Category: Interest Rates (Page 7 of 31)

Missed Opportunities by Trying to Time the Market | Don’t Wait!

August 5, 2024 / Tom Bonetto

Those who have been waiting for mortgage rates to come down have missed a huge financial opportunity.

Home prices rose 6% in 2022, 6% in 2023 and 4% so far year-to-date in 2024.

person holding white ipad on brown wooden table

That means over the last 30 months home prices have risen on average 17% compounded.

Using a median home price of $350K 30 months ago – if you waited for rates to improve, you would have missed a $60,000 wealth creation opportunity.

But don’t let those statistics discourage you. Now’s a very good time to purchase, as appreciation gains look likely for the near future!

What the Experts Are Saying

Case-Shiller’s lead analyst, Brian Luke said “while annual gains have decelerated recently, this may have more to do with 2023 than 2024, as recent performance remains encouraging. Our home price index has appreciated 4.1% year-to-date, the fasted start in 2 years”

He goes on to talk about the cost of waiting, saying “the waiting game for the possibility of favorable changes in lending rates continues to be costly for potential buyers as home prices march forward.”

Mortgage Rates

Mortgage rates are near 12-month lows – as inflation seems to be coming down and the unemployment rate has moved higher.

Both of these are potential recession indicators, meaning that the Federal Reserve may cut the Federal Funds rate shortly. You can find out more here…

Pricing Pressure Ahead?

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. More on that here…

The Bottom Line

Home price appreciation remains strong, despite higher mortgage rates and slightly increasing inventory.

Home values continue to set new all-time highs, and housing still proves to be one of the best investments out there. If you’ve been thinking about purchasing, now is a good time to do it!

Do reach out to me and we can strategize about your next purchase or refinance!

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.

Federal Reserve “Getting Closer” to Rate Cuts

July 29, 2024 / Tom Bonetto

scrabble letters spelling fed on a green mat

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

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

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.

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.

How Much Can Sellers Contribute Towards Closing Costs?

July 22, 2024 / Tom Bonetto

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

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

VA

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!

Don’t Wait For Lower Rates to Buy

July 16, 2024 / Tom Bonetto

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

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.

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.

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 Top 9 Mortgage Mistakes To Avoid

June 11, 2024 / Tom Bonetto

Navigating the mortgage process can be challenging, especially in today’s environment.

Making the right decisions is crucial to avoid common pitfalls that can lead to financial strain or missed opportunities.

Here are the top 9 mortgage mistakes to avoid:

1. Not Checking Credit Reports and Scores

Failing to review your credit reports and scores before applying for a mortgage can result in unpleasant surprises. Errors on your credit report or a low credit score can lead to higher interest rates or even loan denial.

Ensure your credit is in good shape by correcting errors and paying down debts before applying.

2. Not Getting Pre-Approved

Skipping pre-approval can leave you unprepared in a competitive housing market. A pre-approval letter shows sellers you are a serious buyer and gives you a clear idea of how much you can afford, streamlining your home search and negotiation process.

3. Choosing the Wrong Mortgage Type

Different mortgages have varying terms and conditions. Failing to understand the differences between fixed-rate, adjustable-rate, FHA, VA, and other loan types can result in higher costs over time.

Research and choose a mortgage that fits your financial situation and long-term plans.

4. Ignoring Additional Costs

Only focusing on the principal and interest payments is a common mistake. Homeownership includes property taxes, insurance, maintenance, and possibly private mortgage insurance (PMI).

Calculate these additional costs to ensure your budget can handle the total expense.

5. Making Major Financial Changes Before Closing

Avoid making significant financial changes, such as switching jobs, taking out new loans, or making large purchases, before your mortgage closes. Lenders recheck your financial status before final approval, and such changes can jeopardize your loan.

6. Overextending Your Budget

Qualifying for a mortgage doesn’t mean you should borrow the maximum amount offered. Consider your overall financial health and future expenses.

A mortgage that stretches your budget too thin can lead to financial stress and difficulties in managing other obligations.

7. Overlooking Loan Terms and Conditions

Not fully understanding the terms and conditions of your mortgage can lead to costly mistakes. Read the fine print and ask questions about any unclear terms, such as prepayment penalties, adjustable-rate terms, or the implications of late payments.

8. Skipping the Home Inspection

Foregoing a home inspection to save money or expedite the purchase can backfire. An inspection can uncover hidden issues that might require costly repairs.

Use the inspection results to negotiate with the seller or reconsider the purchase if significant problems are found.

9. Ignoring Refinance Opportunities

Once you have a mortgage, staying complacent can be a mistake. Regularly review your mortgage terms and market conditions.

Refinancing when interest rates drop can save you money, but be mindful of the costs involved to ensure it’s a financially sound decision.

In Conclusion

Avoiding these common mortgage mistakes requires careful planning, thorough research, and staying informed throughout the home-buying process. Make sure to team up with the right mortgage lender to walk you through the process.

By taking proactive steps to manage your credit, budget, and loan options, you can secure a mortgage that aligns with your financial goals and helps ensure a stable and sustainable homeownership experience.

Most importantly, d o reach out to me for help!

Category: Interest Rates (Page 7 of 31)

Missed Opportunities by Trying to Time the Market | Don’t Wait!

What the Experts Are Saying

Mortgage Rates

Pricing Pressure Ahead?

The Bottom Line

Federal Reserve “Getting Closer” to Rate Cuts

Three Reasons

What This Might Mean

Mortgage Rates

In Conclusion

How Much Can Sellers Contribute Towards Closing Costs?

Conventional

FHA

VA

In Conclusion

Don’t Wait For Lower Rates to Buy

The Top 9 Mortgage Mistakes To Avoid

1. Not Checking Credit Reports and Scores

2. Not Getting Pre-Approved

3. Choosing the Wrong Mortgage Type

4. Ignoring Additional Costs

5. Making Major Financial Changes Before Closing

6. Overextending Your Budget

7. Overlooking Loan Terms and Conditions

8. Skipping the Home Inspection

9. Ignoring Refinance Opportunities

In Conclusion

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