Mortgage Rates Newsletter - Market Analysis

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

Rates Reacted to Jobs Report, But Not Like You'd Expect
Fri, 07 May 2021 23:59:37 GMT - Once a month, the government releases the Employment Situation, also known as "the jobs report." No other piece of economic data is as consistently relevant for the bond market and, thus, interest rates. For most of the past year, the normal correlation between jobs and rates was on hold. That makes sense, of course. Initial lockdowns completely obliterated the labor market and we've been waiting to see how it would recover and how it would be reshaped ever since. In the past 1-2 months, the bond market has finally shown some willingness to react to economic reports. Notably, last month's exceptionally strong jobs numbers put obvious upward pressure on rates. Because of that, anticipation was high for this week's report. Indeed, there was a very big reaction . Economists were expecting the
Mortgage Rates Are Low and Stable, But Face Bigger Risks Tomorrow
Thu, 06 May 2021 20:35:53 GMT - Mortgage rates moved lower today, bringing the average lender to the best levels since late February. Despite the milestone, the day-over-day movement in rates has been pretty mild. Most lenders are making changes that are only noticeable in the form of upfront costs (aka "points") as opposed to rates themselves. If we use upfront costs and rates to extrapolate an "effective rate," the average movement has been 0.01-0.02% on any given day. Rates have been more likely to move lower vs higher in the past 6 days, but that creates some risks in and of itself. Market participants who trade the securities that underly mortgage rates tend to shy away from additional buying once these winning streaks get to be more than 7 days long. With all of the above in mind, our potential 7th winning day in a
Mortgage Rates Sideways Near 2-Month Lows
Wed, 05 May 2021 20:19:43 GMT - Mortgage rates were mixed today, depending on the lender. On average, rates were unchanged and remained very close to their lowest levels in nearly 2 months. The bond market (which most directly impacts day-to-day rate movement) was calm. Both of today's important economic reports came in weaker than expected, but close enough to forecasts to prevent significant volatility. Beyond that, questions remain about just how ready the bond market may be to react to economic reports in general (historically one of the quintessential reaction functions in financial markets). If bonds aren't quite ready to link back up with economic data yet, it would be an issue of timing and priorities . Several Fed speakers reminded us today that we're still a long way from even being able to assess the post-pandemic
Mortgage Rates Fairly Steady Near Recent Lows
Tue, 04 May 2021 20:52:07 GMT - Last week fired warning shots across the bow of April's mortgage rate rally. New month, new momentum? No, not just yet. In fact, we haven't seen much of anything so far this month. Last week's initial threat of rising rates quickly gave way to a move back in the other direction, but not a big enough move to suggest any major changes for mortgage lenders. In yesterday's case, rates benefited from weaker economic data in the morning. In today's case, it was a bond-friendly move at the expense stocks this morning. Stocks began losing ground due to earnings data before the bell and continued lower at the 9:30am NYSE open. Bonds don't always follow stocks, but today they did. In other words, bond yields fell in concert with stock prices. Lower bond yields equate to lower mortgage rates, all other
Moment of Truth For Rates and Housing
Fri, 30 Apr 2021 22:10:21 GMT - This week's 6.4% reading on Q1 GDP reinforced the notion of a strong economic recovery. In turn, the recovery helps to justify the sharp move higher in rates seen during the same 3 months. Rates managed to recover quite a bit in April, but ended up rising slightly this week, by some measures. Is the intermission over? The following charts offer several ways to look at the intermission (basically April's push back against the previous 3 months of significantly higher rates). Mortgage rates have outperformed other parts of the bond market even though they remain highly stratified by loan type and investor. As such, the intermission looks healthy at first glance. The 10yr Treasury yield (the quintessential benchmark of broad longer-term rate momentum) does a better job of showing this week's modest
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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