Posts Tagged ‘record low interest rates’

How Fed Decisions Could Affect Mortgage Interest Rates

June 19, 2017

Yesterday, the United States Federal Reserve increased its short-term interest rate by 0.25%.  From a historical perspective, the “Federal Funds Rate” is still very low.   Many people assume that this increase in the Federal Funds Rate means that mortgage interest rates will rise too.  Not so fast…it’s possible that the opposite could happen.  When the Fed raised this rate in December 2015, mortgage interest rates declined in the weeks following the announcement.  Mortgage interest rates remained very low throughout 2016 until immediately following the Presidential election in November.  The Fed raised rates again in December 2016 and March 2017.  Current mortgage interest rates are about 0.5% lower than their level when the December 2016 Fed rate increase occurred. 

Why do mortgage rates sometime move in opposition to the Federal Funds Rate?  It’s complicated, but at a high level, mortgage interest rates tie more closely to the investment markets than to the Federal Funds Rate.  The majority of American home mortgages are purchased by Fannie Mae and Freddie Mac.  Fannie and Freddie then “package” these mortgages into mortgage-backed securities (MBS).  They then sell these MBS as investments. 

So insurance companies, mutual fund companies, and other large investors then buy and sell MBS as a component of their larger investment portfolios.  That means that the MBS must compete with other investments for investors’ attention. 

Many times, if the market for equities increases (as reflected by indices like the Dow Jones or NASDAQ), mortgage interest rates will also increase to keep MBS competitive with the equities.  Similarly, if interest rates on certain Treasury Notes and other bond-type investments increase, mortgage interest rates will follow suit.

Ultimately, it means that in many cases, an increase in the Federal Funds rate does not automatically mean that mortgage interest rates will increase too.  If the stock market reacts negatively to the Fed’s decision or other economic news, mortgage rates can decrease even though the Federal Funds rate has increased. 

Yesterday’s Federal Reserve statement also included another announcement that could affect future mortgage interest rates.  The Fed stated that it will begin reducing its huge holdings of Treasury and mortgage bonds.  Let’s talk about the mortgage impacts of that announcement in another blog post next week.

For now, if you, a friend or family member wants to buy a house and fears that home price appreciation and interest rate increases will hurt your ability to buy, give me a call at Dunwoody Mortgage to discuss your options.  We offer VA, FHA, conventional, jumbo, and Home Ready loans – we offer a mix of mortgage products that can help different buyers’ differing situations.   I would love to explore your options with you.

How Could Fed Rate Increase Affect Mortgage Rates?

December 20, 2016

For the first time in a year, the United States Federal Reserve raised the federal funds rate by 0.25%.  How will that impact mortgage interest rates?

Here’s a history lesson:  The last time the FED raised the federal funds rate was in December 2015.  By the end of January 2016, mortgage interest rates actually improved by about a half point.  Mortgage rates then stayed flat (for the most part) until June and July, when they continued to improve.  Mortgage rates stayed at this very low level until election day.  From election day through December 15, 2016,  mortgage interest rates increased about 0.75%.

When trying to analyze mortgage interest rates, it makes sense to look at a mortgage loan as an investment.  Here’s why…Fannie Mae and Freddie Mac purchase most of the conforming mortgages originated in the USA.  They “pool” these mortgages into mortgage-backed securities (“MBS”) which are bought and sold on Wall Street just like other investments.  MBS provide investors with regular, predictable income (from the interest payments on the mortgages), so they are considered less “risky” than stocks and mutual funds.

But ultimately, MBS must compete with all other investments for investors’ dollars.  In the recent, post-election period, stock values have increased making equity investments more attractive.  To compete, lenders had to raise mortgage interest rates to provide a greater return and compete with the high-flying equities.

 

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In addition, China has been selling large amounts of its US government debt holdings.  As China sells, that creates pressure to raise interest rates on US government debt.  Again, government debt competes with MBS for investor dollars.  As interest rates on government debt increase, mortgage rates may have to rise to remain attractive to investors.

So what is a home buyer to do?  If you plan to buy soon, you can relax knowing that, once you get a home under contract, your lender can lock your interest rate through your closing date.  This means that if market interest rates rise between the time you lock your rate until closing, you still pay the lower rate specified in your lock.  You are protected against rate increases.

In addition, Dunwoody Mortgage offers a free interest rate float down on some mortgage products.  This means that, if market mortgage rates drop after you lock your rate, we might be able to lower your rate before closing.  With the free float down, after you lock your rate, you are protected should interest rates increase, and you may still be allowed to benefit if market rates decrease.

Ultimately, we at Dunwoody Mortgage are working in the best interest of our borrowers.  If you are looking to buy a house anywhere in Georgia, and mortgage interest rate changes make you nervous, contact me.  We can set you up with a loan program that can help protect you against the ups and downs of mortgage interest rate changes.

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Interest Rates Jump

November 15, 2016

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One thing that I did not expect from this election was the change in interest rates.  Mortgage interest rates on November 14 were a half a percentage point higher than they were on November 7.  Rates are still close to their historic lows, and still lower than rates back in the second half of 2015, but they definitely have taken a quick upward turn in the last week.  And there’s really no way to predict how far rates may rise.  For a better understanding of what drives mortgage interest rates, take a look at these prior posts:  https://themortgageblog.wordpress.com/2016/07/12/interest-rates-lower-from-brexit/ and https://themortgageblog.wordpress.com/2016/10/18/feds-may-not-raise-rates-at-all-this-year/

While I don’t have a crystal ball to forecast interest rates, I will simply apply a bit of common sense.  Interest rates have been very, very low for multiple years now.  There really isn’t much opportunity for rates to go lower.  So logically, if rates are going to move, they will likely go up.  If you are ready to buy a house, how do you protect yourself from a rate increase?  Answer:  You lock your rate.

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When a home buyer goes under contract, I can lock rates for periods from 30 days up to 90 days.  The longer the rate lock period, the higher the price.  Locking your interest rate is the sure way to protect yourself against rate increases.  I locked a refinance on November 8, just before the close of business.  I hate to think that this client’s rate would now be 0.50% higher if we had delayed.  Because she locked for 45 days, her rate will not increase if we close the loan before the end of business on December 23.  As long as you can close before the lock expires, your rate will not change.  If something delays closing past the lock expiration, that might cost you.  (Moral of the story, quickly respond to any request from your loan officer.  Delays can cost you.)

Borrowers also want to know what happens if market rates decrease after they lock their interest rate.  Dunwoody Mortgage can also offer a free rate float down option on some loans.  If your qualifying rate drops by more than 0.25% and we can relock it (1) less than 30 days and (2) more than 7 days before closing, we may be able to do that at no charge.

So if you want to buy a home and you are worried about interest rate fluctuations, know that Dunwoody Mortgage can protect you regardless of which way the market moves.  Moving forward with a Georgia home purchase soon?  Call me here at Dunwoody Mortgage now, before rates go up any more.  We can answer your questions and offer the counsel to best protect you against interest rate changes.

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Credit Reports and Qualifying for a Mortgage #1

October 5, 2016

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This news may shock you – mortgage underwriters actually look at a borrower’s credit report.  Notice I said, credit report, not credit score.  The score is only one component of the full report.

When we pull a credit report, the first thing we do review is the credit score.  If the score doesn’t qualify, there’s no need to spend time on the report details.  My lending guidelines state that minimum qualifying credit scores for my clients are:

  • 620 for FHA and VA loans.
  • 620 for conventional loans.

Mortgage credit scores are different from consumer credit scores people get from websites like credit karma.  Issues pertaining to past mortgages carry more weight on a mortgage score than a consumer score.  So your mortgage score may differ significantly from a consumer score given to you by a credit card company or a website.  I’ve had clients with mortgage scores higher than their consumer scores and other clients with scores less than their consumer scores.  You never know for sure until you actually pull the mortgage report.

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We look at scores from all three credit bureaus – Equifax, Experion, and Transunion.  We are required to use the borrower’s middle score for loan qualification.  And if there are multiple borrowers, then the lowest middle score is the score we use to qualify the application.  When I pull a report, if the score is less than 620, the client and I will discuss ways that they can improve their score, which may be simply waiting for their score to rise while they pay their bills on time, or contacting a credit counselor who might be able to help improve their score.

Regardless of how good the score is, I will look carefully at additional report details.  Sometimes these details can cause some underwriting questions or challenges, even if the score qualifies.  It’s usuaully best to deal with any credit questions proactively.

Home buyers deserve to know as early as possible whether they can realistically win loan approval.  There’s no need for them to waste their time or a Realtor’s time searching for a home when they cannot qualify for a mortgage.

We will review other key credit report details in future blog posts.  But for now, if you know someone looking to buy a home in Georgia, and this person may have a few “skeletons” in their “credit closet,” (hey Halloween is approaching!), refer them to me.  I’ll take the time to look at all the details, giving them the level of service they truly deserve.


 

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Interest Rates lower from Brexit

July 12, 2016

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Interest rates have moved lower since the Brexit vote at the end of June sent stocks crashing, the Pound Sterling down to lows versus the Dollar it hasn’t seen in decades, and all of the politician who led the Brexit campaign quit. But how much have interest rates actually moved since the Brexit vote?

I’ve kept up with interest rates daily since 2009. Since the Brexit vote toward the end of June, interest rates have only improved by 0.125-0.250%. Based on the number of “low interest rate” stories out there, you’d think interest rates would have dropped by at least a half point and have set new all time historic lows since the vote. Why all of the stories? I think it has to do with several factors:

  • yields on treasury bonds have experienced some major change, but treasury bonds don’t impact interest rates. As discussed countless times on this blog (do a search for “MBS” or “mortgage backed security” in the search box at the top right of the main page of this blog), interest rates are impacted by the movement of mortgage backed security bonds. Those prices haven’t changed near as much as the treasury yields.
  • the big move on interest rates was back in January of this year when interest rates dropped by over a half point from the start of the month until the end of the month. Interest rates have been about at this level for most of the year.
  • why the “low rate” stories now? Well, in January, stories were focusing more on the Spring market, home sales increasing, new construction startups increasing, etc. By the time we approach July, the Spring Market is over, there is a natural lull in home sales (everyone goes on vacation in July), and something is needed to fill the 24-hour news cycle. The Brexit vote along with rates improving some since that vote provided the needed stories.
  • since this is a normal “lull” period in the housing market, marketing efforts can now be turned to potential refinances.

Are interest rates low? Yes, absolutely.

Should one consider refinancing? Of course!

But don’t get swept away by it. You want to talk with an experienced mortgage loan officer who can give you the pros and cons of refinancing. For example, this morning I spoke with someone who wanted to refinance using a 15 year mortgage and pay discount points to get the rate into the 2’s. After running the numbers, his “break even” point on the monthly savings versus the closing costs for the new loan increased when he paid discount points to lower the rate! That wasn’t a typo… by paying discount points to get a lower rate, the amount of time needed to break even increased.

In the frenzy to secure a low rate, be sure to ask questions. Work with a mortgage loan officer who watches for trends and doesn’t hop onto the bandwagon of recent events. Someone who will discuss loan options with you instead of just quoting a rate and asking you if you are ready to get started. If the home you are looking to refinance is in the state of Georgia, contact me today. I can help you get going!

Besides… interest rates aren’t at their historic lows yet. That means there is still room for interest rates to improve.

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Q: How Do You Earn? A: Salary or Hourly

October 22, 2015

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If you saw my last post, you’ll remember that, in the mortgage world, how you earn your income is almost as important as how much income you earn.  See http://bit.ly/1KT9Snx for a quick refresher.

So let’s unpack how we underwrite the different types of income earning methods.  I’ll start with the easy ones first.

Salary Income:  If you earn a salary, we will need to know your gross monthly income.  That is, your monthly salary before taxes and withholdings.  We basically take your annual salary and divide by 12 months.

Underwriting will review your 2 most recent pay stubs and W-2 statements.  Don’t worry if you just started a new job.  So long as you are in a W-2 salaried job and you did not have a job gap of more than 6 months prior to your current job, you can qualify once you have 30 days of pay stubs.

Hourly Income:  If you are paid by the hour, underwriters will base your income on your average earnings over the last 24 months.  We will obtain a “Verification of Employment” (VOE) from your employer to document your income.  This employer-provided VOE is ultimately what underwriting will use when reviewing your application.

I know, it sounds confusing and very detailed.  That’s why it’s my job to know the details, understand the guidelines, and walk you through the process so you know exactly where you stand with underwriting.  I love handling the details and coaching my clients so that they can buy the home of their dreams.  If you are looking to buy in the State of Georgia and you want great mortgage service plus great rates, email or call me today.  We will make buying your dream home as easy as it can be.

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So How Much Money Do You Make?

September 24, 2015

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It pretty much goes without saying that everyone needs an income and most people need a job to qualify for a mortgage.  “No duh, Sherlock, right?”

Some people can qualify for a mortgage if they have an income and no job.  For example, retirees who have income from Social Security and retirement assets can use income from these sources to qualify without a job.

But the majority of us must be employed and earning a regular paycheck to qualify.  So here are some important income questions underwriting will want to consider when you apply for a mortgage.  #1:  What is your income?

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#2:  How do you earn your income?  Your answer to that question dramatically impacts your ability to qualify for a mortgage and the documentation you must provide to verify that income.  It also affects how we calculate the monthly income that we enter on your mortgage application.

Below is a quick summary of different income earning methods we frequently see in the mortgage world.  In future posts, we will review in more detail how underwriting verifies each different method of earning your wages.

  1. Salary income
  2. Commission income
  3. Hourly income
  4. Bonus and overtime income
  5. Part time job, second job, and multiple job income
  6. Self-employment income
  7. Rental income
  8. Child support, alimony, maintenance income
  9. Asset based income
  10. Social security / survivor and dependent benefit income
  11. Tip income

Not sure whether your income will qualify for a mortgage on your Georgia dream home?  No worries, just give a call to Dunwoody Mortgage Services.  We will ask you the right questions to make sure that your eligible income is recorded correctly for underwriting.  Give me a call or send me an email to start the process.  We will make sure that we do this right the first time!

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Should I consider a 15 Year Mortgage?

August 27, 2015

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Someone recently asked me, “Do you recommend a 15 year mortgage now since interest rates are so low?”  To quote a CPA friend of mine when asked if a business expense is deductible, “It depends.”  The question I will ask in response is, “How much can you afford to pay every month?”  The answer to the question depends totally on the borrower’s budget.

While getting a lower interest rate is a very good thing, amortizing a loan over 15 years instead of 30 means that you pay significantly more principal with each payment.

So let’s play with the numbers to put the question in perspective:

Your friend Sally is looking to get a $250,000 mortgage on a single family home.  She has excellent credit and will make a 10% down payment.  Let’s assume that Sally would have received a 4.0% interest rate on a 30 year mortgage and her monthly principal and interest (“P&I”) payment would have been about $1,194.  For a 15 year mortgage, let’s assume that Sally would have received a lower 3.25% interest rate, but her monthly P&I payment would have been much higher at $1,757.

Over the life of the 30 year mortgage, Sally would spend $179,674 in total interest payments.  Over the life of the 15 year mortgage, Sally would spend $66,201 in total interest payments.  Ultimately, Sally would save about $113,500 in total interest payments by selecting the 15 year loan.

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Saving that amount of money over the life of the loan is fantastic.  But, on the flip side, Sally would have to pay an extra $560 per month to “earn” the lower rate.  Only Sally can decide if that fits in her budget.  (And of course, Sally would have to earn an income high enough to support the larger payment based on our debt to income guidelines.)

So if your friend Sally, or anyone else you know, wants to buy a new home and thinks a 15 year mortgage is the way to go, have her contact me and I will run the numbers for her.  I’ll take the time to explain the details, and then let Sally make the decision that is best for her family.  There are other ways to reduce your total interest expense, even if you select the 30 year mortgage.  Curious?  Call my mobile phone or send me an email to start the conversation now.

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You Can Do It!! Part 3

July 27, 2015

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Let’s finalize our mortgage myth busting process right now.  We have previously exploded myths regarding the character and capital criteria in mortgage lending.  Now let’s deal with myths regarding your “capacity” to obtain a mortgage.

When it comes to loans, the term “capacity” is your ability to make your monthly payments.  To determine your capacity to pay your mortgage, underwriters will compare your monthly gross income (before taxes, retirement, and other deductions) to all of your monthly debt payments.  If your debt payments are not too high relative to your income, you are deemed to have sufficient capacity to obtain the loan.

A surprising percentage of people believe that if they simply have a student loan – regardless of the amount – they cannot qualify for a mortgage.  The TRUTH here is that you can still qualify for a mortgage even if you do have a student loan (or an auto loan, or an auto lease, or credit cards, or other types of debt).

The critical question here is not IF you have a student loan, instead it is, “How large are your payments relative to your income?”  Underwriters will scrutinize your “back ratio,” which is the sum of all your monthly debt payments – student loans, auto loans, the new mortgage payment on that house you want, etc. – divided by your monthly gross income.

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As long as your back ratio is not too high, say 45% or less for a conventional loan and 50% or less for a FHA loan, you will likely have your loan approved (assuming no other underwriting “issues,” of course).

So let’s summarize the mortgage myth destroying logic with this:  if your credit score is 620 or higher, and you have (or can get from relatives) enough cash for a 3% or more down payment, and if your current monthly debt payments are not excessive, and you want to buy a house, then remember, “You can do it!”

Actually, I’ll correct this as you will need help from someone licensed to originate loans, so let’s just say, “We Can Do It!”  If you dream of owning your own home in the state of Georgia, give me a call and let’s discuss your situation.  I’ll be honest and tell you what the real situation is.  Don’t believe the myths and then wait to take action.  The TRUTH is we might be able to get you into your dream home sooner than you think.

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You Can Do It!! Part 2

July 21, 2015

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In my last post, we reviewed the fact that a high percentage of Americans want to own their own homes, and we looked at the first (“character”) of three primary criteria that lenders evaluate when underwriting loans.

The second important criteria you need to qualify for a mortgage is “capital.”  You must have some cash available to make a down payment.  The lender wants you to have some equity, some “skin in the game” when you purchase a new house; therefore, the requirement for a down payment.

But there are myths about down payments.  For example, a high percentage of recent survey respondents think that you must make a down payment of at least 20% to buy a house.  That is one big, FAT myth.  The TRUTH is that you can purchase a home with down payments as low as 3.5% for an FHA loan and 3% for a conventional loan.

Now keep in mind that, with conventional loans, larger down payments can earn you a better interest rate and a better premium on your mortgage insurance.  But you can obtain a mortgage with the low down payments mentioned above, you will just pay a little more for your lower down payment.

You will need to provide bank statements showing that you have the cash available for your down payment and the other cash you will need to close your loan – things like closing costs and prepaid escrow items.  In some cases, you may have to show “reserves,” extra cash available to cover future mortgage payments.

You can get these funds from your bank account, investment accounts, gifts from relatives, and, in some cases, you can borrow funds from retirement accounts (e.g., 401K).  Your Realtor can also negotiate for the home seller to contribute cash to help cover the closing costs and prepaids.

We’ll look at “capacity” and myths related to it in my next post.  But for now, if your credit score is 620 or higher, you have enough cash for a 3% or more down payment, and you want to buy a house, just remember, “You can do it!”  If you dream of owning your own home in the state of Georgia, give me a call and let’s discuss it.  Don’t believe the myths.  We might be able to get you into your dream home sooner than you think.

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