15-Year Fixed vs. 30-Year Fixed: The Pros and Cons

It’s that time again, where I take a look at a pair of popular mortgage programs to determine which may better suit certain situations. Today’s match-up: “15-year fixed mortgage vs. 30-year fixed mortgage.” As always, there is no one-size-fits-all solution because everyone is different and may have varying real estate and financial goals. For example, [&hellip

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Source: thetruthaboutmortgage.com

10 Mortgage Lenders to Consider for the Best Mortgage Rates (and Fees!)

Everyone likes a discount, right, even if it’s on a small one-time purchase that equates to a nominal amount. For one reason or another, it just feels like a win. It’s obviously even sweeter if you get a discount on a big-ticket item, as the savings will be much larger. Better yet, how about a [&hellip

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Source: thetruthaboutmortgage.com

What Is a Streamline Refinance?

Mortgage Q&A: “What is a streamline refinance?” While qualifying for a mortgage refinance is generally a lot harder than it has been in the past (now that lenders actually care how your home loan performs), there are less cumbersome options available. In fact, many lenders offer “streamlined” alternatives to existing homeowners to lower costs and [&hellip

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Source: thetruthaboutmortgage.com

Mortgage Rate vs. APR: What to Watch For

It’s time for another mortgage match-up: “Mortgage rate vs. APR.” If you’re shopping for real estate or looking to refinance, and you’ve seen a certain mortgage rate advertised, you may have noticed a second, similar percentage adjacent to or below that interest rate, possibly in smaller, fine print. But why? Well, one is the mortgage [&hellip

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Source: thetruthaboutmortgage.com

It’s Taking a Really Long Time to Get a Mortgage Right Now

Similar to the increased waiting times to get a COVID-19 test these days, it’s taking an extended amount of time to get a mortgage to the finish line. The reason is simply unprecedented demand, just like those COVID-19 tests. The more people that need one, the longer the wait, period. This is the downside to [&hellip

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Source: thetruthaboutmortgage.com

Don’t Let Your Current Lender Talk You Out of a Mortgage Refinance

What I’ve seen and heard through the years is certain lenders not being so forthcoming with existing customers wanting to refinance their mortgage. For example, when a homeowner goes to inquire about the “awesome low rates,” their first instinct may be to pick up the phone and call the lender who gave them their current [&hellip

The post Don’t Let Your Current Lender Talk You Out of a Mortgage Refinance first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

Mortgage Rates vs. the Stock Market

Mortgage Rates vs. the Stock Market

Last updated on August 7th, 2019

Mortgage match-ups: “Mortgage rates vs. the stock market.”

With all the recent stock market volatility, you may be wondering what effect such events have on mortgage rates.

Do mortgage rates go up if stocks go down and vice versa? Or do they move in relative lockstep? Let’s find out!

Stocks and Mortgage Rates Follow the Economy

stocks vs. bonds

  • Both stocks and mortgage rates take cues from the economy
  • And they react to news in mostly the same way
  • Whether it’s good news or bad news
  • Because what’s going on economically matters to the underlying security

Simply put, when economic fears rise, as they commonly do, whether justified or not, investors flee the stock market and head toward safer U.S. Treasury bonds, such as the benchmark 10-year bond.

So stocks and bonds have an inverse relationship. Imagine a scale that is constantly rising and falling as investors jump from one side to the other.

This phenomenon is known as the “flight-to-quality,” whereby investors ditch the risk and head to safe havens like gold and U.S. Treasuries when fear is in the air.

They do this because Treasuries have an explicit government guarantee, whereas anything can happen with individual stocks. In fact, a stock could go to zero and that would be that. Investment lost.

Anyway, when demand for Treasuries and bonds increases, prices go up and yields drop because demand is so strong that a higher yield is no longer necessary to lure in investors.

And because the 30-year fixed tends to follow the direction of the 10-year bond yield, both up and down, mortgage rates tend to decline when stocks fall. And mortgage rates generally rise when stocks go up.

Stock Market Fear = Lower Mortgage Rates

  • Fear is good if you want a lower mortgage rate
  • Because if things are looking gloomy in the economy
  • It means investors will likely ditch stocks and flock to bonds
  • Thereby pushing the price of the bond up and the yield (interest rate) down

Yesterday, the stock market plummeted thanks to an ongoing trade war with China that just ratcheted higher.

At the same time, the yield on the 10-year bond fell to its lowest point since late 2016.

Mortgage rates also moved lower on the news, and they may even improve further thanks to the general uncertainty in the air.

This is great news for prospective homeowners, as mortgage rates were expected to climb throughout 2019 while the economy supposedly improved.

But it is a bit of a catch-22, as lower mortgage rates mean more economic unrest, which can translate to flat or even lower home prices for those looking to sell.

After all, there might be fewer prospective home buyers if people are losing their jobs, getting paid less, or simply feeling less positive about their finances. And that could lead to price cuts.

[Home prices vs. mortgage rates]

Mortgage Rates Follow the Stock Market

  • Mortgage rates and the stock market aren’t directly related
  • But rates do tend to follow stock market moves
  • So if stocks go up, mortgage rates may follow, and vice versa
  • Just note that there might be a time tag with regard to mortgage lenders adjusting rates

As a rule of thumb, bad economic news sends mortgage rates lower, while good economic news pushes mortgage rates higher.

Stocks move in much the same way, except of course higher stock prices are seen as a positive and higher mortgage rates are viewed quite unfavorably, rightly so.

So when stocks rise, mortgage rates often climb as well. And when stocks fall, mortgage rates typically decrease too.

This could lead to disappointment if you’re keeping one eye on your stock portfolio and another on mortgage rates, assuming you’re in the market to refinance your mortgage.

Your stocks may be up, but mortgage rates won’t be as low.  Conversely, your stock portfolio could be in the dumps while mortgage rates inch lower. Think of this as a bittersweet, but often unavoidable situation.

Of course, a lower fixed mortgage rate may mean a lot more long term than a temporary blip in stock prices. If you’re in it for the long-haul, the lower rate can be much more meaningful.

Experts will probably tell you that you shouldn’t be watching your stock portfolio on a daily or even monthly basis, as any losses are simply paper ones until you’re ready to cash out much later in the future.

Also keep in mind that there are many factors that determine mortgage rates, and a change in stock prices may not always translate to a similar change in rates thanks to the complexities involved.

It should just give you a general indication of the direction rates may go if they even move at all.

Tip: What mortgage rate can I expect?

Don't let today's rates get away.
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 nearly 15 years.

Source: thetruthaboutmortgage.com

Why Are Mortgage Rates Different?

Why Are Mortgage Rates Different?

Mortgage rate Q&A: “Why are mortgage rates different?”

Why is the sky blue? Why are clouds white? Why won’t your neighbor trim their tree branches?

These are all good questions, and ones that often puzzle even the most savvy of human beings.

First things first, take a look at how mortgage rates are determined to better understand how banks and mortgage lenders come up with interest rates to begin with.

From there, you’ll need to consider why mortgage rates are different for consumer A vs. consumer B.

No One Size Fits All for Mortgage Rates

why mortgage rates different

  • Mortgages are kind of like snowflakes in that no two are exactly the same (not really)
  • The subject property and the borrower will always have unique characteristics
  • As such risk on the underlying loan will vary and so too will the interest rate received
  • Lenders also price their mortgages differently so even identical scenarios can result in variable pricing

Mortgages are complicated business, and there certainly isn’t a one-size-fits-all approach in this industry.

First off, there are thousands of different banks, lenders, and credit unions that offer home loans, some of them entirely unique and proprietary.

These companies compete with one another to offer the lowest rate and/or the best customer service.

The well-known names might offer higher rates in exchange for their perceived trust and familiarity.

Meanwhile, the smaller guys might offer rock-bottom rates to simply stay in contention with the big players.

Along with that, every loan scenario is different (just like a snowflake), and must be priced accordingly to factor in mortgage default risk (risk-based pricing).

Simply put, the higher the risk of default, the higher the mortgage rate. But that’s just the tip of the iceberg.

There also promotional rates, such as mortgage rates that end in .99%, and innovative marketing products like UWM’s Exact Rate that lets brokers offer strange rate combinations, including 2.541% or 2.873%.

So the possibilities truly are endless these days when it comes to different mortgage rates.

Mortgage Rates Vary Based on the Loan Criteria

  • Mortgage lenders make a lot of assumptions when advertising rates
  • Your particular loan scenario may be quite different than their hypothetical loan
  • You have to take into account the many pricing adjustments applicable to your mortgage if it doesn’t fit inside that box
  • These adjustments have the potential to greatly increase or decrease your interest rate

Mortgage rates don’t exist in a bubble – the parts affect the whole.

Banks and lenders start with a base interest rate (par rate) and then either raise it or lower it (rarely) based on the home loan’s criteria.

There are loan pricing adjustments for all types of stuff, including:

· Loan amount (conforming or jumbo)
· Documentation (full, stated, etc.)
· Credit score
· Occupancy (primary, vacation, investment)
· Loan Purpose (purchase or refinance)
· Debt-to-Income Ratio
· Property Type (single-family home, condo, multi-unit)
· Loan-to-value / Combined loan-to-value

The more you’ve “got going on,” the higher your mortgage rate will be. And vice versa.

In short, an individual purchasing a single-family home with a conforming loan amount, 20% down payment, and a 800 FICO score will likely qualify for the lowest rates available.

Conversely, the individual requesting cash out on a four-unit investment property with a 640 FICO score will likely be subject to a much higher rate, assuming they even qualify.

And again, rates will vary from lender to lender, so it’s a multi-layered situation.

I’ve already covered a few related topics, including why mortgage rates rates are higher for condos and investment properties.

Mortgage rates also tend to be higher on jumbo loans and refinance transactions, especially those involving cash-out.

Advertised Mortgage Rates Are Best Case Scenario

  • Mortgage rates on TV and online are usually best-case scenario
  • They are intended to be super attractive to lure you in and snag your business
  • When the dust settles your interest rate might look nothing like what you saw advertised
  • This is why it’s important to shop around and better understand how risky your particular loan is

You know those mortgage rates you see on TV or on the Internet?

Those assume you’ve got an owner-occupied single family home, a perfect credit score, a huge down payment, and a conforming loan amount.

Not to mention a newborn golden retriever with an unmatched pedigree.

Most people don’t have all those things, and as a result, they’ll see different mortgage rates. And by “different,” I mean higher.

How much higher depends on all the factors listed above.  So take the advertised rates you see with a huge grain of salt.

Also, take the time to shop your home loan with different lenders, and in the process, get to better understand your risk.

Find out what lenders are docking you for and take steps to fix those things if you want the lowest rates available.

Do Mortgage Rates Vary By State?

  • Yes, they sure can! You might get a lower rate in California vs. Nebraska
  • Depending on lender appetite for a certain geographic region
  • Rates may vary from state to state, or even in certain counties
  • Make sure the lender you use offers the best pricing for the state in which you reside

One last thing. I’ve been asked if mortgage rates can vary from state to state, and the answer is actually YES. In fact, they can even vary by county in some cases.

As you can see from the image below, some states tend to have lower average mortgage rates for one reason or another.

States Lowest Average Mortgage Rates

This list is from February 2019, when the average rate for the 30-year fixed was 4.84% nationwide, per LendingTree.

While no state offered an average rate below 4.74% or above 4.96% (pretty narrow range), there was some divergence by locality.

California led the nation with an average rate of 4.74%, followed closely by the 4.75% average seen in New Jersey and the 4.76% average found in both Washington and Massachusetts.

Nothing earth-shattering, but still different nonetheless.

But it might not be for any one reason, such as a higher default rate in state X or fewer natural disasters in state Y. Or more regulations in another state.

It could be more to do with the fact that lenders want to increase their business in a certain part of the country, and thus they’ll offer some sort of pricing special or incentive to drive rates down in say California.

So you might see a rate sheet that says .50% rebate state adjustment for loans in CA and FL, for example. This will give them a competitive advantage in those regions.

How about states where mortgage rates tend to be slightly higher, such as New York, Iowa, and Arkansas, which averaged 4.96%, 4.93%, and 4.92%, respectively?

States Highest Average Mortgage Rates

It’s possible you might see a pricing adjustment of say .25% for one of these states that may drive the interest rate up somewhat.

In other words, rates can be priced both higher or lower depending on the state where the property is located.

Of course, if this results in unfavorable pricing you can just move on to a different lender that doesn’t charge more for the state in question.

All the more reason to shop around, compare mortgage rates online, and speak with a mortgage broker or two.

Once you’ve done that, check mortgage rates with your local bank or credit union as well.

Don’t be one of the many who obtain just one mortgage quote because you may wind up paying too much.

Read more: What mortgage rate can I expect?

Don't let today's rates get away.

Source: thetruthaboutmortgage.com

How to Move Out of Your Parents House

How to Move Out of Your Parents House

There’s nothing inherently wrong with living with your parents, other than EVERYTHING! So let’s talk about how to GET OUT!

To be clear, I’m going to discuss moving out and buying a place of your own, not moving out and renting, seeing that the latter is fairly self-explanatory.

The desire to move out might be especially strong right now given that we’re in a pandemic and everyone is home, all of the time.

But don’t just make a home purchase on a whim, really take the time to think it through, especially since home prices aren’t very cheap.

Living with Your Parents Is a Great Launchpad

how to move out

  • Live rent-free and save up money
  • Establish employment history (2+ years is generally good)
  • Pay off other debt like student loans, credit cards, etc.
  • Work on your credit scores and bolster your credit history
  • Study how real estate and mortgages work
  • Determine if and where you want to buy a property

While it might not be cool now or ever, living with your parents is actually a really good time to get your ducks in a row before applying for a mortgage. You may be able to save up some serious dough in the process too.

You generally don’t need rental history to qualify for a mortgage if you’ve been living with your parents, though it can help to pay rent beforehand in terms of avoiding payment shock (going from no monthly payment to a very large one).

It can also be helpful to move out, pay rent, and live on your own a bit to get a better understanding of what it’s like in the real world. And qualifying for a mortgage might be easier if you have documented rental history.

But if you want to go straight from mom and dad’s house to your own house or condo, it’s doable as well.

As I alluded to, it can be a great way to set yourself up for success if you do all the right things while living at home. Let’s talk about some of those right moves.

Establish Your Credit History While at Home

  • Make sure you have 3 open and active tradelines that appear on your credit report
  • This can include credit cards, auto loan/leases, student loans, etc.
  • Should all be open at least 2 years to be beneficial
  • Aim for credit scores of 760+ for best mortgage rates and terms
  • But loan programs are available for much lower credit scores too

One key thing you’ll want to do while living at home is build your credit history. This is very important in terms of qualifying for a mortgage, especially if you don’t have prior rental history.

If you can’t show the loan underwriter you’ve been able to pay rent on time in the past, they’ll at least want to know that you’ve made good on other credit obligations.

This can include credit cards, auto loans/leases, student loans, and so forth. Generally, it’s advised to have at least three of these types of tradelines open and active, with a minimum two-year payment history on each.

For example, if you’ve got two open credit cards and a car lease that have all been open for 24 months or longer, you should be looking good in the credit category.

That’s assuming you’ve been making on-time payments during that entire period. Definitely make sure you’ve got no missed payments!

Note: You don’t need to carry a balance to benefit from these accounts, despite what you might have heard or read. Simply having the accounts open and in good standing is enough.

In fact, if your balances are paid off in full each month, you should have more purchasing power for your eventual mortgage loan. And there’s no need to pay interest to boost your scores.

I’ve already written about credit scores and mortgages, so review that page to learn more if you have additional questions in that department.

Building credit is a somewhat passive activity that happens over time. It’s something you don’t constantly have to worry about as long as you have a few accounts open and in good standing.

But it’s important to get started as early as possible, as it does take time to establish credit history, hence the word “history.”

If you lack rental history and credit history, it’ll just complicate matters when it comes time to apply for a home loan, and it might require you to use a co-signer to get the job done.

Save for a Down Payment While You’re Saving on Rent

  • Consider the down payment needed on the house
  • Cash reserves for future monthly housing payments
  • The closing costs associated with the mortgage
  • The relocation costs once you move out
  • And the costs to furnish your new property

While you’re building your credit in the background, you should be focusing on saving up for a down payment on your new digs.

While there are some no down payment mortgages available, such as VA loans and USDA loans, along with private offerings from credit unions and the like, you should aim to put down at least 3%.

For one, you may not qualify for those zero down programs, and if you’re a first-time home buyer, it can show that you’re adequately prepared for homeownership.

Having more money to put down is also critical in today’s very competitive housing market, with bidding wars all too common. Home sellers won’t be very impressed if you can’t even muster 3% down, and even then, they might pass you by.

When I say 3% down, it’s in reference to the minimum down payment generally required by both Fannie Mae and Freddie Mac to purchase a home.

If you go the FHA loan route, you’ll need a slightly higher 3.5% down payment.

However, it is possible to use gift funds with these loan programs, so technically you could come in with none of your own money and still move out of your parent’s home, assuming someone is willing to help you.

But again, try to strive for better here. Doing the bare minimum isn’t exactly putting your best foot forward. And if you put less down, you’ll wind up with a higher mortgage rate and most likely have to pay mortgage insurance.

It’s also helpful to have money set aside for closing costs (financing a home purchase isn’t without costs) and for reserves. You may need a couple month’s reserves as well to show that you have the ability to make monthly mortgage payments.

While you’re at it, take the time to start running some calculations to determine how much mortgage you can afford based on your income, down payment, and DTI ratio.

Speaking of income, underwriters generally want at least two years of employment history in the same position or line of work.

So if you just got a job last week, that might not be sufficient unless you’re a doctor, dentist, lawyer, or in a similar field that required a lot of training and guaranteed money after the fact.

This is why it might be good to live with your parents while establishing employment history, especially if you don’t have much saved up just yet and don’t want to blow it all on rent.

Run the numbers through a basic mortgage payment calculator to see what a given loan amount will set you back at a certain interest rate, and also consider using a mortgage affordability calculator to really dig in.

Start Familiarizing Yourself with Mortgage & Real Estate

  • Visit websites like mine and others like it to educate yourself
  • Learn the real estate and mortgage lingo
  • Scour listings on Zillow, Redfin, and similar websites/apps
  • Go to open houses to get a better feel for properties in person
  • Formulate your own opinions before speaking to interested parties

These days, there are a lot of great resources available to prospective home buyers, all at your fingertips, literally.

Aside from mortgage qualification, which is very important, it’s vital to get a better understanding of how real estate works, the various types of real estate available to you, how to buy a home, and who to use along the way.

Start scouring individual listings in areas you’re interested in just to get a feel for pricing. Fire up the Redfin and Zillow apps and start creating saved searches and alerts to see what pops up over time.

Then track the listings you care about to see how they turn out. You can see what they were originally listed for and what they eventually sold for, assuming they actually sold.

You can even go to open houses if one is being held (without a real estate agent) and check out the properties to get a really good feel for them.

While you’re there, do not feel obligated to leave your information with the listing agent working the open house. It’s okay to be a lookie loo for now.

There are a lot of so-called disruptors like iBuyers out there trying to change the classic real estate agent model, but it’s still quite likely you’ll use a real estate agent.

Before you even speak to one, it might be advisable to learn on your own and form your own opinions, so someone else doesn’t make them for you.

Check out what the houses, condos and townhomes are like at certain price points in your desired locales. See what features matter to you, and how much square footage you might require.

You can also see design trends and visualize your ideal living space in the process.

The same goes for home loans – at a minimum, learn how mortgages work, where you can get one, and how they differ from other types of loans you might be more familiar with.

For extra credit, take the time to understand how mortgage rates are determined and why.

You could be making mortgage payments for 360 months if you go with a 30-year fixed, so shopping around to get a lower interest rate can really pay dividends.

What Type of Property Do You Want?

  • Do you want a condo, townhouse, or a single-family home
  • Do you have pets and plans to start a family?
  • Do you want to live in the city or the suburbs?
  • What amenities are nearby?
  • What about the schools, crime, etc.?
  • Is this an investment or a forever home?

As you conduct your searches and potentially visit properties, you should make a list of what’s important to you and what’s not.

For example, do you want a condo or a house? If you have a dog or other pets, you might want/need more space.

Do you like city living or suburban living? This isn’t always an option if affordability is an issue, as it’s often a requirement to drive until you qualify to find something suitable.

But consider the work commute if you’ve got one, and really study the area you’re interested in moving to.

Go during the day, go at night, go during the week and on weekends. Get a really good feel for the city in question, and even the street or pocket the properties are located in.

Check out the walkscore and the amenities nearby. Really try to visualize yourself living in a certain area, and not just for a year or two. For several years.

Also consider your goals for the property. Are you buying it as an investment, as a forever home, or have you not even thought that far ahead?

You should have a fairly clear picture in your head of what you want to achieve with the home purchase. If you don’t, maybe take an extra moment to think it all through.

[When to start looking for a home to buy.]

Buying Real Estate Is a Commitment

  • Prepare to stay in the property for at least 5 years
  • Be sure you can afford to make housing payments for the long-haul
  • This usually requires a good, stable job
  • Make sure you buy a place in an area you love
  • It might be possible to sell earlier if you change your mind but consider the costs
  • Homeownership is not for everyone!

If you wind up having buyer’s remorse, it might be possible to unload your unwanted home or condo. But you could pay the price, literally, via closing costs on both the buy and sell side.

And it’ll likely be taxing and a lot of work, assuming you aren’t using a service like Homie, Opendoor, or some other iBuyer.

So really take the time to think it through, and try to imagine yourself living in the property for at least five years.

While that might not be a requirement, you should at least consider longer timelines because homeowner tenures tend to be pretty long.

Finally, ask yourself why you even want to buy a place of your own? Because your friends are or because you’ve thought it through and believe homeownership fits your personality and financial path?

It’s probably not for everyone, and while a home purchase is often driven by emotion, it’s important to keep a level head while making this very big financial decision.

After all, you don’t want to be tethered to a certain area if you still want to keep your options open.

This is especially important for younger home buyers, who may still be deciding where it is they want to live, or what type of industry they want to work in.

If you think you’ll move for work anytime soon, it could be smart to pump the brakes on the home purchase and just take a wait and see approach.

Of course, it’s always a good time to educate yourself on homeownership so that when you’re truly ready to take the plunge, you can dive in with confidence.

Oh, and don’t forget to thank your parents for all those years of free rent!

Read more: 11 tips for buying a home in 2021

Don't let today's rates get away.

Source: thetruthaboutmortgage.com