Category: Interest Rates (Page 31 of 34)

2017 To Be A Breakout Year For FHA Buyers

April 24, 2017 / Tom Bonetto

The FHA mortgage was designed to help home shoppers with lower credit scores and a small amount of cash in the bank – and these loans have long been one of the most popular mortgage types available.

Per mortgage software firm Ellie Mae, approximately twenty percent of all mortgage applicants will opt for an FHA loan because of its buyer-friendly guidelines.

Thanks to recent policy changes within FHA, lenders could start approving more loans. Buyers could have a much easier time purchasing a home, and applicants who were previously turned down could receive an FHA mortgage approval in 2017.

Source: The Mortgage Reports

Lenders and the FHA In 2017

FHA’s new policy will benefit home buyers this year, albeit a bit indirectly.

Per Tim Lucas at The Mortgage Reports, lenders should become more lenient as they experience less scrutiny from FHA. In turn, mortgage banks and brokers could relax lending standards and approve more FHA buyers in 2017.

This should further increase access to FHA loans for the typical home buyer, in line with FHA’s core mission.

FHA, from its inception in 1934, has maintained flexible lending standards – as their goal is to promote homeownership among a population that would not qualify for other types of financing.

Guidelines are so lenient, in fact, that lenders usually set their own FHA lending standards that are much more strict.

For example, states Lucas, the FHA may allow the borrower to qualify with income received for less than two years. A lender can “overlay” a requirement that the borrower needs to be employed a full two years before approving the loan. By-the-book FHA guidelines would result in an approval.

He states that “lender created overlays to reduce risk that their loans will be subject to FHA penalties. Overlays won’t go away. But they could be diminished enough for a subset of borrowers to be approved even if they received a denial in the past.”

FHA Making It Easier To Qualify

The Federal Housing Administration (FHA) is a government agency that insures the loans, which in turn allows lenders to issue approvals with low downpayments and less-than-perfect credit scores.

But FHA will only insure a loan if it meets its standards.

Lenders approve loans imperfectly, sometimes missing the mark when it comes to FHA guidelines. Minor errors and mistakes make their way through the loan process.

States Lucas, “this is an unintended consequence for FHA. The organization’s mandate is to increase homeownership levels in the U.S. But loan refusals were the real-world effect, as lenders feared high penalties for mistakes.

To combat this, the FHA announced that it would not penalize lenders when loans went through with minor mistakes that had no bearing on loan approval.”

This takes a lot of pressure off of lenders. FHA’s goal is that lenders will be more willing to approve home buyers for FHA loans.

FHA Benefits and Their Appeal

FHA loans will continue to be a favorite among first-time home buyers. While the program is well-used by new buyers, applicants also use it to make a subsequent home purchase due to a move or after outgrowing their first home.

One advantage with an FHA loan is its lenient credit score requirements. Lenders genrally require a minimum score between 580 and 640 – and this is one of the lowest required scores among mortgage options.

Another draw to the FHA loan is its low required downpayment. As little as 3.5% down is required at closing.

FHA loans also tend to offer some of the lowest mortgage rates available. According to Ellie Mae, average mortgage rates on FHA loans are between 10 and 15 basis points (0.10% – 0.15%) lower than average rates on conventional loans.

FHA loans provide a unique set of benefits that are a perfect “fit” for a sizable portion of today’s home buyers. Contact me for more regarding FHA home loans!

The views expressed are my own and do not necessarily reflect those of American Financial Network, Inc.

Adjustable Rate Mortgages in Today’s Environment

March 13, 2017 / Tom Bonetto

Adjustable rate mortgages (ARMs) are becoming more attractive as home prices rise and fixed interest rates increase.

Buyers can now look to save money with an adjustable rate home loan, as the purchase landscape is now starting to change a bit. These types of mortgage will continue to become more attractive with tighter inventories and monetary policy.

Fixed Rates Are On The Move

The mortgage world has been enjoying the benefits of low interest rates for quite some time. As rates are expected to rise in the immediate future, it is important for realtors and lenders to be knowledgeable about the products available for our customers that will still enable them to get into a home they love.

Source: How ARM Rates Work: 3/1, 5/1, 7/1 And 10/1 Mortgages | Mortgage Rates, Mortgage News and Strategy : The Mortgage Reports

ARMS Can Open Doors

As rates climb, the adjustable rate mortgage is more important than ever. Often this product is misunderstood, so knowing exactly how ARMS work, and when they can actually benefit your client, is important. The right ARM can actually increase the buyers qualified amount. Lower rate ARMS often allow buyers to qualify for a bigger loan.

Realtors should choose lenders that are able to articulate the benefits of different products to their clients. If clients are educated about their purchasing power, they have a better chance of finding a home mortgage that helps them to achieve their goals.

Educating Your Buyer Increases Their Purchasing Power

Because ARMS work differently than a fixed rate loan, realtors and lenders should work together to help buyers navigate the benefits that come with an ARM’s low interest rate. The borrower must also be educated as to what happens to the rate as the loan matures. Keep in mind that in a rising rate environment, an ARM can be a very smart move. If your buyer hits the cap and the rate continues to climb, they are in the advantage.

Let’s Talk

If you are interested, please do reach out to talk in further detail about the mortgage products and how to expand your market base. I look forward to partnering with agents ready to take on the challenge of the change in interest rates, by offering products tailored to today’s economy.

The views expressed are my own and do not necessarily reflect those of American Financial Network, Inc.

Shopping Mortgages – A Primer

January 3, 2017 / Tom Bonetto

Simply put, mortgage rates are the interest rates assigned to a home loan. These rates are actually based on the price of mortgage-backed securities (MBS), which are bonds backed by U.S. mortgages. These rates vary between conventional, FHA, VA, USDA, and jumbo loans – and by mortgage lender.

How Mortgage Rates Are Created

Mortgage rates are “made” based on bonds traded in the mortgage-backed securities (MBS) market. Similar to corporate bonds, mortgage-backed bonds trade all day, every day – and their pricing changes constantly.

In general, as the price of a mortgage-backed bond changes, so do mortgage rates. This is true for conventional mortgages backed by Fannie Mae and Freddie Mac mortgage bonds; and for FHA loans, VA loans and USDA loans, which are backed by Ginnie Mae mortgage bonds.

The price of a mortgage bond is based on supply and demand. All things equal, when Wall Street’s demand for mortgage bonds increases, mortgage bond prices rise, which causes mortgage rates to fall.

A large number of U.S. consumers research mortgage rates every day. Most just want a ballpark figure to help do the math on what buying a home would cost, or to see what a home refinance would look like.

Others need more details on particular mortgage rates – most importantly, when they’re close to making a decision about what to do next.

To everyone, though, getting a good, low rate should be a major focus. A mortgage is not something on which you want to overpay, as paying “too much” for the most valuable asset you own isn’t a great idea!

For an in-depth review of this process, check out Dan Green’s article at The Mortgage Reports for more….

How To Be A Good Mortgage Rate Shopper

Mortgage rates move randomly, and change with little or no advance warning. When you’re shopping for a mortgage, then, it’s important to know the nuances – and also to have a plan.

This means understanding that shopping for a mortgage rate is really about shopping for a mortgage rate and its associated closing costs. You can’t get one without the other.

A mortgage lender should never quote you a rate without telling you the fees that go with it – so pay attention when you get your quotes – because an extremely low rate means nothing if your closing costs are ridiculously high.

There are two ways to shop for mortgage rates, then.

1. You can shop for a particular mortgage rate that you want

2. You can shop for a particular closing cost that you want

Sure, you can try to shop for both at the same time, but why bother? Don’t get caught-up in the game of trying to have it both ways – because you can’t – and here’s why:

When you can isolate a single loan variable for comparison such as “cost” or “mortgage rate”, it’s really easy to know which mortgage lender is giving the best deal.

As an illustration, let’s say you want a rate of 5.00%. That’s your “fixed” variable. All you have to do, now, is to ask mortgage lender for their lowest closing costs, assuming a 5.00% rate.

Whichever lender offers the lowest costs is the lender with the best overall price.

Or, to work it the other way, let’s say you want a zero-closing cost mortgage. In this instance, closing costs are your fixed variable — they’re $0.

To find the best mortgage lender, then, simply ask each lender what the interest rate would be assuming no closing costs whatsoever.

The lender with the lowest rate is the lender you choose, providing they offer the service levels that will allow you to close the transaction on time! If you can’t close on time, that’s more out-of-pocket costs to you, the borrower.

Choosing The Right Lender

The best mortgage lenders will help you understand the complexities and help you choose the right mortgage for your circumstance.

Is it a low payment that you are looking for? Well, then paying a discount point or two will lower that interest rate and reduce your payment.

Are you a little short on cash for closing costs? Well, choosing a higher interest rate can give you that much needed closing credit that can offset some of those costs!

Again, make sure to reach out to the right lender and take the time to outline your current wants and needs.

Why the Sudden Increase in Interest Rates?

December 6, 2016 / Tom Bonetto

I’ve been receiving a good number of questions from both buyers and agents regarding the movement in interest rates. Many have been asking why the relatively big increase over such a short time frame and what does the future hold?

I’ll try to give a brief synopsis and link to a few articles for those who want to take a deeper dive.

Inflation Fears

In essence, worries about higher inflation have been a main factor fueling the big bond market selloffs (which brings mortgage rates up) over the past month. The process accelerated after the U.S. election in early November. The reason: investors have bet that the prospect of expansive fiscal and economy policy from the new U.S. administration would lead to stronger growth and higher inflation.

Secondly, the Federal Reserve has strongly hinted that it will raise interest rates next week. Economic growth remains slow and steady, and inflation measures are relatively non-existent – but Fed officials are increasingly convinced that things are now good enough.

Their concerns about moving too soon are giving way to worries about waiting too long, and the possible inflationary pressures that come along with it.

The Fed would rather err on the side of caution rather then risk inflation.

Many argue that the more-than-likely rate increase is actually priced into the current market – and it was the election that brought it into focus sooner rather than later.

Here’s a look at the 10-year treasury yield (a very good directional marker to interest rates) over the last 6 months:

Notice that yields are nearly a full point higher that the summer lows.

Does that mean you missed the boat if you didn’t act in October? Hardly.

I wouldn’t be surprised to see rates continue to tick upward over the next 30 days, but I believe things will begin to normalize in 2017. As mentioned earlier, upward inflationary measures are not really there.

More importantly, when you look at mortgage rates right now versus historical averages, we are still WAY below the norms. This is really a great time to buy and borrow.

Here’s a funny story that can give some perspective on the current situation. When I married by beautiful bride nearly 25 years ago, I got an absolutely smoking deal on a loan for our condo. It really was unheard of at the time. The rate….9.5%. That’s right, anything under 10% back then was considered a steal.

For more:

Min Zeng from the Wall St. Journal does a fine job of analyzing the situation here

Binyamin Appelbaum and Kevin Granville of the New York Times talk about the upcoming interest rate increase here

The views expressed are my own and do not necessarily reflect those of American Financial Network, Inc

5 Ways to Raise Your Credit Score Today

December 2, 2016 / Tom Bonetto

I receive questions all the time regarding the credit scoring system, the FICO score, and how to improve those scores.

Not only can improving your FICO credit score improve your chances of obtaining a mortgage, but it could improve your auto insurance premiums and, possibly, make you a more attractive employment candidate.

FICO scores range from 300 to 850 – and mortgage applicants get the best mortgage rates and terms when their FICO scores are 720 or higher.

For borrowers of all FICO scores, the best way to improve your credit rating is to understand the factors that make up your FICO score, and to take the right actions that can make a positive impact on your score.

Find out more here from The Mortgage Reports and Britt Scearce

What’s Included In Your FICO Score

The FICO credit score takes into account a combination of all of the information found in your credit report.

Your FICO score is made up of the following:

Payment History: 35% of your overall FICO
Total Amounts Owed: 30% of your overall FICO
Length of Credit History: 15% of your overall FICO
New Credit: 10% of your overall FICO
Type of Credit in Use: 10% of your overall FICO

To find out what is impacting your FICO score you will want to review your credit reports. You can obtain a free copy of your credit report from each of the three main credit reporting agencies — Equifax, TransUnion, and Experian — at www.annualcreditreport.com.

Your scores are generated based on a snapshot of the information on your credit report as of the particular moment that the report is pulled. Correcting errors is crucial, therefore, to ensure the highest possible FICO score.

Here are things you can do in the short term to improve your score:

1. Verify your accounts are current

“Payment History” makes the largest impact on your FICO score at 35% of your overall score. It is vital, therefore, that you keep current on all of the accounts reporting to your credit report.

When reviewing your credit report, should you find any accounts that are past due, catch them up as soon as possible and pay at least the minimum payment required by the due date.

2. Dispute your inaccuracies

Should you detect any errors on your credit report, you will want to request a correction as quickly as possible. In order to make a correction, use the information on your report to contact the credit bureaus, and also the creditors which provided the erroneous data to the bureaus. Getting even one late payment removed from your credit report can improve your FICO score dramatically.

3. Ask for a little grace

Sometimes, a creditor may be willing to “help you out”. In cases where you make a relatively small slip-up, with a creditor you’ve never been late with, you can sometimes get a late-payment waived. It’s always a good idea to make a phone call and to ask for a little grace. This works best if you catch the delinquency early and bring the account current right away.

There are many examples of creditors removing a late payment from your credit report if there’s a legitimate story behind what happened, and if you can explain what steps you’ve taken to avoid a repeat occurrence.

4. Settle up collections, charge-offs, judgments and liens

Old collection items, credit card charge-offs, and judgments and liens can hurt your FICO score, too. If you’ve got any of these on your credit report, it’s time to contact your creditors and collection agencies and to settle up one-at-a-time.

In many cases, you can negotiate with your creditors to remove a trade line completely in exchange for settling an account for its full balance. You need to call your credits first, however, to find out.

5. Improve your debt utilization ratio

Another way to improve your FICO is to improve your “amounts owed”, or debt utilization ratio. Debt utilization makes up 30% of your FICO credit score. This is a measure of how much you money you owe to creditors as compared to how much credit is available to you. The FICO scoring model takes into account the utilization of each individual credit account; and the utilization of all of your credit accounts combined.

For example, if you have five credit cards, each with a $2,000 limit, you have a total $10,000 available credit over all five accounts. If you carry a $1,000 balance on one of the five accounts, you would have a 50% utilization on one card and a 10% utilization over all of your credit.

In general, debt utilization of 30% of less is good for FICO scores. Utilization over 30% is often bad.

Now that you are armed with this – get to work and see what you can accomplish to improve that score. Give me a call, as I’d be more than happy to coach you through this process, as well!