Mortgage Rate Watch

Provided courtesy of: http://www.mortgagenewsdaily.com/consumer_rates/

Mortgage Rates Move Up From Long-Term Lows
Wed, 04 Aug 2021 20:20:00 GMT -

Mortgage rates hit their best levels in 6 months yesterday, but moved higher today following a strong report on the services sector.  

The economy is one of the key inputs for interest rates.  As such, several of the most relevant economic reports have a longstanding history of causing day-to-day volatility.  Today's ISM Non-Manufacturing Index is one of a handful of the most important reports.  By coming out much stronger than expected, it suggested the economy was closer to a level that would prompt the Fed to make changes to rate-friendly policies.  Bonds reacted with lower prices and higher yields (aka "rates"). 

Of course we're only talking about only one economic report.  A few short hours earlier, another important report, ADP Employment, missed by a longshot.  A few days ago, ISM's own manufacturing index suggested the post-covid economic growth was leveling off.  

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Mortgage Rates Drift Down to New 6-Month Lows
Tue, 03 Aug 2021 18:48:00 GMT -

Mortgage rates moved slightly lower again today--extending a steady string of improvements that began after last week's Fed announcement.  The average lender is now able to quote conventional 30yr fixed rates that are at least as low as those seen in the middle of July.  In most cases, today's offerings are slightly better.

The details can vary quite a bit depending on the scenario (purchase/refi, credit, downpayment, etc), but best-case scenarios have been back in the "high 2's" for weeks.  In almost all cases, today's rates are the lowest since the beginning of February.

What's up with the refreshingly strong move back toward all-time lows?  

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Mortgage Rates Near Long-Term Lows Despite Taper Talk
Thu, 29 Jul 2021 18:50:00 GMT -

"Taper talk" refers to comments, speeches, or official policy communications from the Federal Reserve (aka "the Fed") that speak to the timing and nature of a reduction in the Fed's bond buying activities.  Wow!  What a boring and potentially confusing sentence!  Let's try again...

The Fed buys bonds--US Treasuries and mortgage backed bonds (which, in turn, serve as the foundation for mortgage rate pricing).  This helps rates move or remain low.  When markets think the Fed is going to stop buying bonds, rates are at risk of moving higher. 

The current bond buying efforts began as a response to the pandemic.  They helped stabilize the financial system and they provided "accommodation" (a boost to overall economic activity intended to support the Fed's goals on inflation and job growth).  As the pandemic grew more manageable and especially as the economy has come back online, the Fed has increasingly discussed winding down (or "tapering") the bond buying programs.  

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What Will The Fed Do To Mortgage Rates?
Tue, 27 Jul 2021 20:04:00 GMT -

Wednesday afternoon brings one of the year's 8 regularly scheduled policy updates from the Federal Reserve (aka, the Fed).  While there's no question that Fed policies have significant impacts on all kinds of interest rates, the Fed doesn't actually "set" mortgage rates.  The only limited exception would be for certain lines of credit that adjust based on the PRIME rate which, in turn, is based on the Fed Funds Rate (the thing the Fed actually DOES "set").  Even if the Fed Funds Rate had a direct bearing on mortgage rates (it doesn't), there's no chance that they'll announce a rate hike this week, let alone this year.

So why do we care about the Fed?  Why have we seen such big moves in mortgage rates after certain Fed announcements in the past? 

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Mortgage Rates In Best Territory Since February
Thu, 22 Jul 2021 18:36:00 GMT -

This week's mortgage rates are hard to compare to last week's.  There are two simple reasons for this.  The first is the recent removal of the adverse market fee that artificially increased rates for refinance transactions starting late last summer.  The second is the general strength in the bond market compared to last week.  Mortgage rates are, after all, based on trading levels in the bond market with higher prices (or lower yields) coinciding with lower rates.  Bonds aren't doing quite as well as they were doing on Monday, but because lenders didn't rush to drop rates as much as the bond market allowed earlier in the week, they haven't had to dial things back as much as bonds would suggest over the past 2 days.

Now today, bonds are improving once again, albeit only slightly.  Still, the fact that improvement is even on the menu when bonds are operating in their best range since February is impressive.  The average mortgage lender isn't offering quite the same rates seen on Tuesday morning, but they're close.  Moreover, apart from the past few days, we'd have to go back to February to see anything nearly as low.

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Mortgage Rates Substantially Lower This Week, But Under Some Pressure Today
Tue, 20 Jul 2021 19:30:00 GMT -

There are two pieces of big news for mortgage rates over the past few business days.  The first arrived last week in the form of the removal of the adverse market fee that artificially increased rates for refinance transactions starting late last summer.  The second arrived yesterday in the form of an impressive improvement in the bond market (bonds are the primary source of motivation for mortgage rates).  This friendly double whammy pushed the average lender easily into the lowest rate range since early February with conventional refinance quotes once again coming in under 3.0% in best-case scenarios.

It remains to be seen how long we'll be able to enjoy these rates.  Today's bond market volatility offered a warning.  The first few hours of trading were actually stellar, with bonds improving to significantly better levels than yesterday.  This was actually partly responsible for this morning's rates being even lower than yesterday's.  Then, in less than 2 hours, all of those gains were gone, and mortgage lenders were issuing negative reprices early this afternoon.  Granted, rates are still stellar, even after those mid-day price changes, but the intraday volatility is a reminder that rates can move in two directions.

 

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Big News For Refi Rates As Adverse Market Fee is Removed
Fri, 16 Jul 2021 21:11:00 GMT -

It was big, bad news when it came out last summer.  Almost a year later, the 50 basis point "adverse market fee," which affected a majority of refinance mortgages has been eliminated!

Backstory

In early August 2020, Fannie and Freddie (who collectively buy or guarantee a vast majority of all mortgages) announced that virtually all conventional refinance loans would be subject to a new fee of 0.50 points (e.g. an extra  $1500 upfront on a $300k loan, or a 0.125-0.25% increase in rate).  

After much protest, the implementation of the fee was delayed at the end of August.  Lenders ultimately began adding it back into rate sheets en masse by mid September.  All of the above can be seen in the following chart which shows the effects on average daily rates.

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First Time Home Buyers

First Time Home Buyers

The challenge of buying a home for the first time can seem so daunting that it's tempting to either just go with the first house that falls in your price range or continue to rent. To help you demystify the process and get the most out of the purchase, we'll examine what you'll need to consider before you buy, what you can expect from the buying process itself, and some handy tips to make life easier after you purchase your first home.

Mortgage Basics

Considerations Before You Buy

The first thing you'll need to determine is what your long-term goals are and then how home ownership fits in with those plans. It could be that you're simply looking to transform all those "wasted" rent payments into mortgage payments that actually give you something tangible. Others see home ownership as a sign of their independence and enjoy the idea of being their own landlord. Narrowing down your big-picture homeownership goals will point you in the right direction. Here are five questions to ask yourself:

  1. What type of home best suits your needs?
    You have several options when purchasing a residential property: a traditional single-family home, a townhouse, a condo, or a multi-family building with two to four units. Each option has its pros and cons, depending on your homeownership goals, so you need to decide which type of property will help you reach those goals. You can also save on the purchase price in any category by choosing a fixer-upper, although the amount of time, sweat equity and money involved to turn a fixer-upper into your dream home might be much more than you bargained for.
  2. What specific features will your ideal home have?
    While it's good to retain some flexibility in this list, you're making perhaps the biggest purchase of your life, and you deserve to have that purchase fit both your needs and wants as closely as possible. Your list should include basic desires, like neighborhood and size, all the way down to smaller details like bathroom layout and a kitchen that comes with trust-worthy appliances.
  3. How much mortgage do you qualify for?
    Before you start shopping, it's important to get an idea of how much a lender will actually be willing to give you to purchase your first home. You may think you can afford a $300,000 home, but lenders may think you're only good for $200,000 depending on factors like how much other debt you have, your monthly income and how long you've been at your current job.
  4. How much home can you actually afford? 
    On the other hand, sometimes a bank will give you a loan for more house than you really want to pay for. Just like with the purchase of a new car, you'll want to look at the house's total cost, not just the monthly payment. Of course, looking at the monthly payment is also important, along with how much down payment you can afford, how high the property taxes are in your chosen neighborhood, how much insurance will cost, how much you anticipate spending to maintain or improve the house, and how much your closing costs will be.
  5. Who will help you find a home and guide you through the purchase?
    A real estate agent will help you locate homes that meet your needs and are in your price range, then meet with you to view those homes. Once you've chosen a home to buy, these professionals can assist you in negotiating the entire purchase process, including making an offer, getting a loan, and completing paperwork. A good real estate agent's expertise can protect you from any pitfalls you might encounter during the process.

The Buying Process
Now that you've decided to take the plunge, let's explore what you can expect from the home buying process itself. This is a chaotic time with offers and counter-offers flying furiously, but if you are prepared for the hassle (and the paperwork), you can get through the process with your sanity more-or-less intact. Here is the basic progression you can expect:

1) Find a home.
Make sure to take advantage of all the available options for finding homes on the market, including using your real estate agent, searching for listings online and driving around the neighborhoods that interest you in search of for-sale signs. Also put some feelers out there with your friends, family and business contacts. You never know where a good reference or lead on a home might come from.

2) Consider your financing options and secure financing.
First-time homebuyers have a wide variety of options to help them get into a home, including federally-backed loans and loans for homebuyers who don't have the standard 20% minimum down payment. Your state may also have its own programs for first-time homebuyers. Your mortgage interest rate will also have a major impact on the total price you pay for your home, so shop around.

3) Make an offer.
Your real estate agent will help you decide how much money you want to offer for the house along with any conditions you want to ask for, like having the buyer pay for your closing costs. Your agent will then present the offer to the seller's agent; the seller will either accept your offer or issue a counter-offer. You can then accept, or continue to go back and forth until you either reach a deal or decide to call it quits. If you reach an agreement, you'll make a good-faith deposit and the process then transitions into escrow. Escrow is a short period of time (often about 30 days) where the seller takes the house off the market with the contractual expectation that you will buy the house - provided you don't find any serious problems with it when you inspect it.

4) Obtain a home inspection.
Even if the home you plan to purchase appears to be flawless, there's no substitute for having a trained professional inspect the property for the quality, safety and overall condition of your potential new home. If the home inspection reveals serious defects that the seller did not disclose, you'll generally be able to rescind your offer and get your deposit back. Negotiating to have the seller make the repairs or discount the selling price are other options if you find yourself in this situation.

5) Close or move on.
If you're able to work out a deal with the seller, or better yet, if the inspection didn't reveal any significant problems, you should be ready to close. Closing basically involves signing a ton of paperwork in a very short time period, while praying that nothing falls through at the last minute.

Take these 5 steps to help make the process go more smoothly.

Now that you know how much you can afford, check out our current mortgage rate comparison-shopping tool today.

Check your credit

Evaluate assets and liabilities

So you don't owe too much money and your payments are up to date. But how do you spend your money? Do you have piles of money left over every month, or are you on a shoestring budget?

A first-time homebuyer should have a good idea of what is owed and what is coming in.

You've decided to go for it. Buying a home can be thrilling and nerve-wracking at the same time, especially for a first-time homebuyer. It's difficult to know exactly what to expect. The learning curve can be steep, but most of the issues can be resolved by doing a little financial homework at the outset.

Take these 5 steps to help make the process go more smoothly.

The homebuyer's credit score is among the most important factors when it comes to qualifying for a loan these days.

To get a sense of where your credit stands, go to Kredit Karma to collect your credit report and score today, free and with no obligation.

Scour the reports for mistakes, unpaid accounts or collection accounts.

Just because you pay everything on time every month doesn't mean your credit is stellar, however. The amount of credit you're using relative to your available credit limit, or your credit utilization ratio, can sink a credit score.

The lower the utilization rate, the higher your score will be. Ideally, first-time homebuyers would have a lot of credit available, with less than a third of it used.

Repairing damaged credit takes time -- and money, if you owe more than lenders would prefer to see relative to your income. Begin the process at least 6 months before shopping for a home.

Evaluate assets and liabilities

So you don't owe too much money and your payments are up to date. But how do you spend your money? Do you have piles of money left over every month, or are you on a shoestring budget?

A first-time homebuyer should have a good idea of what is owed and what is coming in.

"If I were a first-time homebuyer and I wanted to do everything right, I would probably try to track my spending for a couple of months to see where my money was going," he says.

Additionally, buyers should have an idea of how lenders will view their income, and that requires becoming familiar with the basics of mortgage lending.

For instance, some professionals, such as the self-employed or straight-commission salesperson, may have a more difficult time getting a loan than others

Organize documents

When applying for mortgages, homebuyers must document income and taxes.

Typically, mortgage lenders will request 2 recent pay stubs, the previous 2 years' W-2s, tax returns and the past 2 months of bank statements -- every page, even the blank ones.

Buying a home can take a long time, but knowing what you need and where to find it can save time when you're ready.

Qualify yourself

Ideally, as a first-time homebuyer, you already know how much you can afford to spend before the mortgage lender tells you how much you qualify for. "How much house can I afford?" calculator will help.

By calculating debt-to-income ratio and factoring in a down payment, you will have a good idea of what you can afford, both upfront and monthly.

Though there's not a fixed debt-to-income ratio that lenders require, the old standard dictates that no more than 28 percent of your gross monthly income be devoted to housing costs. This percentage is called the front-end ratio.

The back-end ratio shows what portion of income covers all monthly debt obligations. Lenders prefer the back-end ratio to be 36 percent or less, but some borrowers get approved with back-end ratios of 45 percent or higher.

Figure out your down payment

It takes effort to scrape together the down payment.

There are programs that can assist buyers with qualifying incomes and situations.

Finally, speak with mortgage lenders when you're starting the process. Check with friends, co-workers and neighbors to find out which lenders they enjoyed working with and ask them questions about the process and what other steps first-time homebuyers should take.

Congratulations New Homeowner ... Now What?

You've signed the papers, paid the movers and the new place is starting to feel like home. Game over right? Not quite. Let's now examine some final tips to make life as a new homeowner more fun and secure.

  1. Keep saving.
    With homeownership comes major unexpected expenses, like replacing the roof or getting a new water heater. Start an emergency fund for your home so that you won't be caught off-guard when these costs inevitably arise.
  2. Perform regular maintenance.
    With the large amount of money you're putting into your home, you'll want to make sure to take excellent care of it. Regular maintenance can decrease your repair costs by allowing problems to be fixed when they are small and manageable.
  3. Ignore the housing market.
    It doesn't matter what your home is worth at any given moment except the moment when you sell it. Being able to choose when you sell your home, rather than being forced to sell it due to job relocation or financial distress, will be the biggest determinant of whether you will see a solid profit from your investment.
  4. Don't rely on making a killing on your home to fund your retirement.
    Even though you own a home, you should still continue to save the maximum in your retirement savings accounts each and every year. Although it may seem hard to believe for anyone who has observed the fortunes some people made during the housing bubble, you won't necessarily make a killing when you sell your house. If you want to look at your home as a source of wealth in retirement, consider that once you've paid off your mortgage, the money that you were spending on monthly payments can be used to fund some of your living and medical expenses in retirement.

Conclusion

This brief overview should help put you on the path towards filling in any gaps in your home-buying knowledge. Remember that the more you educate yourself about the process beforehand, the less stressful it will be, and the more likely you will be to get the house you want for a price you can afford - and with a smile on your face.

 

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