The Federal Reserve’s effect on mortgage rates: What to know

29th Apr 2021 Uncategorized

The Federal Reserve slashed interest rates to near zero in 2020 in an emergency response to the coronavirus pandemic. The Fed’s action was intended to help Americans struggling financially amid the outbreak by making it more affordable to borrow money. While the Fed doesn’t regulate your mortgage rate, the central bank sets the funds rate to impact the economy. This action indirectly influences the loan rates consumers pay. The Fed kept the key rate near zero during its last meeting, with no forecasted rate hikes through 2023. Record-low rates make it a good time to review your personal finance situation and look into home buying or mortgage refinances. You can explore your home loan options by visiting Credible to compare mortgage lenders and pre-approved fixed or adjustable rates.   Why the Fed cut rates The Federal Reserve’s job is to keep unemployment rates low and inflation in check. One of its tools is setting the funds rate. By law, banks must maintain a certain level of cash at their regional Federal Reserve branch to ensure customer withdrawals. If a bank doesn’t meet its reserves requirement, a bank with excess funds may provide it with an unsecured loan. The funds rate is the interest the lending bank can charge. When the Fed decreases the funds rate, banks are encouraged to lower interest rates on short-term loans, stimulating the economy. This step can improve consumer confidence and inspire spending. It may also prompt businesses to borrow money for capital investments or hiring. However, if debt levels or inflation become high, the Fed may raise the funds rate to slow down borrowing. How the Fed impacts mortgages Long-term loans, such as mortgages, are also indirectly impacted by the Fed’s actions. Fixed mortgage rates are tied to the 10-year Treasury rate, which can sometimes …

How soon after purchasing my home can I refinance?

14th Apr 2021 Uncategorized

With historically low interest rates, you’re probably seeing a fair share of news items declaring what a great time it is to refinance your home. After all, refinancing can be a smart financial move if it results in lowering monthly payments, reducing loan duration, or building home equity more quickly. But the bigger question lingers: How soon can you (or should you) refinance after buying a house or condo? Before contacting a loan officer about refinancing, take a read through the next few sections of this post to see if refinancing is right for you. What does it mean to refinance? Simply put, refinancing is replacing your current home loan with a brand new one. Here’s why that might be an option, even if you have a decent rate already: You want to reduce monthly payments with a lower interest rate or a longer-term (or both) You’d like to pay off your mortgage faster by shortening the terms You’ve re-evaluated having an adjustable-rate mortgage (ARM) and want to convert it to a fixed-rate mortgage You’ve got financial hardships, home improvements, or a major purchase on the horizon and you want to tap into your home equity Your credit rating has improved making you eligible for a better rate You want to get rid of PMI (Private mortgage insurance) that came with your original loan You’ve since gotten married or divorced, and you want to add or subtract someone from the loan How soon can you refinance a home after purchase? The answer may be “sooner than you think,” although it depends on the refinance program you’re looking for, the loan type, and if any penalties apply. It may seem foolish to refinance soon after you went through the process and paid closing costs on your original mortgage, but in some …

3 Tips for Getting a Mortgage When You’ve Just Gotten a New Job

17th Mar 2021 Uncategorized

Mortgage lenders may be hesitant if you’re new to your job. Here’s how to help them get passed that. There are plenty of good reasons to get a new job — better career growth, more rewarding work, or perhaps even a raise. But while getting a new job may work wonders for you professionally, it could be a deterrent from a mortgage application standpoint. Mortgage lenders need reassurance that if they loan you money to buy a home, they’ll get paid back. As such, some lenders will favor loan candidates who have been at their jobs for a long time. If you’re new to yours, it could hurt your chances of mortgage approval. But if that’s your situation, here are a few ways to work around it. 1. Present a letter from your employer If you’re brand new to a job, a lender may wonder how stable it is. But providing a letter attesting to its stable nature at the time of your application could help. If your employer notes that you’re expected to stay on board for the long haul and that the company itself isn’t experiencing any financial hardships, that could be enough to sway a lender that your primary income source is, indeed, a reliable one. 2. Make a larger down payment The bigger a down payment you make on your home, the less risk your lender takes on. If you’re new to a job and you have the savings to put down, say, 25% or 30% of your home’s purchase price (as opposed to the standard 20%), that could buy your lender enough comfort to approve you as a loan candidate. 3. Provide proof that you’re still in the same industry It’s one thing to get a new job that seems like a random way to …

Biden administration could reduce FHA mortgage insurance premiums. What does that mean for you?

03rd Mar 2021 Uncategorized

FHA mortgage insurance might get cheaper this year “Mortgage industry buzzes with speculation of FHA MIP cut,” stated one trade magazine. And that journalist was right. Many insiders are confidently predicting a big cut in the Federal Housing Administration’s (FHA’s) annual mortgage insurance rates. FHA borrowers currently pay 0.85% annually in mortgage insurance premiums (MIP). That’s $1,700 per year, or $140 per month, on a $200,000 mortgage. So it’s no wonder a possible MIP rate cut is big news. It could help new home buyers and refinancing homeowners save big on their housing payments. Why experts think Biden will lower mortgage insurance premiums Lowering FHA mortgage insurance rates isn’t a new idea from President Biden. It’s a holdover from former President Obama’s agenda. American Banker magazine explains “The Department of Housing and Urban Development under former President Barack Obama had announced a scheduled 25-basis-point reduction in the FHA’s annual mortgage insurance premiums just before President Donald Trump took office.” But Trump reversed this change at the start of his term, leaving FHA MIP rates at 0.85% per year. Now, says American Banker, “observers expect the Biden administration to follow through on that 25-basis-point cut and potentially go even further.” Lowering FHA MIP costs would be right in line with President Biden’s goals of expanding affordable housing opportunities for low- and middle-income families. Of course, this is only speculation for now. No official announcements have been made. But the pervasiveness of the rumor — and the absence of denials from the administration — mean a change seems likely. So potential home buyers and FHA homeowners should be aware of what the (potential) change would mean for them. What an MIP reduction could mean for you There’s good news and bad news. The bad news is that if you already have an …

The Best Tax Deductions for Homeowners

24th Feb 2021 Uncategorized

Tax season is around the corner. That means it’s time to start thinking about your tax deductions. Fortunately, there are quite a few tax deductions homeowners can take. Read them over so you have a better idea of which deductions you can take on your tax return this year. What are tax deductions? Tax deductions are expenses deducted from your gross income to reduce your taxable income on your tax return. In general, people either take the standard deduction or an itemized deduction in an effort to lower their tax burden. However, as a rule of thumb, it only makes sense to take an itemized deduction if the total tax benefit is greater than it would be for the standard deduction. For the 2020 tax year, the standard deduction is as follows: Single filers and those married filing separately: $12,400 Those married filing jointly: $24,800 Heads of household: $18,650 Common tax deductions for homeowners While there’s no specific homeowner tax deduction, homeowners will often choose to itemize their deductions because quite a few of the costs related to home ownership qualify as tax deductions. We’ve laid them out so you can determine which ones apply to you specifically. Mortgage interest The mortgage interest deduction is one of the most common deductions homeowners take. Every month, when you pay down a portion of your loan, some of it goes to interest. Each tax year, you can deduct a portion of the interest you’ve paid for a tax break. Unfortunately, though, you can only deduct mortgage interest up to a certain limit, and that limit depends on when your loan was originated. These are the limits as they stand in 2021: If your mortgage originated any time between October 14, 1987 and December 16, 2017, you are allowed to deduct up to …

How much will the commercial mortgage market grow in 2021?

16th Feb 2021 Uncategorized

The MBA is forecasting commercial and multifamily lending to increase 11% in 2021, bringing total volume up to $486 billion. While this is good news for hard-hit commercial mortgage sectors, it represents only a partial recovery from the pre pandemic lending levels. As with much of the economic story in the past year, that recovery is predicted to be highly sectoral and differentiated between asset types. Nevertheless, it offers an opportunity for mortgage pros working in the commercial space to win again this year. “That 11% increase might look a little odd in the throes of the pandemic and the recession that it caused, but that’s coming off a 27% decline last year,” said Jamie Woodwell (pictured) VP of commercial real estate research at the MBA. “We saw markets hit a very rough spot in 2020…Q2 and Q3 were each down by 50% from where they had been a year earlier and when we got to the fourth quarter, production was only down 18% from the year earlier. We started to see a bit of a bounceback in Q4 and we think a lot of that momentum is going to carry forward into 2021 as well.” The MBA’s forecast also predicted a 7% volume increase in multifamily lending, after a 17% drop last year. Woodwell noted that multifamily fared better from a volume standpoint than most CRE last year because of an uptick in refi activity, even as purchase activity was driven down. The sector, therefore, doesn’t have as far to bounce back as other areas might. While low interest rates drove some of that refinance activity, Woodwell believes that by the time rates rise in any meaningful way, sales activity in the multifamily space will have recovered. Along with predicted strength in multifamily, Woodwell expects industrial will remain the …

Buying your first home? Here are 6 questions to ask yourself

10th Feb 2021 Uncategorized

The spring home buying season is about to start, and the housing market is especially scary for first-time buyers. Home values have been soaring. Bidding wars are common. For novice home shoppers, it all can feel a bit intimidating. “There are so many savvy buyers out there that you’re competing against,” says Katie Severance, an agent at Brown Harris Stevens in New Jersey and author of The Brilliant Home Buyer’s Guide. If you’re a first-time buyer, here are six questions to ask yourself. 1. What’s your credit score? Mortgage rates remain at rock-bottom levels. But to lock in the most favorable rate, you’ll need a credit score of 740 or above. Your credit score is the single most important factor in determining your rate. So if you have a choice between paying down credit card debt or scraping together a down payment, it’s probably wiser to tackle the debt, because that should help your credit score. 2. What’s your plan for the future? Put another way, how long do you plan to stay in the house? In general, if you expect to be in the same place for less than three to five years, buying doesn’t make as much sense. That’s because real estate commissions and mortgage closing fees can eat into your proceeds when you sell the property. One wild card: Home prices have been appreciating quickly. If strong growth in home values continues, then owning a home for just a couple of years can pay off. However, predicting the path of home prices is nearly impossible. 3. How much do you have for a down payment? This issue isn’t a deal killer, but it does make a difference. If you can put down 20 percent — $60,000 on a $300,000 home — you’ll avoid private mortgage insurance (PMI). …

Loan Estimate: Decoding Your Important Form

01st Feb 2021 Uncategorized

When applying for a mortgage, there are a ton of details to iron out. And if you are shopping a few lenders in search of the best deal, that is an incredible amount of info to keep track of and compare. Fortunately, a very important document known as a loan estimate (LE) can help. Reviewing your loan estimate is an important part of the mortgage application process. Here’s a closer look at what it is and how to read it. What Is a Loan Estimate? Formerly known as a “Good Faith Estimate,” this form was updated in 2015 to be more useful and easy to read. Now known as a loan estimate, this document tells you everything you need to know about your potential mortgage, including the interest rate, term length, monthly payment amount, escrow details and closing costs. All loan estimates are formatted the same way, making it easy to compare multiple loan options. In order to receive a loan estimate, you need to provide the lender with six pieces of personal information: your name, income, Social Security number (SSN), the address of the property you want to finance, the property’s value and the total amount you want to borrow. Once you provide this information, the lender is required to send you an LE within three days. Keep in mind that simply receiving a loan estimate does not mean you are approved for the loan; it’s an estimate of what the lender plans to offer you based on the information you provided. You’ll still need to accept the offer and then provide additional documentation that you can repay the loan in order to lock it in. Once issued, the terms of the loan estimate are good for 10 days. As long as there aren’t any major changes to your …

How To Give Adult Children Money For A Home, And Avoid Tax Problems

19th Jan 2021 Uncategorized

 Some parents feel the need to help their children out to purchasing a home. But what does that mean for the parents when it comes to doing their taxes? are they allowed to give the entire amount, or just a small sum? Below we have a scenario and some answers to a few questions that may arise during the process. Here are a few scenarios that may make sense to you if you are planning to help your children out with their home mortgage: For Example, Let’s say my spouse and I lent our daughter and her husband the total amount they needed to purchase their new home but none of this was documented. What should we be doing to minimize the tax bite and keep things legal? Well, there are a number of factors you and your spouse should consider—and your daughter and her husband, too Let’s presume your intention is to be repaid this amount. The loan should be documented by a written promissory note. The note should reflect the amount borrowed, with the interest rate, and the terms of repayment and other key provisions. The loan interest rate can either be a fixed rate or can be a floating rate based on some benchmark, such as a specified prime rate of interest. And it should be payable in periodic intervals. While the intervals can provide for annual, quarterly or monthly payments, most home mortgage loans are paid on a monthly basis. The interest should be set at a rate no less than the IRS prescribed rate of interest so the loan is not treated as a below-market loan, which could trigger taxes. Here is another question you may have: What’s the tax vulnerability? Gift taxes are the issue here.  If there is no promissory note and the IRS …

An Indicator of Mortgage Rates Spiked Last Week. What does that Mean for You?

13th Jan 2021 Uncategorized

A sudden movement in the bond market this week could predict rising mortgage interest rates ahead, financial experts say. For the first time since March of last year, U.S. 10-year Treasury bonds hit 1%. This change comes on the heels of Georgia’s two runoff elections concluding this week, in which Democrats won control of the U.S. Senate. The increase to 1.08%, up from 0.93% at the beginning of the week, was driven by investors’ expectations that when Democrats take control of both houses of congress — and the White House — there will be more stimulus spending in an effort to boost the struggling economy. The bond market did exactly what it should do. The prospect of more disaster relief combined with increased distribution of COVID-19 vaccines will continue to push bond rates higher if the economy rebounds. Historically, 10-year Treasury rates and mortgage rates have moved in tandem. So normally, we’d expect to see mortgage rates climb, but so far the increase has been minimal. And sustained rate growth is still dependent on a variety of factors outside of investor optimism on the potential for government aid. Here’s what this could mean for the housing market. What Are the Short-Term Implications for Mortgage Rates? This week, 30-year fixed rates hit another record low of 2.65%, according to the latest data released by Freddie Mac. But don’t read too much into that. “Bond yields have only moved up in the last two days, and Freddie’s survey looks over the last week,” says Greg McBride, chief financial analyst at Bankrate. While mortgage rates aren’t poised to skyrocket, there’s no guarantee rates will remain at an all-time low. This uncertainty is due to the spread between 10-year U.S. Treasury bonds and 30-year mortgage rates during the pandemic, which have been higher than …