Mortgage Rates Newsletter - Market Analysis

Provided courtesy of: http://www.mortgagenewsdaily.com/reports/mortgage_rates/archive

Mortgage Rates Nominally Higher Despite Bond Market Warning
Fri, 18 Jan 2019 21:10:54 GMT - Mortgage rates rose gently today. Most mortgage borrowers (and many mortgage professionals, for that matter) wouldn't be aware of slightly more alarming risks lurking underneath the surface. Those risks involve the broader bond market from which mortgage-related bonds take their directional cues. More simply put, if US Treasuries are improving, mortgage-backed bonds tend to improve as well. The level of correlation varies though. For nearly all of 2018, mortgages weren't improving as quickly as the most widely-used rate benchmark: 10yr Treasury yields. That began to change recently--especially when 10yr yields began moving higher 3 weeks ago. During that time, we've seen moderate moves higher in 10yr yields met with modest moves higher in mortgage rates. Today was another one of those days
Mortgage Rates Holding Ground But Volatility Could Increase
Thu, 17 Jan 2019 21:03:34 GMT - Mortgage rates were technically steady today. In fact, as of this writing, most lenders are offering slightly better terms compared to yesterday, but only by barely-detectable amounts. The afternoon brought volatility in financial markets owing to trade-related headline. That volatility isn't moving in a good direction for mortgage rates at the moment. The takeaway is that, all other things being equal, lenders will be offering slightly weaker terms tomorrow morning, assuming they don't see quite enough weakness to adjust today's offerings with only a few hours left in the day. Combine the volatility risk with the fact that rates are still very close to their lowest levels since last April, and this is still a compelling opportunity for potential homebuyers or owners interested in refinancing
Mortgage Rates Up Slightly, But Still in Great Shape
Wed, 16 Jan 2019 22:00:28 GMT - Mortgage rates rose modestly today after spending the past 2 days moving sideways. It was really yesterday's market weakness that caused today's move. Mortgage rates are most directly affected by the trading of mortgage-backed securities (MBS). When MBS are weaker, rates rise. MBS were weaker throughout the day yesterday, but not by quite enough for lenders to go to the trouble of revising their rate sheets for the worse. Instead, lenders simply waited until this morning to make the changes implied by the market. This delayed reaction is common when the market movement on any given day isn't quite enough to justify lender reprices. In the bigger picture, rates have been in a holding pattern, possibly waiting for some indication that the government shutdown will end. When such a thing happens
Mortgage Rates Unchanged to Start the Week
Mon, 14 Jan 2019 21:30:09 GMT - Mortgage rates held their ground today, keeping them in line with long-term lows achieved over the past 2 weeks. To be fair, it was the previous week that offered the biggest benefits, but last week was no slouch. Factoring out the first few days of January, it would have been the best week for mortgage rates since April 2018. It was a relatively quiet day for financial markets with the bonds that underlie mortgage rates trading in mostly the same territory as last week. It remains to be seen how markets will react to the absence of the typical spread of economic data (much of which is on hold due to the government shutdown ). Beyond that, the shutdown could certainly begin to have an effect on the economy itself although it's hard to say how big of an effect that would be. With this now being
Mortgage Rates Lower Today, But Higher Than Last Week
Sat, 12 Jan 2019 00:11:55 GMT - Mortgage rates improved today, breaking a 3-day streak with effectively no change. This gets us part of the way back down to the long-term lows achieved at the end of last week. At that time, the average lender was quoting conventional 30yr fixed rates that were roughly 5/8ths of a percentage point (0.625%) lower than the long-term highs seen at the beginning of November. Rates then lurched higher by Tuesday of this week, eroding as much as a quarter of a point from some scenarios. Today's gains restored about half of that weakness for a net improvement of 0.5% from November's highs. At any time before last week, today's rates would be the lowest since April 2018. The swiftness with which those lows were achieved led some investors to worry about a swift bounce back. But it seems that as long
Self Employed Borrowers

Self Employed Borrowers

Entrepreneurship should be rewarded, but when it comes to mortgages, it hasn't always paid to be self-employed. Although over 20% of Americans are self-employed, qualifying for a self-employed mortgage is more difficult because reducing your taxable income can make it difficult to qualify for the mortgage you deserve. If you are wondering how to improve your chances of qualifying for the mortgage, providing complete and current financial documents from the past two years is essential.

Self Employed? 5 Steps to Scoring a Mortgage

While getting a loan as a W-2 employee may be cheaper and easier than if you're self-employed, you don't have to go running back to your cubicle to qualify for a mortgage. Some lenders may be concerned that you won't earn a steady enough income to make your monthly payments, and others may simply not want to deal with the additional paperwork that can be involved in providing a mortgage to a self-employed person. But don't worry; if you're self-employed, there are mortgage products available as well as steps you can take to make yourself a more attractive loan candidate.

What to Expect

As someone who is self-employed, lenders may not see you as the ideal borrower. Expect to pay higher interest rates than the ones commonly advertised on mortgage websites; those rates are for prime borrowers, or borrowers who are considered to be particularly creditworthy because of their steady, verifiable incomes and excellent credit scores. Similarly, because you may be a less attractive candidate, you might have a reduced ability to shop around and negotiate a lower interest rate. You may also have to put more work into finding lenders who are willing to work with you in the first place.

Another problem you may encounter is that if you've used lots of business expenses to reduce your taxable income on your tax returns, lenders may wonder if you make enough money to afford a home. Finally, banks may want to see a lower loan-to-value ratio (LTV ratio), meaning that you'll need to come up with a larger down payment.

Mortgage Options

Due to the subprime mortgage crisis, it may become more difficult for the self-employed to obtain mortgages as banks shy away from riskier investments to protect their financial interests and their reputations.

However, some lenders may still be willing to give you one of the following types of loans.

  • Stated Income/Stated Asset Mortgage (SISA) 
    This type of mortgage is based on what you tell the bank your income is; the bank will not seek to verify this amount. Stated income loans are sometimes also called low-documentation loans; this is because while lenders will not verify how much you make; they may seek to verify the sources of your income. Be prepared to provide a list of your recent clients and any other sources of cash flow, such as income-producing investments. The bank may also want you to submit an IRS Form 4506 or 8821. Form 4506 is used to request a copy of your tax return directly from the IRS, thus preventing you from submitting falsified returns to the mortgage company, and costs $39 per return. But you may be able to request Form 4506-T for free. Form 8821 authorizes your lender to go to any IRS office and examine the forms you designate for the years you specify. This service is free.
  • No Documentation Loan 
    In this type of loan, the lender will not seek to verify any of your income information. This may be a good option if your tax returns show a business loss or a very low profit. Because it is riskier for the bank to lend money to someone with an unverified income, expect your mortgage interest rate to be higher with either of these types of loans than with a full-documentation loan. Low and no documentation loans are called Alt-A mortgages, and they fall between prime and subprime loans in terms of interest rates. For lenders, they are considered riskier than prime loans, but less risky than subprime loans.

While many self-employed individuals and couples may choose one of the above options due to the difficulty of sufficiently documenting their incomes, those who can prove their incomes and who are willing to submit the extra paperwork can still apply for full-documentation loans, which will have lower interest rates than their low- and no-doc cousins. While a traditional employee might simply need to provide copies of W-2s for the last two years, because self-employed individuals do not receive this document, they may need to provide information about their businesses, such as previous years' tax returns, a current business license, a signed statement from an accountant, profit and loss statements, and balance sheets.

Getting a joint mortgage with a co-borrower who is a W-2 employee, such as a significant other, spouse, or trusted friend, is another way to improve your prospects of getting approved for a mortgage if you are self-employed. This provides more assurance to your lender that there is a steady income to pay back the debt.

Finally, a parent or other relative might be willing to cosign your mortgage loan. Keep in mind that this person will need to be willing and able to assume full responsibility for the loan if you default.

Can You Really Afford It?

It can be easy to get into trouble with low- and no-documentation loans because it's easy to fudge the numbers. Realize that you, not the bank, know best about whether you can really afford the loan, and that you will be the one who truly suffers if you lose your home. Learn from the experiences of all the subprime borrowers who have gone into foreclosure and don't get in over your head.

Make Yourself an Attractive Candidate

If you know you can make the payments, you can do some of the following things to improve your chances of getting a loan.

  1. Max Out Your Credit Score
    In any type of borrowing situation, a higher credit score will make you a more attractive candidate to get the loan in the first place and to qualify for lower interest rates if you're approved.
  2. Offer a Large Down Payment 
    The higher your equity in the home, the less likely you are to walk away from it in times of financial strain. Therefore, the bank will see you as less of a risk if you put lots of cash into your purchase up front.
  3. Have Significant Cash Reserves
    In addition to a large down payment, having plenty of money in an emergency fund shows lenders that even if your business takes a nosedive, you'll be able to keep making your monthly payments.
  4. Pay Off All Your Consumer Debt
    The fewer monthly debt payments you have going into the mortgage process, the easier it will be for you to make your mortgage payments. If you pay off your credit cards and car loans, you may even qualify for a higher loan amount because you'll have more cash flow.
  5. Have an Established Track Record of Self-Employment
    If you can show that you know how to play the self-employment game and win, lenders will be more willing to take a chance on you. Some advice suggests that you should have at least two years of self-employment history; other advice, however, says that when interest rates are low, you should try to get a mortgage as soon as you're ready, even if you don't have a long history of successful self-employment.
  6. Be Willing to Provide Documentation
    Being willing to fully document your income through previous years' tax returns, profit and loss statements, balance sheets and the like will increase your chances of qualifying for a loan.

The Bottom Line

If a W-2 employee loses his or her job, the person's income will drop to zero in the blink of an eye in the absence of unemployment insurance benefits; those who are self-employed often have multiple clients and are unlikely to lose all of them at once, giving them more job security than is commonly perceived. Of course, if you're self-employed, you're already used to having to work extra hard to file additional tax forms, secure business licenses, get new clients and keep your business running. Don't let anyone tell you that you'll never get a mortgage if you're self-employed, or that you shouldn't quit your day job to pursue your dream of running your own business until you've already purchased a home. Armed with a little knowledge and patience, you'll be able to have your own home and work in it, too.

I Want a Better Mortgage has the knowledge and experience to find you the best mortgage product and help you prepare and improve your changes of a mortgage. We have access to many lenders and can offer a wide range of innovative mortgage options for self-employed Americans. Our range of mortgages for Self Employed offers competitively-priced financing for business owners and those who are self-employed. Contact one of our experts today and get the mortgage you deserve.

 

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