five percent.

Nothaft sounded pretty confident that long-term fixed mortgage rates would make their way up to 5% by next year, though he did hold out hope for the rest of 2013.

Even if they do rise to 5%, it would mean less than a half a percentage point (0.43%) increase from current levels, which certainly isn’t the end of the world given how low rates are.

However, it’s important to note that 30-year fixed mortgage rates haven’t averaged more than 5% since April of 2010.  On a $300,000 mortgage, the difference in monthly payment would be about $100.

Nothaft’s sentiment echoed that of Fannie Mae chief economist Doug Duncan, who cautioned back in June that mortgage rates wouldn’t come back down.

But Could Mortgage Rates Actually Fall Again?

Despite most pundits taking the safe route and betting on higher rates, one website that tracks mortgage rates actually forecasts them to drop fairly significantly.

The website Forecasts.org tracks Freddie Mac’s rates using what they say is independent, objective, and global data, which relies on a “long-range economic dataset” to generate forecasts using artificial intelligence.  Got all that?

Their latest forecast for 30-year fixed rates puts them at 4.02% in February 2014, down about a half-point from current levels.

And in the preceding months, rates are forecast to slowly trickle down from current levels throughout the rest of the year.

I thought this was a bit hard to believe, so I used the Wayback Machine to look at archives of prior predictions on Forecasts.org.

What I found was a June 1 snapshot that forecast the 30-year fixed to average 3.26% in August and 3.17% in September.

We all know that didn’t happen, not even close. Other forecasts were also kind of off as well. But if it were that easy to predict the future, the world would be a very different place.

So is Nothaft smarter than the computer? I guess we’ll have to wait and see.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Mortgage Rate Shopping: 10 Tips to Get a Better Deal

Last updated on December 8th, 2020

Looking for the best mortgage rates? We’ve all heard about the super-low mortgage rates available, but how do you actually get your hands on them?

When it’s all said and done, it never seems to be as low as the bank originally claimed, which can be pretty frustrating or even problematic for your loan closing.

But instead of worrying, let’s try to find solutions so you too can take advantage of these remarkable interest rates.

There are a number of ways to find the best mortgage rates, though a little bit of legwork on your behalf is definitely required.

After all, you’re not buying a TV, you’re buying a home or refinancing an existing, probably large home loan.

best mortgage rate

If you’re not willing to put in the work, you might be disappointed with the rate you receive. But if you are up for the challenge, the savings can make the relatively little time you put in well worth it.

The biggest takeaway is shopping around, since you can’t really determine if a mortgage rate is any good without comparing it to others.

Many prospective and existing homeowners simply gather one quote, typically from a friend or real estate agent’s reference, and then kick themselves later for not seeing what else is out there.

Below are 10 tips aimed at helping you better navigate the shopping experience and ideally save some money.

1. Advertised mortgage rates generally include points and are best-case scenario

You know those mortgage rates you see on TV, hear about on the radio, or see online. Well, most of the time they require you to pay mortgage points.

So if your loan amount is $200,000, and the rate is 3.75% with 1 point, you have to pay $2,000 to get that rate. And there may also be additional lender fees on top of that.

It’s important to understand that you’re not always comparing apples to apples if you look at interest rate alone.

For example, lenders don’t charge the same amount of fees, so clearly rate isn’t the only thing you should look at when shopping.

Additionally, these advertised mortgage rates are typically best-case scenario, meaning they expect you to have a 760+ credit score and a 20% down payment. They also expect the property to be a single-family home that will be your primary residence.

If any of the above are not true, you can expect a much higher mortgage rate than advertised.

Are you showing the lender you deserve the lowest rate, or simply demanding it because you feel entitled to it? Those who actually present the least risk to lenders are the ones with the best chance of securing a great rate.

2. The lowest mortgage rate may not be the best

Most home loan shoppers are probably looking for the lowest interest rate, but at what cost? As noted above, the lowest interest rate may have steep fees and/or require discount points, which will push the APR higher and make the effective rate less desirable.

Be sure you know exactly what is being charged for the rate provided to accurately determine if it’s a good deal. And consider the APR vs. interest rate to accurately gauge the cost of the loan over the full loan term.

Lenders are required to display the APR next to the interest rate so you know how much the rate actually costs. Of course, APR has its limitations, but it’s yet another tool at your disposal to take note of.

3. Compare the costs of the rate offered

Along those same lines, you need to compare the costs of securing the loan at the par rate, versus paying to buy down the rate.

For example, it may be in your best interest to take a slightly higher rate to cover all your closing costs, especially if you’re cash-poor or simply don’t plan on staying in the home very long.

If you won’t be keeping the mortgage for more than a year or two, why pay points and a bunch of closing costs out of pocket. Might as well take a slightly higher rate and pay a tiny bit more each month, then you can get rid of the loan. [See: No cost refinance]

Conversely, if you plan to hunker down in your forever home and can obtain a really low rate, it might make sense to pay the fees out-of-pocket and pay points to lower your rate even more. After all, you’ll enjoy a lower monthly payment as a result for many years to come.

4. Compare different loan types

When comparing pricing, you should also look at different loan types, such as a 30-year vs. 15-year. If it’s a small loan amount, you might be able to refinance to a lower rate and barely raise your monthly payment.

For example, if you’re currently in a 30-year home loan at 6%, dropping the rate to 2.75% on a 15-year fixed won’t bump your mortgage payment up a whole lot. And you’ll save a ton in interest and own the home much sooner, assuming that’s your goal.

And as mentioned, if you only plan to stay in the home for a few years, you can look at lower-rate options, such as the 5/1 ARM, which come with rates that can be much lower than the 30-year fixed. If you’ll be out of there before the loan ever adjusts, why pay for the 30-year fixed?

5. Watch out for bad recommendations

However, don’t overextend yourself just because the bank or broker says you’ll be able to pay off your mortgage in no time at all.

They may recommend something that isn’t really ideal for your situation, so do your research before shopping. You should have a good idea as to what loan program will work best for you, instead of blindly following the loan officer’s opinion.

It’s not uncommon to be pitched an adjustable-rate mortgage when you’re looking for a fixed loan, simply because the ultra-low rate and payment will sound enticing. Or told the 30-year fixed is a no-brainer, even though you plan to move in just a few years.

6. Consider banks, online lenders, credit unions, and brokers

I always recommend that you shop around and compare lenders as much as possible. This means comparing mortgage rates online, calling your local bank, a credit union, and contacting a handful of mortgage brokers.

If you stop at just one or two quotes, you may miss out on a much better opportunity. Put simply, don’t spend more time shopping for your new couch or stainless-steel refrigerator. This is a way bigger deal and deserves a lot more time and energy on your part.

Your mortgage term is probably going to be 30 years, so the decision you make today can affect your wallet for the next 360 months, assuming you hold your loan to term. Even if you don’t, it can affect you for years to come!

7. Research the mortgage companies

Shopping around will require doing some homework about the mortgage companies in question. When comparing their interest rates, also do research about the companies to ensure you’re dealing with a legitimate, reliable lender that can actually get your loan closed.

A low rate is great, but only if it actually funds! There are lenders that consistently get it done, and others that will give you the runaround or bait and switch you, or just fail to make it to the closing table because they don’t know what they’re doing.

Fortunately, there are plenty of readily accessible reviews online that should make this process pretty simple. Just note that results will vary from loan to loan, as no two mortgage loans or borrowers are the same.

You can probably take more chances with a refinance, but if it’s a purchase, you’ll want to ensure you’re working with someone who can close your loan in a timely manner. Otherwise a seemingly good deal could turn bad instantly.

8. Mind your credit scores

Understand that shopping around may require multiple credit pulls. This shouldn’t hurt your credit so long as you shop within a certain period of time. In other words, it’s okay to apply more than once, especially if it leads to a lower mortgage rate.

More importantly, do not apply for any other types of loans before or while shopping for a mortgage. The last thing you’d want is for a meaningless credit card application to take you out of the running completely.

Additionally, don’t go swiping your credit card and racking up lots of debt, as that too can sink your credit score in a hurry. It’s best to just pay cash for things and keep your credit cards untouched before, during, and up until the loan funds.

Without question, your credit score can move your mortgage rate significantly (in both directions), and it’s one of the few things you can actually fully control, so keep a close eye on it. I’d say it’s the most important factor and shouldn’t be taken lightly.

If your credit scores aren’t very good, you might want to work on them for a bit before you apply for a mortgage. It could mean the difference between a bad rate and a good rate, and hundreds or even thousands of dollars.

9. Lock your rate

This is a biggie. Just because you found a good mortgage rate, or were quoted a great rate, doesn’t mean it’s yours.

You still need to lock the rate (if you’re happy with it) and get the confirmation in writing. Without the lock, it’s merely a quote and nothing more. That means it’s subject to change.

The loan also needs to fund. So if you’re dealing with an unreliable lender who promises a low rate, but can’t actually deliver and close the loan, the rate means absolutely nothing.

Again, watch out for the bait and switch where you’re told one thing and offered something entirely different when it comes time to lock.

Either way, know that you can negotiate during the process.  Don’t be afraid to ask for a lower rate if you think you can do better; there’s always room to negotiate mortgage rates!

10. Be patient

Lastly, take your time. This isn’t a decision that should be taken lightly, so do your homework and consult with family, friends, co-workers, and whoever else may have your best interests in mind.

If a company is aggressively asking for your sensitive information, or trying to run your credit report right out of the gate, tell them you’re just looking for a ballpark quote. Don’t ever feel obligated to work with someone, especially if they’re pushy.

You should feel comfortable with the bank or broker in question, and if you don’t, feel free to move on until you find the right fit. Trust your gut.

Also keep an eye on mortgage rates over time so you have a better idea of when to lock. No one knows what the future holds, but if you’re actively engaged, you’ll have a leg up on the competition.

One thing I can say is, on average, mortgage rates tend to be lowest in December, all else being equal.

In summary, be sure to look beyond the mortgage rate itself – while your goal will be to secure the lowest rate possible, you have to factor in the closing costs, your plans with the property/mortgage, and the lender’s ability to close your loan successfully.

Tip: Even if you get it wrong the first time around, you can always look into refinancing your mortgage to lower your current interest rate. You aren’t stuck if you can qualify for another mortgage down the road!

Source: thetruthaboutmortgage.com

Is the ‘No Taper’ Good or Bad for Mortgage Rates and the Housing Market?

Posted on September 19th, 2013

Yesterday, many declared “victory” when the Fed decided not to taper its monthly purchases of mortgage-backed securities and longer-term Treasuries.

Put simply, most assumed the Fed would announce some level of tapering, such as reducing their $40 billion in monthly MBS purchases by $10 billion, just to test the waters.

Instead, they decided to keep on keeping on, which excited the markets and caused the 10-year yield to plummet about 20 basis points yesterday late in the day.

As a result, mortgage rates should head lower as well, though as I’ve mentioned before, interest rate movement always tends to lag news, assuming it’s good news.

It’s kind of like gas prices. You read about oil prices dropping, and expect to save some coin at the pump, only to see gas station operators taking their sweet time to actually bring prices down.

By the time they finally get around to lowering prices, some piece of bad news comes along and they quickly raise prices again.

Now this isn’t to say that mortgage rates won’t improve somewhat, but they’re not going to fall dramatically.  Lenders don’t want to get burned when there’s still a lot of uncertainty in the air, so interest rate improvements should be conservative and calculated.

Long story short, the tapering or outright end to the Fed’s purchase program is already baked into rates, as evidenced by the 1%+ climb seen over the past several months.

This will not come undone simply because the Fed decided to delay its tapering. It might lead to a temporary pullback, but not much more because everyone knows the party has to come to an end eventually.

Should We Let the Housing Market Stand On Its Own Two Feet?

Again, everyone seems to be excited, especially those that stand to make money from the lower mortgage rates.

That includes real estate agents, mortgage brokers, loan officers, banks, lenders, homeowners, and so on.

However, the difference in rate shouldn’t determine someone’s decision to buy or even refinance. If you weren’t going to buy a home when the 30-year fixed was at 4.625%, you shouldn’t buy if rates drop to 4.25%.

Business boost aside, you have to wonder if are we creating an even nastier environment down the road?

Let’s say this delay (that’s all it is) leads to even more housing market euphoria, which it inevitably will.

Over time, home prices should continue to rise because buyers will be able to take on larger mortgages at lower rates.

But what happens when home prices are even higher than they are now, and the Fed really has to curtail its MBS purchases? Are they waiting for the housing market to be in full bubble mode before they pull the trigger?

Wouldn’t it be better to start easing purchases now, especially when the market already anticipated it?

Instead, the Fed seems to believe that it’s okay to continue to foster an artificially low rate environment, even as some markets enter bubble territory.

I understand their pause – they probably didn’t expect mortgage rates to jump as much as they did when they first hinted at tapering, but once everyone digested the news and pretty much accepted it, why didn’t they follow through?

Once this euphoria wanes rather abruptly, the focus will turn back to when the tapering will take place, which could lead to even higher rates before the Fed actually does anything.

There’s never a great time to end stimulus, but keeping it going after everyone expected it to stop seems like a bad plan.

In the meantime, enjoy the slightly lower mortgage rates, while they last…

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Higher Mortgage Rates May Exacerbate Already White-Hot Housing Market

Posted on March 25th, 2021

You’ve seen the headlines – mortgage rates have jumped from recent all-time lows. And they’re seemingly on an upward spiral that can’t be stopped.

Except, they’ve actually seen some improvement over the past few days, thanks in part to the recent stock market rout, coupled with an easing in the 10-year bond yield.

Still, the 30-year fixed is pricing about .50% higher than it did at the start of 2021, when it was closer to 2.65%.

Today, your quoted rate might be closer to 3%, though some lenders are back to offering sub-3% rates too with limited or no lender fees.

Higher Mortgage Rates May Just Make Matters Worse

  • There’s already a record low supply of homes for sale
  • And intense bidding wars are becoming all too common these days
  • The threat of even higher mortgage rates may just compel more buyers to enter the fray
  • That could result in even higher home prices as more buyers clamor over what’s out there

Let’s face it, there aren’t many available homes on the market at the moment. This has been the case for a while now, and hasn’t improved one bit lately.

Meanwhile, home prices are on a tear and record home purchase activity is expected in 2021 despite higher rates.

The median home price has already increased 17% year over year to $330,250, an all-time high, per Redfin.

That also happens to be the biggest increase on record, which goes back through 2016.

On top of that, asking prices of newly-listed properties hit an all-time high of $350,972, up 10% from the same period a year ago.

Oh, and new listings haven fallen 17% from a year earlier. Good luck.

In other words, if you thought homes were expensive last year, don’t look now! And if you thought competition was intense in 2020, well, hmm…yeah.

The good news is mortgage rates are still lower today than they were a year ago, with the 30-year fixed averaging 3.17% at last glance, down from 3.50% during the same week in 2020.

The bad news is that the threat of increasing rates may actually be pushing more prospective buyers off the fence and into the mix.

If more folks think the end of the low mortgage rate era is upon us, they might finally take action.

In the past when this type of thing has happened, the housing market has held up just fine.

Don’t buy into the idea that home prices and mortgage rates have an inverse relationship. In many cases, both can rise or fall in tandem.

Ultimately, you want to pay attention to the economy to determine the direction of the mortgage rates, not home prices.

What Happens When Mortgage Rates Go Higher?

  • Home prices may also increase because there’s no inverse relationship
  • Bidding wars may become even more intense as urgency rises among buyers
  • Mortgage lenders may loosen underwriting guidelines to facilitate home sales
  • Home builders may build smaller homes and/or cheaper ones to maintain some sense of affordability

If and when mortgage rates do increase, and actually stay elevated for a sustained period of time, a variety of things may happen.

For one, home prices may increase, for a couple different reasons. For one, there will be more urgency to lock in that low mortgage rate before they worsen even further.

Compounding that will be even more bidders on each home out there, which will further drive up the final sales price.

Additionally, higher interest rates are a sign of an improving economy, so if things are looking up, so too might home prices.

At the same time, mortgage lenders may ease up and loosen underwriting guidelines to ensure borrowers can obtain a home loan.

And home builders may take notice and make adjustments to the new homes they build by making them smaller and/or cheaper.

They might also ramp up their volume to satisfy the intense demand from prospective buyers. This is usually where things go wrong and we overshoot the mark.

Why It Might Be Good to Wait for a Pullback

While there’s a sense mortgage rates may never revisit their recent all-time lows, it’s also foolish to believe that.

Why can’t they go back to where they were just a few months ago? I liken it to the stock market, where human psychology plays a big role.

One day, stocks are flying high and everyone is piling in. The next day, it’s doom and gloom and everyone’s thinking about selling.

This mentality is exactly how/why many retail investors get burned, assuming they attempt to time the market.

With the recent rise in mortgage rates, you might think it’s best just to accept the higher rate before things get even worse.

And while that’s not imprudent, it’s time like these where we often see reversals. When all hope is gone, things suddenly improve.

Of course, this won’t do the hot housing market any favors. Either way, it’s not going to get any easier to submit a winning bid on a home, whether mortgage rates go up or down.

Read more: 2021 Home Buying Tips to Help You Win

Source: thetruthaboutmortgage.com

First Sign of Mortgage Rate Impact as New Home Sales Disappoint

Posted on August 23rd, 2013

There’s been a lot of speculation lately about the impact higher mortgage rates might have on the housing market, with some arguing that they’ll simply slow purchases, while another claimed they’ll lead to smaller home purchases.

Regardless, we now have our first clue, thanks to the release of the Commerce Department’s new home sales report this morning.

The government agency noted that sales of new single-family homes fell 13.4% in July from one month earlier to an annualized pace of 394,000 units.

This was well below the revised 455,000 pace seen in June, though it did handily beat out of the 369,000 sales pace seen a year earlier.

Housing Inventory Finally Rising

Still, it was the slowest month for new home sales since October. As a result, there were a total of 171,000 new single-family homes for sale as of the end of July, the highest total since April 2011.

That represented a 5.2-month supply at the current sales pace, the largest since January 2012.

In other words, things appear to be slowing down finally, with many speculating that it is the higher mortgage rates to blame.

The Census Bureau report actually paints a more current picture because the “sales” are actually just signed contracts or deposits taken, as opposed to completed sales.

So if these actions actually originated in July, it means the individuals buying the homes are dealing with the new, higher mortgage rates, not the ones on offer back in May.

The existing home sales report released by the National Association of Realtors earlier this week painted a different picture because it includes completed sales, many of which probably originated months earlier.

That’s probably why existing home sales saw a “spike” in July, as NAR chief economist Lawrence Yun put it.

In time, that report should also reflect the higher-rate environment borrowers are grappling with, as even Yun admitted that housing affordability will become “less attractive” as a result of the interest rate shift.

Homes Sold in California Received an Average of 4.1 Offers

Despite that drab news, another report released today, the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, revealed that key housing metrics remained strong in July.

The time on market measurement slipped to 8.6 weeks, marking a three-and-a-half year low, while sales-to-list price ratios hit a new high of 98% last month.

And it appears that bidding wars are still alive and well, at least in hotspots like California.

In the Golden State, an average of 4.1 offers were received on all non-distressed properties sold last month, the best total for any state nationwide.

However, the Farmbelt (ND, SD, NE, KS, MN, IA and WI) didn’t fair too well, with an average of just 1.4 offers for every non-distressed sale.

California also took the top spot in the sales-to-list price ratio department with an average of 101.8% in July. Yes, that means the average property sold for more than its asking price. Conversely, Florida had the lowest average sales-to-list price ratio in July, at just 95%.

Kind of interesting how hot California remains, despite the fact that only 36% of buyers can afford a home there. Perhaps cash buyers are still on the prowl.

The silver lining to all of this is that any sort of bad economic news should at least contain mortgage rates, and could prompt the Fed to delay its expected tapering, which could keep rates from rising any further.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com