Mortgage Rates vs. Fed Announcements

Posted on March 3rd, 2020

File this one under “no correlation,” despite a flood of news articles claiming the Fed’s rate cut directly impacts mortgage rates.

Today, the Fed cut the federal funds rate by half a percentage point to a range of 1-1.25% due to the uncertainty surrounding the coronavirus, this despite a strong U.S. economy.

That sent mortgage rates trending and the media into overdrive, searching for possible angles.

You can’t blame them (the media) – it makes for a good headline, but much of what is thrown out there usually isn’t true or anything to worry about.

In most cases, it’s excitement-inducing or fear mongering, or simply something to fill the page.

It tends to be a regurgitated article that comes out around the time the Fed meets, which is every six weeks throughout the year (eight times annually).

Whenever a Fed announcement comes along, you’ll start to see an uptick in articles about what mortgage rates will do when the Fed speaks, with the most common ones being “rates expected to rise” or “rates could move even lower thanks to Fed rate cut.”

Or you’ll get straight up definitive articles warning you about the impending rate rise and what you should/can do to mitigate the damage.

The problem is it’s simply not accurate and these tend to do more harm than good.

The Fed Doesn’t Announce Mortgage Rates

  • The Fed doesn’t set or announce consumer mortgage rates
  • Regardless of the misinformation you’ll find out there
  • When they announce a Fed rate change
  • Mortgage rates may go up or down (or do nothing!)

When the Fed gets together to set the target rate for the Federal Funds Rate, financial markets (stocks, bonds, etc.) pay attention and react.

As does the media because it’s generally a big deal. But Jerome Powell and co. don’t sit down and decide which way mortgage rates will go.

Rather, they discuss the state of the broader economy, inflation, monetary policy, and so on.

They almost never mention mortgages explicitly, except for in recent years thanks to the remnants of the quantitative easing program known as QE3.

No Correlation Between Fed Funds Rate and Mortgage Rates

fed funds vs mortgage rates

Additionally, there’s no clear correlation between the Federal Funds Rate and mortgages.

In other words, one can go up while the other goes down. Or one can do nothing while the other does something. Or they can move in the same direction for a while.

But the spread between the two won’t remain in a certain range over time like mortgage rates and the 10-year bond yield do.

You can’t say the 30-year fixed should be X% higher or lower than the Fed Funds Rate at any given time.

As you can see from the St. Louis Fed chart above, the 10-year yield and the 30-year fixed (based on Freddie Mac data) move in relative lockstep.

You can see the blue line and red line move in a very similar fashion over the years with a pretty steady spread. Then there’s the green line (Fed Funds Rate), which is all over the place.

Sometimes you see a long-term trend, but other times you see no apparent correlation.

Check out the second graph below, from 2000-2010, which shows some similar movement between the FFF and mortgage rates, but at times no obvious relationship.

decade compare

In short, mortgage rates don’t necessarily follow the Fed, whether that’s up, down, or nowhere at all.

The Fed Indirectly Influences Mortgage Rates

  • A more accurate way of defining the relationship
  • Is that it might be an indirect, long-term one
  • If the Fed is raising rates over time
  • Long-term mortgage rates may eventually follow

Some may argue that the Fed indirectly influences mortgage rates. Really, the Fed is just trying to control inflation via short-term rates. This in turn dictates how longer-term rates may play out.

Essentially, the market for longer-term rates such as 30-year mortgages (and mortgage-backed securities) might seek direction from Fed cues.

The Fed tends to telegraph its moves well in advance, so it’s pretty rare for anyone to get too surprised the day they release their FOMC statement.

Today was a little different since it was an “emergency rate cut,” but it still wasn’t totally unexpected. Again, the Fed is pretty conservative.

Anyway, they do give an indication as to which way we’re (the economy is) headed and what kind of monetary policy is in store, which can be important to longer-term rates, such as 30-year fixed mortgages.

That means the Fed statement can have an immediate impact on mortgage rates on the day it’s released, to the point where lenders may need to reprice ratesheets from morning to afternoon.

But that reprice can completely counter the Fed’s move. For example, the Fed can lower its key rate while mortgage lenders reprice rates higher. Or do absolutely nothing.

Mortgage Rates Can Go Either Way…

  • Pay attention to Fed announcements when they’re released
  • But don’t give them too much weight or worry about them
  • Or think you can predict what will happen to mortgage rates
  • Since there’s no clear short-term correlation

So, Fed announcements can affect mortgage rates, but how they’ll affect mortgage rates is mostly a crapshoot.

You can’t say oh, the Fed lowered rates so my 30-year mortgage will be lower too. And you can’t say oh no, the Fed raised rates, I should have locked my mortgage!

The mortgage rate trend lately has without a doubt been lower, but we’ve reached a point where rates are at/near all-time lows, making it increasingly difficult for them to get any better.

Ultimately, lenders don’t even have the capacity (staff, etc.) or the desire to lower rates because they’re probably already swamped.

Then there are the MBS investors to worry about, who won’t be thrilled about all the prepayments happening.

In summary, it can be a mystery as to how things will go post Fed statement, and you can always get hung out to dry. That’s why floating a mortgage rate isn’t for the faint of heart.

But again, the Fed’s move may have no bearing on your mortgage rate, at least not today, or tomorrow. Or even next week.

The Fed might just be good at telling us which direction mortgage rates are headed (eventually) based on policy and broader economic conditions.

If you’re wondering why mortgage rates haven’t improved after the announcement today, perhaps it was already baked in. And as noted, it’s getting really hard to move even lower.

I don’t know if lenders want to give you a 2% 30-year fixed.

You could argue that mortgage lenders were ahead of the Fed on this one, with rates marching lower for weeks on end lately.

Just remember this; lenders will use any excuse to raise mortgage rates, but take their sweet old time lowering them.

That means we could even see more improvement in coming days and weeks, but not because of the Fed. More so due to economic unknowns globally.

Tip: The only direct mortgage impact you’ll see from a Fed announcement is an increase or decrease in the prime rate, which affects the pricing of HELOCs, among other consumer loans. Everything else is indirect and not necessarily correlated.

(photo: Federalreserve)

Lock in a lower rate.

Source: thetruthaboutmortgage.com

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?

Lock in a lower rate.

Source: thetruthaboutmortgage.com

Don’t Freak Out About the Recent Mortgage Rate ‘Spike’

Posted on January 15th, 2021

Queue the panic. Mortgage rates have officially spiked and the media is all over it.

Yep, the average rate on a 30-year fixed mortgage increased from 2.65% to 2.79% this week, per Freddie Mac’s weekly survey.

Freddie Mac Chief Economist Sam Khater noted in the weekly news release that mortgage rates have been under pressure as Treasury yields have risen.

But he did stress that “while mortgage rates are expected to increase modestly in 2021, they will remain inarguably low.”

So he’s not panicking, even though the Washington Post and other news outlets are leading with articles about “mortgage rates spiking.”

When it comes down to it, a 14-basis point move isn’t what I’d refer to as a “spike,” but yes, mortgage rates are higher than they were last week.

But they are still well below the 3.65% average seen at this time a year ago.

Why Have Mortgage Rates Increased Lately?

rates

  • 30-year fixed mortgage rates have fallen to and hovered close to record lows for months
  • It’s inevitable to see some upward pressure after such a long period of record-breaking movement
  • One driver could be the bond selloff, which lower prices and increases yields
  • This might relate to the Democrats winning the Senate and increasing stimulus spending

As noted, mortgage rates are no longer at record lows, and are in fact closer to 3% than 2%. So should we all freak out?

I’m going to go with no. While the media is using the word “spike” in their articles, perhaps to make its relatively boring weekly report a little more interesting, things aren’t that bad.

Remember, mortgage rates are only marginally higher, and probably not high enough to change anyone’s position on buying a home or refinancing their mortgage.

Sure, there’s a chance someone’s monthly mortgage payment now exceeds the max DTI allowed for the loan, but if you were cutting it that close, you’re probably buying too much home.

As to what’s causing the recent upward reversal, mortgage rate watcher Matthew Graham seems to think it relates to the bond sell-off as a result of the Democrats taking over the Senate.

Simply put, the government issues Treasuries to fund additional COVID-related stimulus, which while good for the economy and struggling households, increases bond supply.

The result is lower bond prices, which forces the accompanying yields (or interest rates) higher.

And because Treasuries correlate with long-term mortgage rates like the 30-year fixed, borrowers will pay more to finance their homes.

Is This the End of Low Mortgage Rates Forever?

  • Let us remember that mortgage rates started off 2021 at all-time record lows
  • So it’s not surprising for them to rise off those levels if there’s any pressure whatsoever
  • I fully expect mortgage rates to hit new lows at some point this year
  • But you’re always going to see ebbs and flows over the course of 365 days

While it’s easy to let your fears and emotions get the best of you, perhaps we shouldn’t call an end to the low-rate party just yet.

Ultimately, mortgage rates ebb and flow, similar to how stocks go up and down from day to day, or week to week.

Yes, it’s easy to get caught up in the psychology of it all and panic, but I just don’t believe we’ve seen the end of the low rates.

Additionally, there may even be more record lows in store for 2021.

Remember, the first week of 2021 resulted in new all-time lows for both the 30-year fixed and 15-year fixed, so it’s kind of far-fetched to sound the alarm.

This isn’t to say we don’t experience a period of relatively higher rates, it’s just that it could be short-lived.

Remember, the presidential inauguration is next week and there are thousands of National Guard protecting the Mall in Wasington D.C and holed up in the Capitol Building.

If that gives you confidence that good times are ahead, well, I don’t know what to tell you.

Not trying to be an alarmist, but there’s just too much uncertainty in the air for interest rates to flourish.

In short, bad news tends to lower rates, while good news increases them. I don’t see much good news, even with all that proposed government spending taken into account.

A month ago, the Federal Reserve said it would be keep its short-term interest rate near zero for the foreseeable future as the economy attempts to recover from the COVID-19 pandemic.

They also indicated that they’d continue to buy Treasuries and mortgage-backed securities (MBS) at the current pace until “substantial progress” is seen in the economy.

Call me a pessimist, but I don’t see anything positive happening with the economy this year, or even next year.

I think we’ve all been ignoring the elephant in the room while watching the stock market reach new all-time highs. At some point, reality will hit.

Ultimately, as long as they’re continuing to buy the mortgages this month and next, lenders will continue to make them at low, low rates.

Time will tell if rates will need to rise on long-term fixed mortgages as the Fed eventually exits the marketplace.

Is It Best to Lock Now or Wait?

  • Times like this exemplify the importance of locking in your mortgage rate
  • You are typically given the choice to lock or float your interest rate once you apply for a home loan
  • If you like what you see, lock it in and don’t give it another thought
  • If mortgage rates shoot up quickly, it could be wise to float and wait for things to calm down

My guess is fixed-rate mortgages will settle down and begin making their way back to lows seen earlier this month.

Of course, mortgage lenders are always quick to raise rates, and a lot more patient when it comes to lowering them (at our expense).

You can’t blame them though – they don’t want to get caught out if volatile rates change direction and they’re on the wrong end of that.

Times like these really exemplify the importance of locking in your mortgage rate. No one cares or complains until rates increase.

If you’re happy with your quoted rate, lock it in and forget about it.

If you’ve got some time before funding, maybe float a bit and wait for some improvement.

After all, the more time you have, the more chances you’ve got for rates to move lower.

And you can always lean on your loan officer or mortgage broker if you’re not sure what to do. Most of the experienced ones keep a keen eye on rates.

In summary, you don’t need to panic, but you should be aware of the fluid situation if you’re looking to refinance or buy a home in 2021.

It might also be a good time to consider how long you plan to stay in your home as well.

That could dictate your mortgage decision and whether or not to pay mortgage points for an even lower rate.

Lock in a lower rate.

Source: thetruthaboutmortgage.com

Mortgage Rates Continue to Rise

Mortgage rates are continuing to move higher this week. We’ve now seen them rise for two consecutive weeks in the Freddie Mac PMMS. The consensus is for them to continue rising for the foreseeable future. Read on for more details.

Where are mortgage rates going?                                             

Mortgage rates rise in the Freddie Mac PMMS again

Mortgage rates have moved higher for the second straight week according to the Freddie Mac Primary Mortgage Market Survey (PMMS). Here are the numbers:

  • The average rate on the 30-year fixed rate mortgage moved two basis points higher to 4.54% (0.5 points)
  • The average rate on a 15-year fixed rate mortgage ticked up two basis points to 3.99% (0.4 points)
  • The average rate on a 5-year adjustable rate mortgage moved up eight basis points to 3.93% (0.3 points)

Here is what Freddie Mac’s Economic and Housing Research Group had to say about mortgage rates this week:

“The 30-year fixed-rate mortgage inched higher for the second straight week.

Borrowing costs may be slowly on the rise again in coming weeks, as investors remain optimistic about the underlying strength of the economy. It’s important to note that mortgage rates are now up three-quarters of a percentage point from last year and home prices – albeit at a slower pace – are still outrunning rising inflation and incomes.

This weakening in affordability is hindering many interested buyers this fall, even as the robust economy brings them into the market. The good news is that purchase mortgage applications have recently rebounded to above year ago levels.”

Rate/Float Recommendation                                    

Lock now before rates move even higher         

Mortgage rates have risen these past few weeks and that trend is expected to continue over the coming months as the Federal Reserve gets ready to, and does, increase the nation’s benchmark interest rate.

If you are planning to buy a home or refinance your current mortgage, we strongly recommend that you lock in a rate sooner rather than later. The longer you wait, the more likely it is that you’ll get a higher rate.

Learn what you can do to get the best interest rate possible.  

Today’s economic data:             

ADP Employment Report

The ADP employment report showed 163,000 jobs added to the U.S. economy in August.

Jobless Claims

Applications filed for unemployment benefits in the U.S. came in at 203,000 for the week of 9/1/18. That’s 10,000 fewer than the previous week, bringing the four-week moving average to 209,500.

Productivity and Costs

Nonfarm productivity rose 2.9% Q/Q in the second quarter of 2018. Unit labor costs fell 0.1%.

PMI Services Index

The PMI Services Index came in at 54.8 for August.

Fedspeak

San Francisco Fed President John Williams is set to speak at 10:00am.

Factory Orders

Factory orders fell 0.8% month over month in July.

ISM Non-Mfg Index

The ISM Non-Mfg index hit a 58.5 in August, up a little from July.

EIA Petroleum Status Report

For the week of 8/31:

  • Crude oil: -4.3 M barrels
  • Gasoline: 1.8 M barrels
  • Distillates: 3.1 M barrels

Notable events this week:     

Monday:   

  • Markets Closed

Tuesday:   

  • PMI Manufacturing Index
  • ISM Mfg Index
  • Construction Spending

Wednesday:         

Thursday:     

  • ADP Employment Report
  • Jobless Claims
  • Productivity and Costs
  • PMI Services Index
  • Fedspeak
  • Factory Orders
  • ISM Non-Mfg Index
  • EIA Petroleum Status Report

Friday:          

  • Employment Situation
  • Fedspeak

*Terms and conditions apply.

Carter Wessman

Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.

Source: totalmortgage.com

2021 Conforming loan limits range from $548K to over $1 million

Conforming loan limits increase to $548,250 for most areas

Conforming loan limits are on the rise.

Home buyers in most of the U.S. can now get a conforming loan up to $548,250 with just 3% down.

And the single-family loan limit is over $822,000 in high-cost areas.

Multifamily home buyers get a nice increase in
buying power, too, with limits for 2-4-unit properties topping $1 million in
some areas.

On top of this, we’re seeing ultra-low interest rates carry over from 2020 into 2021.

Put all it together, and you get incredible
purchase and refinance opportunities for home buyers and homeowners alike.

Check today’s conforming mortgage rates (Jan 11th, 2021)


In this article (Skip to…)


Freddie Mac and
Fannie Mae loan limits for 2021

Lending limits for conventional loans got a nice boost this year.

The Federal Housing Finance Agency (FHFA) determined home prices are up 7.42% on average across the nation.

It raised
conforming loan limits by the same percentage — a dollar increase of almost
$38,000 for the standard one-unit home. Multi-unit
properties got a similar boost.

Baseline conforming loan limits

Standard loan limits for 2021, which apply in most of the United States, are as follows:

  • 1-unit homes: $548,250
  • 2-unit homes: $702,000
  • 3-unit homes: $848,500
  • 4-unit homes: $1,054,500

Keep
in mind that these are only “standard” limits. In areas with high-cost real estate, buyers get significantly higher mortgage limits.

Maximum conforming loan limits

High-balance
conforming loan limits vary by county. They can fall within the following
ranges:

  • 1-unit homes: $548,250­–$822,375
  • 2-unit homes: $702,000–$1,053,000
  • 3-unit homes: $848,500–$1,272,750
  • 4-unit homes: $1,054,500–$1,581,750

Areas
such as Alameda County, California, Arlington, Virginia, and Jackson, Wyoming enjoy the maximum conforming loan limits, while cities like Seattle, Washington and
Baltimore, Maryland fall between the “floor” and the “ceiling.”

In
Alaska, Hawaii, Guam, and the U.S. Virgin Islands — which follow their own loan
limit rules — the baseline loan limit for 2021 is $822,375 for a one-unit
property.

Verify your home buying eligibility (Jan 11th, 2021)

Conforming
loan limits by county for 2021

What is a
mortgage loan limit?

A loan
limit is the maximum amount you can borrow
under certain mortgage programs.

There
is not just one loan limit, but many. Conventional mortgages adhere to one set
of loan limits, and FHA another.
VA loans did away with limits altogether in 2020.

In the world of conforming loans, Fannie Mae and Freddie
Mac limit “borrowable” amounts to keep their nationwide programs available to
those who need them.

For instance, Fannie Mae doesn’t want a $10 million loan
going through its system. That’s a lot of risk wrapped up in one
transaction, and the agency would rather issue many smaller loans to more home
buyers.

Fortunately,
loan limits are on the rise in 2021 to reflect rising
home prices across the country.

What
is a conforming loan?

A conforming loan is any mortgage that:

  1. Has a loan amount within local conforming loan limits
  2. Meets lending guidelines set by Fannie Mae and Freddie Mac

Mortgages within conforming loan limits are eligible to be backed by Fannie Mae and Freddie Mac, as long as the borrower meets basic criteria for credit score, income, down payment, and debt levels.

Conforming loans typically require:

  • A credit score of at least 620
  • A debt-to-income ratio below 43%
  • A down payment of at least 3%
  • Two-year history of stable employment and income

Exact conforming loan requirements
can vary by lender, but they all have to meet the minimum guidelines set by
Fannie and Freddie.

These
standards give lenders and investors more
confidence in these loans.

As a result, conforming loans are available with ultra-low mortgage rates and just 3% down payment.

Check today’s conforming mortgage rates (Jan 11th, 2021)

What if my
loan is over the conforming limit?

Remember
that the conforming loan limit applies to the loan amount, not the home price.

For
instance, say a buyer is purchasing a 1-unit home in Boulder, Colorado where
the limit is $654,350. The home price is $1 million, and the buyer is
putting $450,000 down.

This
buyer is eligible for a conforming loan. The final loan amount is
$550,000 — well within limits for the area.

Still,
many applicants will need financing above their local loan limit. For
them, a number of solutions exist.

Jumbo loans

The
simplest method is to use a jumbo loan. Jumbo mortgages describe any home loan
above local conforming limits.

Using
the example above, let’s say the Boulder, CO home buyer puts down $200,000 on a
$1 million home. In this case, their loan amount would be $800,000 — far above
the local conforming loan limit of $654,350. This buyer would need to finance
their home purchase with a jumbo loan.

You might think jumbo mortgages would have higher interest rates, but that’s not always the case.

Jumbo loan rates are often near or even below conventional mortgage rates.

The
catch? It’s harder to qualify for jumbo financing. You’ll likely need a credit
score above 700 and a down payment of at least 10-20%.

If
you put down less than 20% on a jumbo home purchase, you’ll also have to pay
for private mortgage insurance (PMI). This would increase your monthly payments
and overall loan cost.

The
next method helps you avoid PMI when buying above conforming loan limits.

Verify your jumbo loan eligibility (Jan 11th, 2021)

Piggyback financing for high-priced homes

Perhaps the most cost-effective method is to choose a piggyback loan. The piggyback or “80/10/10” loan is a type of financing in which a first and second mortgage are opened at the same time.

Typically, this structure is used to avoid private mortgage insurance.

A buyer can get an 80 percent first mortgage, 10 percent second mortgage (typically a home equity line of credit), and put 10 percent down.

However,
these loans are also available for those putting 20 percent down or more. Here’s how
it would work.

  • Home price: $700,000
  • Down payment: $140,000 (20%)
  • Financing needed: $560,000
  • Local conforming limit: $548,250

The
buyer could structure his or her loan as follows.

  • Down payment: $140,000
  • 1st mortgage: $548,000
  • 2nd mortgage: $12,000

The
home is purchased with a conforming loan and a small second mortgage. The first
mortgage may come with better terms than a jumbo loan, and the second mortgage
offers a great rate, too.

Verify your piggyback loan eligibility (Jan 11th, 2021)

What’s the jumbo loan limit for 2021?

Technically there’s no jumbo loan limit for 2021.

Since jumbo mortgages are above the conforming loan limit,
they’re considered “non-conforming” and are not eligible for lenders to assign
to Fannie Mae or Freddie Mac upon closing.

That means the lenders offering jumbo loans are free to set
their own criteria, including loan limits.

For example, one lender might set its jumbo loan limit at $2
million, while another might set no limit at all and be willing to finance
homes worth tens of millions.

But the amount you can borrow via a jumbo or
non-conforming loan is limited by your finances.

You need enough income to make the monthly mortgage payments on your new home. And your debt-to-income ratio (including your future mortgage payment) can’t exceed the lender’s maximum.

You can use a mortgagecalculator to estimate the maximum home price you can likely afford. Or contact a mortgage lender to get a more accurate number.

What if I’m
getting an FHA loan?

FHA loans come with their own loan limits. Standard FHA limits for 2021 are as listed below.

  • 1-unit homes: $356,362
  • 2-unit homes: $456,275
  • 3-unit homes: $551,500
  • 4-unit homes: $685,400

You
might notice that FHA’s limits are considerably lower than conforming limits.
That’s by design.

The FHA program, backed by the Federal Housing Administration, is meant for home buyers with moderate incomes and credit scores.

But
the FHA also suits home buyers in expensive counties. Single-family FHA loan limits reach $822,375
in high-cost areas within the continental U.S. and a
surprising $1,233,550 for a 1-unit home in Alaska, Hawaii, Guam, or the Virgin Islands.

What are
today’s mortgage rates for these loan limits?

Mortgage
rates for conforming loans are stellar, which is why so many buyers consider a
conforming loan before using jumbo financing.

Get
a rate quote for your standard or extended-limit conforming loan. Compare to
jumbo rates and piggyback mortgage rates to make sure you’re getting the best
value.

Verify your new rate (Jan 11th, 2021)

Source: themortgagereports.com

Mortgage applications drop for second straight week

The Mortgage Bankers Association reported that applications decreased 1.2% during the week ending Dec. 4 in its latest weekly survey — the second straight week of application decreases.

The refinance index and the unadjusted purchase index did increase, however, jumping 2% and 29% respectively from the previous week. The refinance index is up 89% from the previous year, according to Joel Kan, MBA’s associate vice president of industry and economic forecasting.

“The increase in refinance applications was driven by FHA and VA refinances, while conventional activity fell slightly,” he said. “The purchase market is also poised to finish 2020 on a strong note. Applications fell slightly last week, but were around 3% higher than the two weeks leading up to Thanksgiving. Reversing the recent trend, there was also a shift in the composition of purchase applications, with an increase in government loans pushing the average loan balance lower.” 

The refinance share of mortgage activity decreased to 72% of total applications, up from 69.5% the previous week. The adjustable-rate mortgage share of activity also decreased – for the second week in a row – to 1.7%, from 1.8% last week.

The FHA share of total applications increased to 9.9% from 9.1% percent the week prior, while the VA share of total applications increased to 12.7% from 11.9%.

Here is a more detailed breakdown of this week’s mortgage application data:

  • The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) decreased to 2.9% from 2.92%
  • The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $510,400) increased to 3.2% from 3.19%, the second week in a row that jumbo loan balances saw an interest increase
  • The average contract interest rate for 30-year fixed-rate mortgages fell to 2.97% from 3%
  • The average contract interest rate for 15-year fixed-rate mortgages decreased to a survey-low 2.51% from 2.53%
  • The average contract interest rate for 5/1 ARMs decreased to 2.60% from 2.63%

Source: housingwire.com

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

Posted on November 23rd, 2020

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 record low mortgage rates, which while undoubtedly great for homeowners, mean mortgage lenders are absolutely slammed.

Average Time to Close Now 54 Days

oct 2020 originations

  • Home loans are taking a lot longer to close due to unprecedented demand
  • It now takes 54 days for a home loan to fund, up from 44 days a year ago
  • While purchases are taking a similar amount of time to close, refis have slowed by nearly three weeks
  • Expect your mortgage refinance to take almost two months from start to finish

While you might see advertisements telling you it’s possible to get approved for a mortgage in just minutes, that’s very different than actually closing a home loan.

Sure, you can get the ball rolling right away, maybe get a fairly solid mortgage pre-approval that has been run through an automated underwriting system the same day.

But in terms of your loan actually making it to the funding table and getting recorded, the timeline might be closer to two months than 10 minutes.

The latest Origination Insight Report from Ellie Mae revealed the average time to close all home loans increased to 54 days in October, up from 51 days in September.

Broken down by transaction type, it took 48 days to close a purchase loan in October, up from 47 days in September, and 57 days to close a refinance loan, up from 54 days in September.

For perspective, it took an average of 42 days to get a home loan closed six months ago, and 44 days a year ago.

Back in April, a refinance took just 39 days, while a home purchase took 46 days. So while purchase loan closing times have held fairly steady, refis are taking nearly three weeks longer on average.

In other words, be patient and expect it to take a while, regardless of all the cool new technology you’ve seen and heard about.

Yes, it’s easier to get a mortgage these days thanks to digital mortgage applications, including those powered by Ellie Mae themselves, but that doesn’t necessarily mean the process goes much faster.

It just means you’ll get tasks done quickly, then spend a lot of time twiddling your thumbs while home appraisals get scheduled and your loan makes it through underwriting and on to the funding department.

Mortgage Rates Fall Below 3% for First Time

  • The average mortgage rate on a closed loan fell below 3% for the first time ever
  • The 30-year note was 2.99% in October, down from 3% a month earlier and 3.94% a year ago
  • VA loans had an average rate of 2.75%, while conventional and FHA loans averaged 3.01%
  • Expect this number to dip even lower as rates have fallen over the past couple months

Ellie Mae also noted that mortgage rates fell below three percent for the first time since the company began tracking such data back in 2011.

Again, this explains why those wait times to get a mortgage have increased so much.

The report revealed that the average 30-year fixed note rate was 2.99% in October, down from 3% in September and 3.94% a year earlier.

By loan type, it was 2.75% for a VA loan, and 3.01% for both a conventional loan and FHA loan.

Combined, that was enough to push the average interest rate on a closed loan below 3%.

My expectation is this number will continue to fall as mortgage rates have only moved lower in recent months, and the data lags.

In summary, patience is a virtue right now when it comes to just about anything, including home loans.

And remember, aside from it being difficult (by human nature) to wait, mortgage lenders also tend to keep rates elevated when demand is super high.

So it could actually pay to wait to apply for a refinance until things calm down – the only dilemma there is if rates happen to rise during that time.

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