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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.

Posted by Jackie A. Graves, President on June 3rd, 2020 10:00 AM

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 win.

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.

No-fee mortgages 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 rate

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.

“No-fee mortgage 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 Calculator.

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 rate.”

When does a no-fee mortgage make sense?

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 cost-effective.”

Source: To view the original article click here.

Posted by Jackie A. Graves, President on June 2nd, 2020 9:55 AM

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 complicated

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, you should.

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 adds.

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 rate.”

Just be 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.

Posted by Jackie A. Graves, President on June 1st, 2020 11:17 AM

As more people are working from home due to the pandemic, the safety of at-home work environments is coming under scrutiny.

Workplaces 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.

For 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.

When 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,” reports.

Access the complete checklist at

Source: To view the original article click here

Posted by Jackie A. Graves, President on May 31st, 2020 11:45 AM

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:

  • 30-year fixed-rate mortgages: averaged 3.15%, with an average 0.8 point, falling from last week’s 3.24% average. Last year at this time, 30-year rates averaged 3.99%.
  • 15-year fixed-rate mortgages: averaged 2.62%, with an average 0.7 point, falling from last week’s 2.70% average. A year ago, 15-year rates averaged 3.46%.
  • 5-year hybrid adjustable-rate mortgages: averaged 3.13%, with an average 0.4 point, falling from last week’s 3.17% average. A year ago, 5-year ARMs average 3.60%.

Freddie Mac reports average commitment rates along with fees and points to reflect the total upfront cost of obtaining a mortgage.

Source: To view the original article click here.

Posted by Jackie A. Graves, President on May 30th, 2020 9:21 AM

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 now).

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 mortgage applications?

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 them.


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 loan.

Source: To view the original article click here.

Posted by Jackie A. Graves, President on May 29th, 2020 11:24 AM

Mortgage giant Fannie Mae says rates could fall below 3 percent by the start of 2021. The National Association of Realtors envisions a similar scenario.


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 borrowers.


“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 for rates.

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 rates.”


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.

Source: To view the original article click here.

Posted by Jackie A. Graves, President on May 28th, 2020 10:48 AM

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 loansHELOCs and cash-out refinances.

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 rates

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 your credit:

  • Pay off delinquent accounts and recent collection accounts.
  • Monitor your credit closely by checking your credit report for free at
  • Make payments on time every month.
  • Leave all credit accounts open.
  • Avoid new credit inquiries.

Here are some steps you can take to get a mortgage with tarnished credit:

  • Shop around thoroughly. Some lenders offer better financing terms to poor credit borrowers than others, which can save you thousands of dollars.
  • Look for first-time homebuyer programs and for other programs used by first-time or entry-level buyers like FHAVAUSDAFannie Mae HomeReady and the Freddie Mac Home Possible plan.
  • Get a co-signer with excellent credit to help you.
  • Make a bigger down payment if you’re able. Lenders may be willing to accept a borrower with bad credit in exchange for a larger down payment amount.
  • Shop at more than just big banks and credit unions. Online banks, nonbanks, community banks and mortgage brokers are all options that may have better deals.


Source: To view the original article click here.

Posted by Jackie A. Graves, President on May 27th, 2020 10:56 AM

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 current one.

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.

Where rates have been and where experts think they’re headed

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.

How mortgage 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 Lenders Network.

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 RateShield.

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 lock.

“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 lower rate.

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).

When to 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.

Source: To view the original article click here

Posted by Jackie A. Graves, President on May 26th, 2020 12:02 PM

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 ETFs.

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 rates. 

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.

What Are Negative Interest Rates?

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 economy. 

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. 

Negative Interest Rates Fight Deflation

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 break.

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.

Negative Interest Rates In Japan and Europe

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 money.” 

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. 

Are Negative Interest Rates Coming to the U.S.?

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.”

How Would Negative Interest Rates Affect You?

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: 

  • Loans: Europe has seen some remarkable impacts on lending due to negative rates. Denmark’s third-largest lender, Jyske Bank, serviced 10-year loans with a -0.5% annual rate. Nordea Bank, based in Finland, offered 20-year mortgages at 0% interest last year. While that sounds incredible, some analysts warn that extremely low rates on mortgages could drive housing prices higher, since borrowing would become cheaper and thus skyrocket demand.
  • Credit cards: Negative interest rates would certainly depress credit card interest rates. The average credit card rate right now is 16.61%, according to Q1 data from the Federal Reserve. A negative interest rate could pull that lower, but it’s totally unrealistic for anyone to expect to get paid every time they swipe their credit card. 
  • Savings accounts and products: Yields on savings accounts would be crushed by negative interest rates. Remember: One of the main functions of negative interest rates are to encourage spending instead of keeping money tucked away in an account. High-yield savings accounts could become a distant memory. Big savers could be hit hard by negative interest rates, too. In 2019, Jyske Bank launched negative interest rates on customers who held balances over $1.1 million, making them pay 0.6% annually to hold their money in the bank.
Bottom line

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.

Source: To view the original article click here

Posted by Jackie A. Graves, President on May 25th, 2020 12:25 PM


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