Category: Mortgage (Page 5 of 57)

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.

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?

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.

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.

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!

How Long Does It Take to Get a Mortgage?

July 9, 2024 / Tom Bonetto

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.

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.

Your chos en 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:

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

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!

6 Ways to Improve Your Chances of Qualifying for a Mortgage

June 24, 2024 / Tom Bonetto

It can seem like a daunting task to actually qualify for a mortgage. But really, that’s not the case, as it absolutely can be done!

With that said, being well-prepared can significantly improve your chances of approval.

Here are six ways to enhance your prospects:

1. Improve Your Credit Score

Your credit score is a major factor in mortgage approval. Lenders use it to gauge your reliability as a borrower. To improve your credit score:

Pay all bills on time, as punctuality has a significant impact on your score.
Reduce outstanding debt, particularly credit card balances.
Avoid opening new credit accounts close to your mortgage application date.
Check your credit report for errors and dispute any inaccuracies. A higher credit score not only increases your chances of approval but also helps you secure a better interest rate.

2. Save for a Down Payment

A substantial down payment can strengthen your mortgage application. It reduces the loan amount and demonstrates your financial responsibility.

If you are able, try to save 20% of the home’s purchase price to avoid private mortgage insurance (PMI) and lower your monthly payments. But even if you can’t reach 20%, a larger down payment still improves your application’s appeal by lowering the loan-to-value ratio (LTV).

Fortunately, in today’s environment, there are great low down-payment options available. Find out more here…

3. Stabilize Your Employment and Income

Lenders look for steady employment and consistent income. To enhance your mortgage approval prospects:

Maintain stable employment, ideally with the same employer, for at least two years.
Document all sources of income, including bonuses, overtime, and secondary employment.
Avoid making significant career shifts close to your application. A stable employment history reassures lenders of your ability to meet monthly mortgage payments.

4. Reduce Your Debt-to-Income Ratio (DTI)

Your debt-to-income ratio compares your monthly debt payments to your gross monthly income. To improve your DTI:

Pay down existing debts, focusing on high-interest loans and credit cards.
Avoid taking on new debt before and during the mortgage application process.
Increase your income through a side job or additional work hours, if feasible. A lower DTI indicates to lenders that you have sufficient income to manage your mortgage payments alongside other obligations.

5. Gather and Organize Financial Documentation

Lenders require extensive documentation to assess your financial health. Be prepared to provide:

Recent pay stubs, W-2 forms, and tax returns.
Bank statements for checking, savings, and investment accounts.
Documentation of any additional income sources, such as rental income or alimony.
A list of all monthly debt payments and living expenses. Organizing these documents ahead of time can streamline the application process and demonstrate your preparedness and financial responsibility.

6. Get Pre-Approved for a Mortgage

Obtaining pre-approval from a lender shows that you are a serious buyer and gives you a clear understanding of your borrowing capacity.

To get pre-approved:

Submit your financial documentation for an initial review by the lender.
Discuss your financial situation and home-buying goals with the lender.
Obtain a pre-approval letter that specifies the loan amount you qualify for. Pre-approval not only boosts your credibility with sellers but also helps you stay within your budget and avoid falling in love with a home you cannot afford.

In Conclusion

Of equal importance is to have the right mortgage lender with you during this process. I can help walk you through these steps and coach you along the way! Do reach out to me for more…

Category: Mortgage (Page 5 of 57)

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

How Long Does It Take to Get a Mortgage?

The Pre-Qualification in Key

Why Do Mortgages Take So Long?

Complex and Elaborate

Appraisals

In Conclusion

6 Ways to Improve Your Chances of Qualifying for a Mortgage

1. Improve Your Credit Score

2. Save for a Down Payment

3. Stabilize Your Employment and Income

4. Reduce Your Debt-to-Income Ratio (DTI)

5. Gather and Organize Financial Documentation

6. Get Pre-Approved for a Mortgage

In Conclusion

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