The Lending Coach

Coaching and teaching - many through the mortgage process and others on the field

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Federal Reserve “Getting Closer” to Rate Cuts

scrabble letters spelling fed on a green mat

After years of higher rates by the Federal Reserve, it looks like thing might be changing.

close up of a 100 dollar bill

Thanks to friendly inflation readings throughout the second quarter, more Fed members are signaling they are “getting closer” to cutting interest rates.

Remember, the Federal Reserve does not control mortgage rates (you can find out more about that here), but their actions and comments do impact the mortgage market.

It looks like the first cut might happen at their meeting on September 18. Inflation and labor market data between now and then will play a pivotal role in this decision.

Nick Timaros, the Wall Street Journal’s go-to writer for all things Federal Reserve, recently penned an article title “A Fed Rate Cut Is Finally Within View” (subscription required).

Three Reasons

Timaros thinks that a September cut is likely given these three factors:

  • Inflation over the last quarter has shown progress and has given the Fed the confidence they need that inflation is going to get to their 2% target
  • The labor market is starting to cool, with the unemployment rate rising each of the last three months and now at a level of 4.1%
  • Fed Chairman Jerome Powell is concerned about waiting too long to cut rates and cause unnecessary economic weakness and a potential recession

What This Might Mean

Tablet with graph

A rate reduction this fall would be the first since the pandemic and could be a potential boost to the economy. Fed rate cuts, over time, typically lower borrowing costs for such things as mortgages, auto loans and credit cards.

It really depends on how the economy performs in the next few months.  That factor will likely determine how quickly the Federal Reserve will act.

If economic growth remains solid and employers keep hiring, the Fed would most likely take its time and cut rates slowly as inflation continues to decline.

Mortgage Rates

For mortgage rate shoppers, one of the key messages for which to listen is the one the Fed talks about on inflation. Inflation is the enemy of mortgage bonds and, in general, when inflation pressures are growing, mortgage rates are rising.

Cut out house dollars

Fortunately, this trend seems to be abating, but at a slow rate.  We’ve also seen the 10-year Treasury Bond yield move lower, and that is actually a better measure of mortgage rates. 

The 30-year fixed mortgage rate and 10-year treasury yield move together because investors who want a steady and safe return compare interest rates of all fixed-income products.

In Conclusion

We will be hearing more comments from the Federal Reserve and Chairman Powell over the next few weeks.  Nothing is set in stone, but it does appear that rates might be coming down this fall.

The Lending Coach

The blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions.

How Much Can Sellers Contribute Towards Closing Costs?

Pen, calculator, glasses

One of the interesting things about purchasing a home is that the seller can actually help pay for the buyer’s closing costs.

person with keys for real estate

When purchasing a home, prospective buyers will see various expenses beyond the purchase price, including closing costs.

One way to manage these costs is through interested party contributions (IPCs), which are payments made by parties involved in the transaction, such as the seller, builder, lender, or real estate agent.

Interested party contributions can significantly ease the financial burden on buyers by covering a portion of the closing costs, which typically range from 2% to 5% of the loan amount. These costs include fees for appraisals, inspections, title insurance, and loan origination, among others.

paper house labeled closing costs with keys

By negotiating IPCs, buyers can reduce the immediate cash required to finalize the home purchase, making homeownership more accessible. This arrangement is particularly beneficial for first-time homebuyers or those with limited liquid assets.

However, there are limitations and regulations governing IPCs to prevent inflation of property values and ensure fair lending practices. Different loan programs, such as conventional, FHA, and VA loans, have specific caps on the amount of IPCs allowed. Here are the specifics:

Conventional

For conventional loans, the amount of IPCs allowed actually depend on the down payment amount and if the transaction is an investment property purchase.

chart of occupancy type with LTV/CLTV ratio with max IPC

FHA

FHA seller contributions

VA

VA loan seller contribution max
Wood roof and coins

While IPCs can alleviate some financial pressure, it is essential for buyers to consider the potential trade-offs. Accepting seller contributions might lead to a higher purchase price or less room for negotiating other favorable terms.

Buyers should carefully evaluate the overall cost-benefit scenario, ensuring that the contributions genuinely result in a net financial gain.

In Conclusion

By understanding the regulations and potential impacts on loan terms, buyers can strategically use IPCs to their advantage. 

Reach out to me for more information, as I’d be happy to strategize with you to see how to best utilize IPC’s for your next transaction!

The Lending Coach

The blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions.

Don’t Wait For Lower Rates to Buy

Wristwatch parts

Don’t wait for mortgage rates to drop before making that home purchase.

Hourglass with house

So, should you wait for rates to decline before making your home purchase? The answer might surprise you.

There’s a good chance rates may be dropping in the not-too-distant future based on a slowing economy, moderating inflation and a weakening job picture.

As rates move lower, more buyers will become eligible to purchase. In fact, the National Association of Realtors states that for every 1% decline in mortgage rates, 5 million more people can be eligible to buy.

Even if a small fraction of these eligible buyers decides to move forward, it will likely pressure prices higher and shrink the number of available home choices even further.

It’s also likely the Fed will be forced to start cutting rates in the near future.

Jerome Powell

The advantage of buying ahead of a drop in rates is that you can capture the substantial benefit of appreciation, then refinance to a lower rate once they come down. However, this does come with a cost.

The added temporary interest expense along with the cost to refinance must be considered. When you weigh it against the much greater benefit of appreciation, the choice may become clear to marry the home today, while dating the rate in the interim. More on that here…

I have the tools to allow you to evaluate what the forecasted appreciation is on the home you’re looking to purchase and weigh it against the temporary interest expense to see if it makes sense for you.

Don’t hesitate to reach out…as it would be my pleasure to help!

The Lending Coach

The blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions.

How Long Does It Take to Get a Mortgage?

House with approval stamp

I’m asked regularly about mortgage related time-frames…as sometimes clients need to close their transactions quickly.

Instead of getting conditionally approved in a few days (or even 24 hours – like what was happening about 15 years ago), loans are thoroughly processed before even landing on the underwriter’s desk.

Mortgage application form

Because there are a ton of regulations and timelines lenders have been forced to work with, the average loan closing will take anywhere from 20 to 40 days, depending on many circumstances.

This means the actual loan approval might take a couple weeks, but it will generally be a firm one with few if any remaining conditions.

Interestingly, around the mid-to-late 2000s, mortgages could close really quickly. This was partially because underwriting guidelines were much more flexible (and some might say ‘non-existent’), and also because lenders were well-staffed and very competitive.

However, those days have changed, due to a myriad of factors.

The Pre-Qualification in Key

In order for a real estate agent to best help you find that right home, it’s vitally important to know how much “house” you can afford.  That’s why you should reach out to the right Mortgage Professional first, before you contact an agent and start looking at houses.

Loan approved stamp

Your chosen lender should sit down with you to assess your goals and objectives – and then help you choose the optimal loan program that best fits your needs. The first step in this process is the pre-qualification.

Home sellers and their real estate agents generally insist that home buyers submit a valid pre-qualification letter along with their initial offer for the home.

Essentially, sellers don’t consider offers from people who haven’t taken the time to determine if they can even get approved for a loan in the first place.

You can find out more on pre-qualifications here…

Why Do Mortgages Take So Long?

  • Many different parties are involved in the mortgage and/or home buying transaction
  • There are regulated timelines that must be followed
  • The home appraisal can also take up to a few weeks to be completed

Like most things in the mortgage world, it’s difficult to generalize because every loan (and every borrower) is uniquely different.  With that said, here are a few reasons why the loan process takes a bit:

Pen and calculator

So it’s best to be patient and cooperative to ensure a smooth closing!

Complex and Elaborate

The mortgage process is very involved and requires a lot of hands to touch the loan before it actually closes.

We’re talking a loan officer, an underwriter, a processor, an appraiser, a title company, escrow company, an insurance company, a funder, a closer, and possibly more.  That’s a lot of hands in the dough!

The same goes for mortgages.

Even in a best-case scenario…say you are a well-qualified borrower with a W-2 job, one bank account, and with excellent credit score with no recent activity…even refinancing a conforming loan, can still take several weeks.

Appraisals

Binoculars

Sometimes, the delay can be due to the home appraisal, which is essentially required to independently determine the value of the property in question.

Lenders will not lend if they don’t know the value of the property, so they will to order an appraisal. This process can take 5 to 10 days, depending upon the schedule of the appraiser.

This is why lenders will often want to book the appraiser early on so they can get it done and delivered to underwriting.

In Conclusion

The mortgage process isn’t the quickest, but that really can help buyers make sure the loan they are qualified for AND the property they are buying are the right fit. 

I’ve done loans in as quick as 17 days, so if you are looking for an usually quick close, let me know and I’d love to help!

The Lending Coach

The blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions.

Mind Games: What Makes a Great Baseball Player

I’m linking to a very interesting article by Andrea Thompson at Live Science.  She’s analyzing Mike Stadler’s book “The Psychology of Baseball”.

book "the pyshology of baseball"

While all sports involve a certain amount of psychology to strategize and plan in given situations, baseball is unique as there are so many different mental factors at play.

You can find Stadler’s book here…

And you can find Thompson’s article here… and I’d invite you to read the entire piece!

Some key takeaways…

“Baseball is impossible without psychology: impossible to play, and impossible to appreciate fully as a fan,” Stadler wrote. “Watch any game, and most of what you see is thinking.”

Here are more excerpts from the Stadler book…

Mental agility

“Most baseball players have extraordinary capabilities to coordinate physical and mental processes, including fast reaction times, focus and high visual acuity.

Studies conducted by Columbia University on Babe Ruth while he was playing showed that he could react to visual and sound cues much faster than the average person and that he had better hand-eye coordination than 98.8 percent of the population.

Eye with lens

Baseball players tend to have excellent vision, which allows them to see things like the spin on a curveball hurtling toward them at home plate, cues they can use to get a hit.

Reaction time is also critical in baseball, and the better players seem to have better reaction times. There’s some suggestion that this could simply be a matter of having more practice, “but you actually find even within really highly skilled players, the players at the higher end, the faster reaction times still tend to have higher batting averages and be slightly better hitters,” Stadler told LiveScience.”

“Most baseball players do have pretty good vision; a huge proportion of them test at better than 20/20,” Stadler said.

Baseball “Personality”

“Besides the physical process and acute mental abilities, successful baseball players also typically have certain personality traits—this is perhaps best exemplified by the diverging career paths of Darryl Strawberry and Billy Beane, Stadler said.

Hitter on deck

Both players were drafted by the Mets in 1980 (Strawberry was picked much higher than Beane)—the team even had trouble deciding which player to pick first because of their comparable athletic abilities. But while Strawberry came to be one of the best hitters in baseball, Beane couldn’t hack it in the majors (though he went on to become General Manager of the Oakland A’s).

“Beane was just sort of crushed by the pressure of the batter’s box, just didn’t have that sort of self-confidence, almost arrogance, just to know, ‘I do this well. I’m fine. So what I just struck out, I’m going to hit next time,'” Stadler said.

Strawberry displayed the exact opposite reaction: “You can look at some of Strawberry’s early interviews when he broke into the league and was struggling a little bit as player’s naturally do, but he, even then he just said, ‘I know I’m a good hitter. I’m going to hit plenty of home runs,'” Stadler said. “He just wasn’t worried about the pressure.”’

Player Variability

“When a player starts to have a spate of really bad or good games, fans can get involved in the psychology of “streaks” or “slumps”. But Stadler says that research has shown that these supposed trends are really a matter of fans not taking in the big picture.

Baseball gloves on bench

“It’s hard for the fan to take that really long view and keep in mind the player’s whole career as opposed to just the last few games’ performance,” he said.

Fans also tend to ignore how much baseball statistics can mask a players’ actual performance. A hitter may have a sub-par batting average, though he is still hitting balls really hard—they’re just hit to fielders who catch them.

In his book, Stadler mentions an interview with pitcher Greg Maddux after a streak of no-hit innings, where Maddux said he just got lucky because some guys hit balls really hard, but hit them right at a fielder.

“I think the players can kind of see that distinction in ways that, you know, because they’ve been around the game so much, that fans … might not be able to see that as the players are,” Stadler said.”

The Lending Coach

The blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions.

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