When preparing to buy a home,
financing is typically in order. And for those shopping for their best mortgage
deal, the two most asked-about questions concern the interest rate and closing
costs. Sure, there are certainly other considerations but these two get
mentioned more often than others. One lender can have a slightly lower rate,
but the lender’s closing costs are a bit higher compared to others. Conversely,
a lender offering slightly higher rates might have not just lower closing costs
but might also offer a “no closing cost” option in exchange for an elevated
rate. These are the things you and your loan officer will discuss.
While the rate is very important,
after all it determines what your monthly payments will be well into the
future, so too are closing costs. And consumers can make the wrong decision by
not paying as much attention to how much a loan actually costs. A lender can
provide you with a cost estimate either over the phone or by sending you a
sample Loan Estimate. This estimate will highlight a list of closing costs
you’re likely to see at your settlement. Your loan officer will also point out
which costs are lender costs, and which are reserved for third party services.
Of these, there are recurring and
non-recurring charges. Recurring charges are those you’ll see again, either
every month or every year. For example, each time you make a mortgage payment,
a portion goes directly toward the outstanding loan balance while another goes
toward interest. Interest is a cost and it will be paid every month. That makes
it a recurring cost. Property taxes and property insurance is another type of
recurring cost. Non-recurring charges are one time fees paid at the settlement
table. Title insurance, attorney and other one-time costs are non-recurring.
Okay, so when shopping around for a
mortgage you want to know where rates are, but you should also ask about the
lender fees. Third party charges shouldn’t vary from one lender to the next. An
attorney will charge the same amount for a similar transaction, for example.
It’s the lender charges that can be different from one lender to the next. What
sort of fees does the lender have control over?
Common lender fees might be a Loan
Processing fee. A loan processing fee helps to cover the overhead needed when
moving a loan file through the approval process. The individual lender decides
whether or not to charge such a fee as well as how much that fee will be.
Another common lender charge is an Underwriting fee. This fee goes to offset
the cost for making sure the loan file meets all the guidelines for the
selected mortgage program. Again, the lender decides whether or not to charge
the fee and if so, how much. Other lender fees collected might actually go to
others such as a credit report fee or funds to pay for an appraisal.
It’s just as important to evaluate
the cost of the loan from the lender’s perspective. A lender might have a rate
0.125% lower than another but charge $500 in closing costs. Loan officers know
that when quoting a rate to a prospective borrower, the rate will be the most
important factor. However, many consumers ignore the other part of the
equation. To complicate matters more, the Loan Estimate can be very difficult
to discern. Loan officers send them out daily, but they can look a little
complicated to the consumer at first glance.
The takeaway? Get your rate quoted
but also ask for a list of lender-required charges. The other fees the lender
has no control over.
Source: To view the original article click here.
When you apply for
a mortgage or refinance an existing mortgage, you want to secure the lowest interest rate possible.
Any opportunity a borrower can exploit to shave dollars off the cost is a big
This explains the
allure of no-fee mortgages. These home loans and their promise of doing away
with pesky fees always sound appealing—a lack of lender fees or closing costs
is sweet music to a borrower's ears.
However, they come
with their own set of pros and cons.
have experienced a renaissance given the current economic climate, according
to Ralph DiBugnara, president of Home Qualified.
"No-fee programs are popular among those looking to refinance ... [and]
first-time home buyers [have] also increased as far as interest" goes.
Be prepared for a higher interest
But nothing is
truly free, and this maxim applies to no-fee mortgages as well. They almost
always carry a higher interest rate.
“Over time, paying
more interest will be significantly more expensive than paying fees upfront,”
says DiBugnara. “If no-cost is the offer, the first question that should be
asked is, ‘What is my rate if I pay the fees?’”
Randall Yates, CEO of The Lenders Network,
breaks down the math.
“Closing costs are
typically 2% to 5% of the loan amount,” he explains. “On a $200,000 loan, you
can expect to pay approximately $7,500 in lender fees. Let's say the interest
rate is 4%, and a no-fee mortgage has a rate of 4.5%. [By securing a regular
loan], you will save over $13,000 over the course of the loan.”
So while you'll
have saved $7,500 in the short term, over the long term you'll wind up paying
more due to a higher interest rate. Weigh it out with your financial situation.
Consider the life of the loan
And before you
start calculating the money that you think you might save with a no-fee
mortgage, consider your long-term financial strategy.
options should only be used when a short-term loan is absolutely necessary. I
don’t think it’s a good strategy for coping with COVID-19-related issues,”
says Jack Choros of CPI Inflation
A no-fee mortgage
may be a smart tactic if you don't plan to stay in one place for a long time or
plan to refinance quickly.
“If I am looking to
move in a year or two, or think rates might be lower and I might refinance
again, then I want to minimize my costs,” says Matt Hackett,
operations manager at EquityNow.
But "if I think I am going to be in the loan for 10 years, then I want to
pay more upfront for a lower rate.”
What additional fees should you be
prepared to pay?
As with any large
purchase, whether it’s a car or computer, there's no flat “this is it” price.
Hidden costs always lurk in the fine print.
“Most of the time,
the cost for credit reports, recording fees, and flood-service fee are not included
in a no-fee promise, but they are minimal,” says DiBugnara. “Also, the
appraisal will always be paid by the consumer. They are considered a
third-party vendor, and they have to be paid separately.”
“All other costs
such as property taxes, home appraisal, homeowners insurance, and private
mortgage insurance will all still be paid by the borrower,” adds Yates.
It’s important to
ask what additional fees are required, as it varies from lender to lender, and
state to state. The last thing you want is a huge surprise.
“Deposits that are
required to set up your escrow account, such as flood insurance, homeowners
insurance, and property taxes, are normally paid at closing,” says Jerry
Elinger, mortgage production manager at Silverton
Mortgage in Atlanta. “Most fees, however, will be able to be
covered by rolling them into the cost of the loan or paying a higher interest
When does a no-fee mortgage make
For borrowers who
want to save cash right now, but don’t mind paying more over a long time frame,
a no-fee mortgage could be the right fit.
“If your plan is
long-term, it will almost always make more sense to pay the closing costs and
take a lower rate,” says DiBugnara. “If your plan is short-term, then no
closing costs and paying more interest over a short period of time will be more
Getting a mortgage, paying your mortgage, refinancing your
mortgage: These are all major undertakings, but during a pandemic, all of it
becomes more complicated. Sometimes a lot more complicated.
But make no mistake, home buyers are still taking out and paying down
mortgages during the current global health crisis. There have, in fact, been
some silver linings amid the economic uncertainty—hello, record-low interest
rates—but also plenty of changes to keep up with. Mortgage lending looks much
different now than at the start of the year.
Whether you’re applying for a new mortgage, struggling to pay your
current mortgage, or curious about refinancing, here’s what mortgage lenders
from around the country want you to know.
1. Rates have dropped, but getting a mortgage has gotten more
First, the good news about mortgage interest rates: “Rates have been
very low in recent weeks, and have come back down to their absolute lowest
levels in a long time,” says Yuri Umanski, senior mortgage
consultant at Premia
Relocation Mortgage in Troy, MI.
That means this could be a great time to take out a mortgage and lock in
a low rate. But getting a mortgage is more difficult during a pandemic.
“Across the industry, underwriting a mortgage has become an even more
complex process,” says Steve Kaminski, head of U.S. residential
lending at TD Bank. “Many of the third-party partners that lenders rely
on—county offices, appraisal firms, and title companies—have closed or taken
steps to mitigate their exposure to COVID-19.”
Even if you can file your mortgage application online, Kaminski says
many steps in the process traditionally happen in person, like getting
notarization, conducting a home appraisal, and signing closing documents.
As social distancing makes these steps more difficult, you might have to
settle for a “drive-by appraisal” instead of a thorough, more traditional
appraisal inside the home.
“And curbside closings with masks and gloves started to pop up all over
the country,” Umanski adds.
2. Be ready to prove (many times) that you can pay a mortgage
If you’ve lost your job or been furloughed, you might not be able to buy
your dream house (or any house) right now.
“Whether you are buying a home or refinancing your current mortgage, you
must be employed and on the job,” says Tim Ross, CEO of Ross
Mortgage Corp. in Troy, MI. “If someone has a loan in process and becomes
unemployed, their mortgage closing would have to wait until they have returned
to work and received their first paycheck.”
Lenders are also taking extra steps to verify each borrower’s employment
status, which means more red tape before you can get a loan.
Normally, lenders run two or three employment verifications before
approving a new loan or refinancing, but “I am now seeing employment
verification needed seven to 10 times—sometimes even every three days,”
says Tiffany Wolf, regional director and senior loan officer at
Cabrillo Mortgage in Palm Springs, CA. “Today’s borrowers need to be patient
and readily available with additional documents during this difficult and
uncharted time in history.”
3. Your credit score might not make the cut anymore
Economic uncertainty means lenders are just as nervous as borrowers, and
some lenders are raising their requirements for borrowers’ credit scores.
“Many lenders who were previously able to approve FHA loans with credit
scores as low as 580 are now requiring at least a 620 score to qualify,”
says Randall Yates, founder and CEO of The Lenders Network.
Even if you aren’t in the market for a new home today, now is a good
time to work on improving your credit score if you plan to buy in the future.
“These changes are temporary, but I would expect them to stay in place
until the entire country is opened back up and the unemployment numbers drop
considerably,” Yates says.
4. Forbearance isn't forgiveness—you'll eventually need to pay up
The CARES (Coronavirus Aid, Relief, and Economic Security) Act requires
loan servicers to provide forbearance (aka deferment) to homeowners
with federally backed mortgages. That means if you’ve lost your job and are
struggling to make your mortgage payments, you could go months without owing a
payment. But forbearance isn’t a given, and it isn’t
always all it’s cracked up to be.
“The CARES Act is not designed to create a freedom from the obligation,
and the forbearance is not forgiveness,” Ross says. “Missed payments will have
to be made up.”
You’ll still be on the hook for the payments you missed after your
forbearance period ends, so if you can afford to keep paying your mortgage now,
To determine if you’re eligible for forbearance, call your loan
servicer—don’t just stop making payments.
If your deferment period is ending and you’re still unable to make
payments, you can request delaying payments for additional months, says Mark
O' Donovan, CEO of Chase Home Lending at JPMorgan Chase.
After you resume making your payments, you may be able to defer your
missed payments to the end of your mortgage, O’Donovan says. Check with your
loan servicer to be sure.
5. Don't be too fast to refinance
Current homeowners might be eager to refinance and score a lower
interest rate. It’s not a bad idea, but it’s not the best move for everyone.
“Homeowners should consider how long they expect to reside in their
home,” Kaminski says. “They should also account for closing costs such as
appraisal and title insurance policy fees, which vary by lender and market.”
If you plan to stay in your house for only the next two years, for
example, refinancing might not be worth it—hefty closing costs could offset the
savings you would gain from a lower interest rate.
“It’s also important to remember that refinancing is essentially
underwriting a brand-new mortgage, so lenders will conduct income verification
and may require the similar documentation as the first time around,” Kaminski
6. Now could be a good time to take out a home equity loan
Right now, homeowners can also score low rates on a home
equity line of credit, or HELOC, to finance major home improvements like a
new roof or addition.
“This may be a great time to take out a home equity line to consolidate
debt,” Umanski says. “This process will help reduce the total obligations on a
monthly basis and allow for the balance to be refinanced into a much lower
careful not to overimprove your home at a time when the economy and
the housing market are both in flux.
Source: To view the original article click here.
Source: To view the original article click here.
As more people are
working from home due to the pandemic, the safety of at-home work environments
is coming under scrutiny.
are legally mandated to maintain strict safety standards. The U.S. Occupational
Safety and Health Administration (OSHA) policies provide guidance and
protection. However, when working from home, that burden falls on you.
offers a Home Office Safety Checklist to help you stay alert to the dangers
found in home workspaces. The checklist covers items like tripping and fire
hazards to lighting and ergonomic issues.
example, mismanaged power cords, outlets, and cluttered paper could pose a
potential shock or fire hazard in a household workspace. Also, the ergonomics
of your workspace is important to pay attention to. Without proper support for
your back, knees, and wrists, workers could be setting themselves up for
extreme injuries over time.
working from home, “It’s up to you to create a workspace that can both fuel
your productivity and protect you as a valuable asset of your company,”
Source: To view the original article click here
Borrowing costs fell this week, with the 30-year fixed-rate mortgage
setting a new record low for the third time in the last few months. The 30-year
fixed-rate mortgage averaged 3.15% this week, the lowest average in Freddie
Mac’s records dating back nearly 50 years.
“These unprecedented rates have certainly made an impact, as purchase
demand rebounded from a 35% year-over-year decline in mid-April to an 8%
increase of last week—a remarkable turnaround given the sharp contraction in
economic activity,” says Sam Khater, Freddie Mac’s chief economist.
“Additionally, refinance activity remains elevated, and low mortgage rates have
been accompanied by a $70,000 decline in average loan size of refinance
borrowers this year. This means a broader base of borrowers are taking
advantage of the record-low rate environment, which will benefit the economy.”
Freddie Mac reported the following national averages with mortgage rates
for the week ending May 28:
Freddie Mac reports average commitment rates along with fees and points
to reflect the total upfront cost of obtaining a mortgage.
Since mortgage rates plunged as the coronavirus pandemic took hold,
lenders have been inundated with applications. Bankrate spoke with Michael
Becker, branch manager of Sierra Pacific Mortgage in White Marsh, Maryland, to
find out what the mortgage process is like, how consumers can best save money
on their monthly mortgage payment and where rates may be headed.
What kind of borrowers are getting the best
mortgage rates right now?
Becker: Borrowers with good credit scores are getting good rates. For
example, we have a special going currently that improves pricing for anyone
with a score over 700.
The lowest rates are on government loans with a 700 plus score — VA, FHA
and USDA — because of the explicit government guarantee. Borrowers on these
loans get 30-year fixed rates in the high 2 percent range (2.75-2.875 percent
Conventional loans can be in the low 3 percent range
(3-3.375 percent), if borrowers have a 740 score or higher.
Also, borrowers who qualify for Fannie Mae’s and Freddie
Mac’s low and moderate income programs — Home Ready and Home Possible — and who
have a 680 score or higher are getting great rates despite putting as little as
3 percent down.
How are you dealing with the massive increase in
Becker: The best way to deal with this is to take advantage
of technology to make the approval process faster and easier. Many loans are
now getting property inspection waivers (PIWs), so no appraisal is needed. I
try to utilize electronic verification of income and assets that are now
available with Fannie and Freddie. If I get a PIW and verify income and assets
electronically, then the only thing an underwriter needs is title work, updated
insurance and homeowners association docs, and then the loan can be cleared for
closing. We can fast-track those loans and get them underwritten in as little
as six hours. I closed four loans like this last Friday, and they all of them
were originated and locked just two weeks earlier. It took that long for the
title to come in.
Where do you see mortgage rates heading in the
foreseeable future and why?
Becker: I don’t see rates moving much in the foreseeable
future. While there has been a lot of stimulus, both fiscal and monetary, thrown
at this crisis, there is going to be some real economic damage done by the
lockdowns and shelter-in-place rules. Many businesses will be forced to close
permanently. Some won’t reopen after the lockdowns, and others may try to open
and struggle if demand does not come back.
Once this stimulus ends, that will be the true test for the
economy. Because of this, I think the Fed will do all it can to support low
rates moving forward. We are seeing a little of this now. The equity markets
have rallied a lot in the last couple months on stimulus, but the bonds haven’t
sold off, resulting in higher rates as often happens with an equity rally.
(Becker is among a panel of experts that forecasts changes
in mortgage rates each week on Bankrate in our Rate Trend Index.)
What can borrowers with low credit scores do to
increase their chances of getting a mortgage with a favorable rate?
Becker: Work on getting their credit scores higher. In many
cases, this is easier than people think. Sometimes paying down a small balance
on a credit card that has a low credit limit can do a lot to improve your
score. Many lenders are requiring at least a 640 score to do a loan. And a loan
with that score comes with a big hit to the rate or cost in points. Some
programs like government streamline refinances now require a 680 score with
many lenders, because income is not verified (but employment is).
If you can’t get your score higher, then having some
compensating factors, like low debt ratios, being with your current employer
for a long time or having additional assets or reserves can help you get
approved with a lower credit score.
What can borrowers do to close as quickly as
possible on a loan?
Becker: They can respond to their loan officer’s request for
documents as soon as possible. They can also e-sign or electronically sign
initial disclosures, as well as the closing disclosure, as soon as they receive
Most delays in closing are coming from the borrowers. If you
delay getting your loan officer the info they need to get the loan into
underwriting, or if you’re slow to e-sign docs, then there will be delays.
Also, be helpful in getting updated timely docs. We are
requiring much more timely information. Bank statements used to be allowed to
be 60 days old at closing. Now, the most recent bank statement must be dated 30
days within closing. And the verbal verification of employment that is done
right before closing can only be three days old at closing — it used to be OK
10 days out. These are my company’s overlays, and not Fannie or Freddie rules,
but a lot of lenders are doing things like this to try and make sure they are
not closing a loan that is going to go into forbearance, because of a loss of
income or lack of assets. Fannie and Freddie will buy loans entering into
forbearance, but they charge the lender 500 to 700 basis points to purchase, so
as a lender you are guaranteed to lose money on the sale of that loan.
Is there anything else borrowers should be
thinking about in the current environment?
Becker: They should be looking into how they can save money.
Rates are great and there are many who can save money, lower their payment or
shorten the term of their loan.
Also, they should make sure they are secure in their job
when they apply. It’s not a good idea to try and close a refinance right before
you are scheduled to get furloughed or laid off. I have had loans get approved
and cleared to close, only to have the verbal verification of employment show
they are no longer working. This effectively kills that refinance or purchase
Mortgage giant Fannie Mae says rates could fall below 3 percent by the
start of 2021. The National Association of Realtors envisions a similar
For homeowners considering refinancing their mortgages, those forecasts
present a conundrum: Should you pull the trigger now? Or should you wait until
later in the year, hoping that rates will fall below today’s 3.5 percent range
and lenders will clear out a backlog of applications — while taking a risk that
rates will move higher?
In the past, as mortgage rates fell, the answer was always clear: If you
can save a chunk of change on monthly payments, refinance now. Don’t roll the
dice on the direction of interest rates. But the combination of the coronavirus
and a flood of refinance applications has changed the rules.
“These times are unusual in so many ways, one of which is
that the urgency to jump on a refinancing opportunity right away before it
disappears isn’t necessarily the case right now,” says Greg McBride, CFA,
Bankrate chief financial analyst. “In normal times, when rates drop and the refinancing
door opens, it behooves borrowers to move quickly, as any reversal in rates
could slam the refinancing door shut.”
With U.S. unemployment near record levels and the country
still partly shut down, these are anything but normal times. The economic
recovery could drag on, and almost no one predicts a spike in mortgage rates in
the near future. There’s also this wild card: Lenders have been so inundated
with refinance applications that they’ve kept rates higher than would be the
case in normal times to quell demand.
“Indications are that rates will remain low for the
foreseeable future – or perhaps move lower – and lenders will be able to serve
more borrowers more quickly as time progresses,” McBride says. “If you can
refinance now, great. If it’s something you want to put on your to-do list for
once life settles down a bit, that probably works, too.”
Some say you should lock a refinance rate in now
McBride acknowledges that waiting is not his typical advice.
Normally, rates bounce around, and borrowers who wait lose out. That already
has happened to some this spring, as mortgage rates have thrown head fakes on
“My advice to clients is do not drag your feet,” says Ed
Conarchy, mortgage adviser at Cherry Creek Mortgage Co. in Gurnee, Illinois.
“If it makes sense to refi, get your documents in, sign your forms and do
everything on your end so you don’t lose this opportunity. I have several
clients that have dragged their feet and are regretting it now, since rates are
off their lows and they have missed bigger savings opportunities.”
Michael Fratantoni, chief economist at the Mortgage Bankers
Association (MBA), likewise advises against trying to time rates. “Mortgage
rates are really difficult to forecast,” Fratantoni says.
In other words, not even the top economist at an industry
organization knows which way they’re going. Indeed, the mortgage experts polled
weekly by Bankrate are seldom unanimous in their forecasts of the future path
The MBA, for its part, predicts only a small drop in rates
later this year. While Fannie Mae and the National Association of Realtors see
30-year fixed mortgage rates flirting with 3 percent, MBA says rates for the
year will average 3.4 percent and edge back up to 3.5 percent next year.
How to decide if you should refinance
Rather than betting on the direction of rates, Fratantoni
says, you should refinance if it makes sense for you. In other words, if you
plan to stay in your home for more than a couple of years, and the savings are
enough to offset your closing costs in that time, then you should refi.
Conarchy says it’s easy to get so caught up in the hype surrounding low rates
that you miscalculate.
“I see so many people looking to refi because it is in the
news and friends and family are talking about it,” he says. “But what they will
save versus what they will pay is taking them many years to just break even.
Too long in many cases. The facts are that the average time a consumer holds a
mortgage is just four to seven years. So if it takes you five years to break
even on a refi, odds are you will be out of that mortgage by that time anyway.”
Keep in mind that refinancing isn’t free. You’ll pay about 2
percent of the loan amount in fees, so you need to save enough through lower
monthly payments to offset that upfront cost.
To use a simple example, say you have a $200,000 loan with a
30-year term and an interest rate of 5 percent, equating to a monthly payment
for principal and interest of $1,074. Refinancing the same amount to a 3.5
percent rate would yield a monthly payment of $898. Over two years, you’d reap
a savings of $4,224, which should cover your closing costs. In that case,
refinancing now makes sense if you own the house at least two more years.
But what if you already have a fairly low interest rate?
Then the decision gets tougher. Say you took the same $200,000 mortgage but at
4 percent. In that case, your monthly payment is $955. Refinancing at 3.5
percent wouldn’t make sense — the $1,368 in savings over two years wouldn’t
cover the costs of the appraisal, the title insurance and the lender’s fee. For
that to pay off, you’d need rates to plummet to the 3 percent range.
(Bankrate’s mortgage calculator can help you game out the scenarios.)
There’s a general consensus that mortgage rates are poised
to fall once lenders work through their current pile of loan applications. For
now, lenders have bumped up rates simply because they have more business than
they can handle, says Jim Campagna, founder of SnapFi, a mortgage lender in San
Jose, California: “They can’t handle the capacity, so they’ve raised their
What you can do to secure a smooth refinance
Whenever you decide to refinance, here are a few ways you
can make the refi process as smooth as possible:
Get your paperwork in order. Don’t let something simple like
a missing document delay your refinance. Collect PDFs of financial documents —
including pay stubs, bank statements, tax returns and retirement accounts.
Ask about rate locks. In normal times, lenders extend rate
locks for 30 to 60 days, meaning you won’t have to pay more if rates go up
before your loan closes. These aren’t normal times, though, and many refinances
aren’t closing within 30 to 60 days, so make sure your lender is willing to
extend your rate lock if your deal is delayed.
Keep your credit score tight. Now isn’t the time to miss a
payment, take on new debt or otherwise do anything to lower your credit score.
Lenders are being especially strict about borrowers’ credit histories.
Mortgage rates may
be near multi-decade lows, but those favorable rates are becoming less
accessible to borrowers with damaged credit. In fact, for many of those
individuals loans are starting to become unavailable altogether.
In light of the pandemic that has weakened the economy and caused
unemployment to skyrocket, lenders are tightening lending requirements and only
taking on borrowers with good to excellent credit. Lenders, of course, have
pretty much always offered the best rates to borrowers with high credit scores,
but the gap is widening even further now.
In fact, a recent report from the Urban Institute shows that
borrowers with credit scores above 720 are able to lock in mortgage rates 78
basis points lower than borrowers with credit scores of 660 or below.
The availability of mortgages is falling as well. According
to the latest Mortgage Credit Availability Index from the Mortgage Bankers Association,
the availability of loans has fallen to its lowest level since December 2014.
“The abrupt weakening of the economy and job market — and
the uncertainty in the outlook — drove credit availability down in April for
the second consecutive month,” said Joel Kan, MBA’s associate vice president of
economic and industry forecasting, in a statement.
The decline was largely driven by lenders dropping low
credit score and high loan-to-value ratio mortgage programs. Lenders are also
pulling back on products like jumbo
loans, HELOCs and cash-out
Overall, it’s getting tougher for those with poor credit to
get a loan and lock in a low rate.
What credit score you need to get a loan
Credit availability could tighten even further in the weeks
ahead, locking out even more borrowers with damaged or low credit.
For example, JPMorgan Chase won’t lend to borrowers with
less than a 700 credit score and a 20 percent down payment. Other big banks are
following suit and tightening requirements as well.
Indeed, your chances of getting a loan with a low mortgage
rate are better if you have a credit score of 700 or higher.
In April 2020, nearly 93 percent of conventional home loans
went to borrowers with credit scores of 700 or above, according to Ellie Mae’s
Origination Insight Report. That’s up 3 percent from March 2020. The average
FICO score of conventional borrowers purchasing a home in April 2020 was 756.
Only around 6 percent of loans went to borrowers with a
credit score between 650 and 699, and only 1 percent of loans went to borrowers
with a score of less than 650.
What to do if you’re locked out of low mortgage
In order to get approved for a mortgage with a great rate,
start by improving your credit standing. It can take many weeks to resolve
credit issues and even longer to improve your credit score, so give yourself
plenty of time.
Here are steps you can take to improve
Here are some steps you can take to get a
mortgage with tarnished credit:
A mortgage rate lock protects
a borrower from rising interest rates while a new mortgage or refinance is
being processed, which these days can take weeks to even months.
But the calculus for borrowers has changed during the pandemic.
Interest rates have plummeted and many experts believe they will either stay
low or go lower still in the coming months. Fannie Mae predicts that the
30-year fixed rate will plunge below 3 percent by 2021.
Locking in a rate now could mean
30 years of low interest rates on your home loan. However, some folks wonder if
there’s a chance to save even more money by letting the rate float during the
mortgage process or even waiting to take out a new mortgage or refinance your
It’s important to keep in mind that rate locks aren’t free.
Lenders build them into the cost of the mortgage. The longer the rate lock, the
higher the cost for the borrower and the lender.
“Paying for an extended rate lock might not be money well spent
given the uncertain time until closing and considering the weak economic
backdrop that is likely to keep a lid on rates,” says Greg McBride, Bankrate’s
chief financial analyst.
Mortgage rates have leveled out to around the mid 3-percent
range in the last few weeks, according to Bankrate’s weekly survey of
national lenders. The Fed’s massive buying spree of mortgage-backed securities
was key in stabilizing mortgage rates; which had, up to this time, been
seesawing dramatically since the COVID-19 pandemic hit.
A low, steady rate environment is good news for borrowers,
because it removes the pressure of racing the rate clock. Most experts think
rates are going to stay where they’re at for the time being — but some
think rates will drop even lower.
Recently, United Wholesale Mortgage unveiled a 2.5 percent
mortgage rate (for 30-year fixed-rate loans) for their independent lenders,
which has rate-watchers very excited. This kind of news can give some borrowers
pause when it comes time to locking in a mortgage rate, especially if they
think there’s a chance to save hundreds of dollars on their monthly mortgage
payments by waiting a few weeks.
“I’ve been personally telling people if they can stomach the
risk tolerance, go for a shorter lock period,” says Anthony Sherman, CEO of
Simplist. “Rates can change from day to day. We’ve had dozens of customers who
have done that.”
The downside of getting shorter rate locks or waiting is that
rates can shoot up without warning and stay aloft for weeks or months, which
translates into a more expensive loan for the borrower.
“What is most likely to undermine your rate lock is the length
of time it takes to get to closing. Waiting until you have better visibility on
how long it will take to get to close is a necessary prerequisite to locking
your rate,” says Bankrate’s McBride.
rate locks work
Mortgage rate locks allow borrowers to lock in the current
interest rate for a specific period of time. Generally, lenders offer 30- and
60-day rate locks as standard.
“If the lender does charge a fee you may be able to negotiate
with them to waive any rate-lock fees,” says Randall Yates, president at The
Shorter rate locks, such as seven-day locks can reduce the
borrowing costs by approximately an eighth of a point, says Sherman.
Conversely, longer rate locks, which are generally between 60
and 90 days, come with fees which are usually baked into the interest rate.
These fees vary by lender.
Lenders charge for longer rate locks because their risk
increases over time. If rates rise, then the lender will miss out on the
difference. Quicken, for example, offers a 90-day rate lock product called
RateShield which costs one quarter of a percentage point. This means if you
qualify for a 3.25 percent interest rate, it will rise to 3.50 percent under
The benefit of a rate lock is that borrowers are protected from
rising interest rates during the lock period. The downside is that borrowers
won’t get the advantage of falling rates during that period.
Floating rate locks are options for borrowers who want to lock
in the current rate with the benefit of getting a lower interest rate if they
fall. Lenders charge around 1 percent of the total loan amount for a floating
rate lock. So, if your loan is $275,000, you would pay $2,750 for the floating
“Be sure to weigh the advantages and disadvantages of a
floating-rate provision, which can be expensive. And, depending on the
borrower’s circumstances, it may not make sense to include in the rate lock,”
says Leslie Tayne, founder of Tayne Law Group in Long Island, N.Y.
The floating rate lock can be a costly gamble or it can help you
hedge your bets if rates do fall. Borrowers who plan to stay in the home
long-term have more to gain from a floating rate lock that translates into a
In most cases, the 30- to 60-day rate lock should be sufficient,
especially if you qualify for a rate in the mid to low 3s or even 2s (if that
comes to pass).
consider extending your rate lock
However, there are some instances where homebuyers might need to
extend their lock. Louise Rocco, a real estate agent at Exit Bayshore Realty in
Tampa, rattles off a laundry list of common homebuying scenarios that might
necessitate a rate-lock extension.
“The appraisal might come in too low, so you’ll have to appeal
it and extend the lock,” Rocco says. “Let’s say you have a double closing,
where you’re trying to sell and buy. If something doesn’t happen, the people
who are buying your house can’t sell their house, for example, you will have to
push off the closing date, so you’ll need to get a rate-lock extension.”
Rate locks are important because interest rates affect the cost
of your loan. If the rate rises, you could end up getting priced out because
the loan then becomes more expensive than what you’re qualified to borrow.
“A half a percentage point, depending on the loan amount, could
mean an extra $100 per month in mortgage payments. You could end up losing the
loan because your DTI won’t allow for that higher monthly payment,” Rocco says.
Be sure to communicate with your lender throughout the process.
If you’re getting close to the end of your lock and the house closing is
far off, talk to your lender about options for extending your lock.
Finally, get everything in writing, Tayne says. It’s important
to have documentation of the terms of your rate lock so there are no surprises
when it’s time to close.
The U.S. economy is slipping into what could be a severe
recession, and the Federal Reserve is taking unprecedented measures to help it
survive the consequences of the COVID-19 pandemic.
The Fed stepped in with an emergency rate cut in March. It
has injected $2.3
trillion into the economy through emergency initiatives such as buying municipal
bonds and lending money to small and mid-size businesses that don’t qualify for
Small Business Administration emergency loans. It’s even buying corporate bond
These measures show the Fed is doing whatever it takes to prop
up the economy. Until now, it had never utilized its authority to purchase
municipal bonds or ETFs. But there has been heated debate over a controversial
monetary policy tool that’s also at the Fed’s disposal: Negative interest
They’ve been used by other global central banks, to mixed
results. Are negative interest rates really in the cards for the U.S.? If so,
what might they mean for your wallet? Here’s what you should know.
Interest rates are one of the main levers the Federal Reserve
uses to adjust monetary policy and maintain balance in the U.S. economy. The
central bank adjusts the federal funds rate to guide how individual banks and
lenders determine their own rates.
The Fed raises interest rates to help cushion the economy
against inflation, because higher rates make borrowing by consumers and
businesses more expensive. It lowers interest rates when the country is facing
a recession because it encourages borrowing and spending, which stimulate the
So what about negative interest rates? If a central bank
implements negative rates, that means interest rates fall below 0%. In theory,
negative rates would boost the economy by encouraging consumers and banks to
take more risk through borrowing and lending money.
In economic downturns, people typically hold onto their money
and wait to see some sort of improvement before they ramp up spending again. As
a result, deflation can become entrenched in the economy: People stop spending,
demand declines, prices for goods and services fall, and people wait for even
lower prices before spending. It’s a pernicious cycle that can be very hard to
Negative rates fight deflation by making it more costly to hold
onto money, incentivising spending. Theoretically, negative interest rates
would make it less appealing to keep cash in the bank; instead of earning
interest on savings, depositors could be charged a holding fee by the bank.
Simultaneously, negative interest rates would make it more appealing to borrow
money, since it would push loan rates to rock-bottom lows.
In 2014, the European Central Bank (ECB) was the first central
bank to adopt a negative interest rate policy, to address the eurozone crisis.
The ECB lowered its deposit rate to -0.1% that year in an attempt to hold off
deflation and move the economic bloc out of a protracted malaise. Today, the
current ECB deposit rate is -0.5%, the lowest on record.
The Bank of Japan (BoJ) has been fighting deflation for two
decades. It was the first central bank to move to a zero interest policy in
1999, and its key rate has been negative since 2016. Neither the BoJ nor the
ECB have been able to move rates back into positive territory.
In Europe, inflation has remained anemic and many argue that
consumers have simply responded to negative rates by moving their savings
around to banks offering higher yields, even if it’s by a few tenths of a
percentage point, as reported by the
Wall Street Journal. Some banks report that big depositors are requesting their
physical cash be put in vaults where it can avoid the negative interest rates,
and businesses have held back on spending and resisted the “temptation of cheap
One research paper
from the ECB found no evidence that negative rates were incentivizing
households, corporations and non-bank financial institutions to keep more cash on
hand with the intention of pumping it into the economy. Meanwhile, a research paper from
the Swedish House of Finance suggests the opposite, stating that the monetary policy
remains effective when it’s implemented with measures to make it more costly
for hoarding cash.
You’ve probably heard some buzz around negative interest rates
over recent weeks. President Donald Trump has expressed his interest on
Twitter, calling negative interest rates a “gift” for the economy. Investors in
future markets have started betting on the Fed implementing them, helping to
keep the idea in the headlines.
But the Federal Reserve insists negative interest rates are not
on the table.
As of now, the Fed remains adamant against implementing negative
rates as a tool to help stabilize the U.S. economy, even assuming they would
work as promised. Federal Reserve Chairman Jerome Powell has repeatedly said
that negative rates are not something that will be implemented.
“I continue to think, and my colleagues on the Federal Open
Market Committee continue to think that negative interest rates is probably not
an appropriate or useful policy for us here in the United States,” said Chairman Powell
in a recent 60 Minutes interview. “The evidence on whether it helps is quite mixed.”
Joe Brusuelas, chief economist at RSM, believes implementing
negative interest rates wouldn’t be an easy task. Plus, he also doubts they
would be the best way to help the economy now—although implementing them
wouldn’t be an impossible undertaking for the Fed.
“It’s very difficult to do and it requires some pre-conditions
to be set by regulatory agencies and the central bank to make it work,”
Brusuelas says. “It’s highly conditional. You’re only going to do this under
very specific or quite dire circumstances. This isn’t something that’s going to
be turned to just because the bond market is turning to a wavy type recovery.”
Even if negative interest rates remain a very distant
possibility, it’s always good to understand how monetary policy can affect your
financial situation. Negative interest rates would change a variety of personal
finance aspects. Here’s how:
Negative interest rates are a monetary policy tool for
unprecedented economic times, and some argue they require complementary
regulations to make them work. The Federal Reserve has repeatedly said it’s not
looking to implement them at this time, but having a general idea of how
negative interest rates could potentially affect you in the future is worth
making an effort toward.