Mortgage Rates Newsletter - Market Analysis

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

Highest Rates Since April, But There's a Catch
Fri, 22 Oct 2021 20:44:12 GMT - Over the past 30 days, interest rates have risen sharply . This is true for both mortgage rates and bond market benchmarks like 10yr Treasury yields. But another version of the 10yr Treasury yield continues to operate near all-time lows . How can rates simultaneously be rising quickly but still near all-time lows? Inflation! As we discussed last week, inflation erodes the value of bonds. As such, bond yields frequently move in response to changes in inflation expectations (higher inflation = higher rates). That correlation is easily seen in the following chart: Obviously, something changed in 2020. But what changed specifically for bonds and inflation? For starters, the Federal Reserve immediately began buying massive amounts of bonds shortly after the pandemic began. This acted to keep yields
Another Day; Another Long-Term High For Rates
Thu, 21 Oct 2021 20:22:50 GMT - Mortgage rates haven't really been able to catch a break recently. This week is shaping up to be one of the worst since March. Since then, only 2 other weeks have been worse and they both occurred in the past month. In and of itself, today's jump in rates wouldn't be too troubling, but when added to the existing momentum, the losses are adding up. A conventional 30yr fixed scenario that had carried rates in the 2.75-2.875 neighborhood a month ago is now closer 3.125-3.25%. Making matters more frustrating is the fact that there really isn't any great, short-term explanation for the incremental damage. Negative momentum is simply embedded, and it has been since the Fed signaled its intent to taper its bond purchases on September 22nd. Around the same time, covid case counts began turning a corner
Mortgage Rates Stabilize For Now
Tue, 19 Oct 2021 20:29:24 GMT - Mortgage rates hit their highest levels in months yesterday as bonds lost ground at a brisk pace to start the new week. Bonds--specifically mortgage-backed securities (MBS)--are the most important ingredient used by lenders to determine mortgage rates. Bond market weakness (i.e. "losing ground") means that bond PRICES are falling. Bond prices vary inversely with bond yields, and yield is just a fancy term for "rate." In simpler terms, bond sellers had to offer higher rates of return to attract reluctant buyers. But why are bonds struggling? This is actually a general trend for bonds and rates for just over a year as the economy battles back against covid. The middle of 2021 was a bit of an aberration as the delta variant brought new pandemic-related uncertainty to financial markets. But now
Highest Rates in Months
Mon, 18 Oct 2021 20:21:26 GMT - Mortgage rates had a mixed showing last week. They started out high before improving through Thursday. Finally, they took a step back up on Friday. Now at the start of the new week, the upward momentum is continuing. The bond market was much weaker in overnight trading, and weaker bonds mean higher rates, all other things being equal. Bonds hit their weakest levels just before the average mortgage lender released rates for the day. As such, the average conventional 30yr fixed rate quote was the highest in roughly 4 months . As the day progressed, bonds found their footing to some extent. It was enough for most lenders to offer mid-day improvements to rates. Keep in mind though, these improvements are generally small. They mean today's rates are lower than they were this morning, but still noticeably
Are Rates Doomed to Continue Higher?
Fri, 15 Oct 2021 23:47:57 GMT - After a calm summer at historic lows, interest rate volatility has ramped up heading into the fall. What are rates worried about, and is this just the beginning of more drama? In a word: maybe! Because they're based on bonds, rates are always worried about anything that can have a big impact on the supply/demand equation in the bond market. Since March 2020, virtually any major supply/demand consideration can be traced back to the pandemic in some way. In general, the worse the outlook is for covid, the higher the outlook is for rates. Rates have other concerns too. Inflation is a constant consideration for bonds/rates because bonds are repaid on a fixed schedule that cannot adjust for inflation over time. If investors think inflation will move higher, they would demand higher and higher rates
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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