Fannie, Freddie Overseer Looks to End Federal Control Before Trump Leaves

Mark Calabria, who heads the Federal Housing Finance Agency, testified before a Senate committee in June.Astrid Riecken/The Washington Post/Bloomberg via Getty Images

WASHINGTON—The federal regulator who oversees Fannie Mae and Freddie Mac is pushing to speed up the mortgage giants’ exit from 12 years of government control but has yet to reach an agreement he needs with Treasury Secretary Steven Mnuchin, according to people familiar with the matter.

Mark Calabria, a libertarian economist who heads the Federal Housing Finance Agency, has made it a priority to return Fannie and Freddie to private hands, a goal shared by Mr. Mnuchin. How that is done could affect the cost and availability of mortgages backed by the companies, which guarantee roughly half of the $11 trillion in existing home loans.

Completing the complex process before President Trump’s term ends on Jan. 20 is a long shot, and President-elect Joe Biden is considered unlikely to continue the effort. But Messrs. Calabria and Mnuchin could succeed in taking steps that would be difficult to reverse, such as significantly restructuring the government’s stakes in the firms.

The Treasury secretary must agree to any move to alter the terms of either the companies’ bailout agreement or the government’s stakes. One person familiar with the effort said Mr. Mnuchin is supportive of locking in a path to private ownership but mindful of steps that could disrupt the housing-finance market.

Mr. Calabria has met twice recently with Mr. Mnuchin to discuss an expedited exit of the companies from government control, most recently the week of Nov. 9, according to people familiar with the meetings, which also involved Larry Kudlow, the director of the White House’s National Economic Council. Mr. Mnuchin was noncommittal about the push, the people said.

Fannie and Freddie don’t make home loans. Instead, they buy mortgages and package them into securities, which they then sell to investors. Their promise to make investors whole in case of default keeps down the price of home loans and underpins the popular 30-year fixed-rate mortgage.

The government seized control of Fannie and Freddie to prevent their collapse during the 2008 financial crisis through a process known as conservatorship, eventually injecting $190 billion into the companies. In exchange, the Treasury received a new class of so-called senior preferred shares that originally paid a 10% dividend. It also received warrants to acquire about 80% of the firms’ common shares.

One option under discussion would entail a complex capital restructuring that would eventually reduce the government’s stakes in the firms. Such a move would be aimed at opening the door to new, private investment.

Still, it is a delicate issue because U.S. officials don’t want to cause investors to doubt the government’s backing of the firms, which have helped pin mortgage rates at record low levels during this year’s pandemic-induced economic slump. Moreover, it is politically sensitive because depending on the design, it could effectively move Wall Street investors ahead of taxpayers in line to receive any future profits.

As part of that set of decisions, Mr. Mnuchin would have to determine whether to write down the government’s more than $220 billion of senior preferred shares in the firms. Because those shares give the Treasury first claim on profits, private investors will have little incentive to take new stakes in Fannie and Freddie as long as they exist in their current form.

Such a move would likely push up the value of shares that investors acquired at fire-sale prices after the 2008 crisis. Some lawmakers are worried taxpayers would be short-changed.

In a letter to Messrs. Calabria and Mnuchin last month, Sens. Mark Warner (D., Va.) and Mike Rounds (R., S.D.) said taxpayers must be paid a fair market value for whatever stake they give up.

“Any other means of reducing their investment would be tantamount to a transfer of wealth from the taxpayers who stepped in to save [Fannie and Freddie] to private investors looking for a windfall,” they wrote.

It is unclear how seriously officials are considering another legal move that Mr. Calabria has raised in the past: an order formally ending the conservatorships but requiring the companies to operate with significant limitations on their businesses until they raise enough capital to operate independently through retained earnings and possible future stock sales. Supporters say the move would be akin to downgrading a sick patient from the emergency room to a regular hospital room.

One person familiar with the matter said the policymakers aren’t considering such an order, fearful it could upend markets.

Any single step, such as restructuring the government’s stakes in the firms, would normally require dozens of employees across the White House, Treasury and other agencies many months to complete, according to current and former government officials.

Industry officials warn that an abrupt overhaul to the company’s legal status could spook risk-averse investors in mortgage-backed securities issued by Fannie and Freddie, which are seen as nearly as safe as Treasurys.

“An end to conservatorship would be a material change from what we’ve had, and it will take time to explain to investors what risks do and do not exist,” said Michael Bright, CEO of the Structured Finance Association, whose members include investors in Fannie and Freddie securities.

In a sign that Mr. Calabria is eager to complete unfinished work quickly, the FHFA on Wednesday completed a rule requiring the companies to hold as much as $280 billion in capital once they exit conservatorship, up from $35 billion currently.

The post Fannie, Freddie Overseer Looks to End Federal Control Before Trump Leaves appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

Current Mortgage Rates Stay Lower on Monday

We saw mortgage rates dip a little lower on Friday after trouble in Turkey led financial market participants to seek out the perceived safety of long-term government bonds.

Mortgage rates are expected to stay close to current levels this week, but we could see some movement after a few key economic reports get released. Read on for more details.

Where are mortgage rates going?                                            

Rates hold lower to start the week

It’s a quiet start to the week as there are no significant economic reports scheduled for release. That’s keeping long-term government bond yields, which dropped due to an increased demand on Friday after trouble for Turkey’s lira, down near three week lows.

The yield on the 10-year Treasury note (the best market indicator of where mortgage rates are going) is currently at 2.88%. That’s basically flat on the day and about six basis points lower from where it was this time last week.

The expectation for this week is the same as it’s been for quite some time, and that’s for current mortgage rates to stay close to present levels. The fact that rates have remained in a tight range all summer (and most of spring) really isn’t the worst thing for borrowers, as many forecasters had expected rates to rise higher than they are now by this time.

The pressure isn’t off quite yet, though, as it is widely anticipated that the Federal Reserve will increase the nation’s benchmark interest rate, the federal funds rate, by at least a quarter-point by the time 2019 rolls around.

According to the CME Group’s Fed Funds futures, there is a 96.0% chance that the federal funds rate will go up a little over a month from now at the FOMC’s September meeting.

That would push the target range up a quarter-point to 2.00%-2.25%. There is still a lot of time between now and December, but at the moment the majority of analysts believe another rate hike will take place then, pushing the fed funds target range up to 2.50%-2.75%.

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Rate/Float Recommendation                                  

Lock now before move even higher     

With mortgage rates expected to rise in the coming months, we believe the prudent decision for most borrowers is to lock in a rate sooner rather than later. The longer you wait, the more likely it is that you’ll get a higher rate and pay more interest on your purchase or refinance.

Learn what you can do to get the best interest rate possible.  

Today’s economic data:           

  • Nothing out today.

Notable events this week:     

Monday:   

  • Nothing

Tuesday:   

  • NFIB Small Business Optimism Index
  • Import and Export Prices

Wednesday:         

  • Retail Sales
  • Empire State Mfg Survey
  • Productivity and Costs
  • Industrial Production

Thursday:     

  • Housing Starts
  • Jobless Claims
  • Philly Fed Business Outlook Survey

Friday:          

  • Consumer Sentiment

[contentbox id=”3″]

*Terms and conditions apply.

Source: totalmortgage.com

Have We Seen The End of Record Low Rates?

While it might not seem like the sort of thing mortgage rates should care about, the senate run-off election in Georgia was by far and away this week’s most important event. This wasn’t a surprise either. In fact, interest rates have been bracing for this potential impact since the inconclusive results in early November. But why do rates care about politics? Actually, they don’t! Not too much, anyway. Rates care about the prices and yields of certain bonds in the bond market above all else. Bond prices can take a variety of cues, but the most basic and most objective input is that of supply and demand. Supply and demand can be influenced by several underlying factors. For instance, the Fed currently buys more than $100 billion in bonds each month. That has a huge impact on the demand side of

Source: mortgagenewsdaily.com

Mortgage rates remain at record-low levels

After falling to the lowest rate in Freddie Mac’s Primary Mortgage Market Survey’s near 50-year-history last week, the average U.S. mortgage rate for a 30-year fixed loan remained at a survey-low 2.67% this week.

Last week’s announcement of a 2.67% rate broke the previous record set on Dec. 3, and was the first time the survey reported rates below 2.7%.

The average fixed rate for a 15-year mortgage also fell this week to 2.17% from 2.19%. One year ago, 15-year average fixed rates were reported at 3.16%.

“All eyes have been on mortgage rates this year, especially the 30-year fixed-rate, which has dropped more than one percentage point over the last twelve months, driving housing market activity in 2020,” said Sam Khater, Freddie Mac’s chief economist. “Heading into 2021 we expect rates to remain flat, potentially rising modestly off their record low, but solid purchase demand and tight inventory will continue to put pressure on housing markets as well as house price growth.”

Freddie Mac has reported survey-low rates 16 times in 2020, proving beneficial to borrowers looking to buy or refinance a home amid economic turmoil outside of the industry.

Mortgage spreads continue to compress, per Freddie Mac officials, with the 10-year Treasury yield remaining at or above 90 basis points through the beginning of December.

This week’s 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 2.71%, down from last week when it averaged 2.79%. That’s another sharp drop-off from this time last year, when the 5-year ARM averaged 3.46%.

The Federal Open Market Committee revealed earlier this month that the Federal Reserve plans to keep interest rates low until labor market conditions and inflation meet the committee’s standards. Overall, Fed purchases have helped to drive mortgage rates and other loan interest rates to the lowest level on record by boosting competition for bonds.

Higher rates may be around the corner, as the calendar flips to 2021 and the promise of a second COVID-19 stimulus check along with a vaccine reaches consumers. The Mortgage Bankers Association has forecasted rates for 30-year fixed-rate loans rising to an average of 3.2% by the end of 2021.

But if the virus is not controlled in the new year, investors may remain cautious and consumer confidence could wane – keeping rates low, according to the MBA.

The post Mortgage rates remain at record-low levels appeared first on HousingWire.

Source: housingwire.com

FHA Loan Requirements – Guideline & Limits

FHA loan requirements are simple; they’re different than conventional loan requirements. For a conventional loan, for example, you will need a good credit score. However a FHA loan credit score is only 580.

If you’re a first time home buyer and need a first time home buyer loan to purchase your dream home, then keep reading to find out how an FHA loan is right for you.

Click here to compare the rates if you’re thinking of applying for an FHA loan. It’s totally FREE.

In this article, we will cover several topics around the FHA loan requirements. As a first time home buyer, you will need to be aware of these requirements so that your home-buying process can go as smoothly as possible.

Here’s what we will cover: FHA loan limits, FHA loan rates, FHA loan credit score, FHA lenders, and so many others. In addition, we will address the difference between conventional loan requirements versus FHA loan requirements.

Click here to apply for a FHA loan.

FHA Loan Requirements – Guideline & Limits:

Buying a house through an FHA loan, while exciting, can be daunting, especially as a first time home buyer. Taking a few moments to familiarize yourself with the FHA loan requirements can save you from costly mistakes during the home buying process. Below is an overview of FHA loan process

FHA loan definition

What is an FHA loan? Simply stated, an FHA loan is a loan that is insured by the Federal Housing Administration. These type of loan are popular among first time home buyers because they allow them to put as low as 3.5% down payment and require a very low credit score.

So if you’re a first time home buyer with a bad credit, then an FHA loan makes more sense.


Feeling Overwhelmed With Your Finances?, You have options and there are steps you can take yourself. But if you feel you need a bit more guidance, simply speak with a financial advisorSmartAsset’s free tool matches you with fiduciary advisors in your area in 5 minutes. If you are ready to meet your goals, get started with Smart Asset today.


FHA loan limits

FHA loan limits refers to the maximum amount of loan the FHA will give you. For 2019, for example, in low cost areas, FHA loan requirements have been set in place allowing the maximum amount for a single family home to be $314, 827. Whereas for a four-plex, the maximum amount is $605,525.

FHA loan limits – low cost areas
Single Duplex Triplex Fourplex
$314,827 $403,125 $487,250 $605,525

 

For high cost areas, the FHA loan limits for a single family home is $726, 525 and for a duplex, the FHA limit is $930, 300. Those limits, of course vary depending on your states and they are update annually. So visit your state to determine what the FHA mortgage lending limits are.

FHA loan limits – high cost areas
Single Duplex Triplex Fourplex
$726,525 $930,300 $1,124,475 $1,397,400

Click here to compare current FHA loan mortgage rates

FHA loan vs conventional

When it comes to get a home loan for presumably the biggest purchase you’ll ever make in your life, you certainly have to know the key differences between an FHA loan and a conventional loan. While it’s easier to get approved for an FHA loan, it’s important so that you can make the best decisions.

FHA loan requirements

fha loan requirements
FHA credit score loan requirement

The FHA loan requirements are fairly simple and straightforward. Here’s what they require: 1) You must have a credit score of at least 580.

2) A 3.5% down payment is required. (*note, if your FICO score is between 500 and 579, then you will have to put 10% down payment). 3) You will have to pay Private Mortgage Insurance (PMI);

4) Your debt to income ratio must be < 43%. Your debt to income ratio is the percentage of your income that you spend on debt, including mortgage, car loan, student debt, etc..

5) The home you intend to purchase must be your primary residence. You must also occupy the property within 60 days of closing.

Click here to shop for FHA mortgage rates in your area

It can’t be an investment property. However, you can buy a duplex or triplex, live in one unit and rent the other units. As long as you reside in the property, you will satisfy that requirement. Also, the house must meet FHA loan limits (see above).

6) Finally, and of course, you must have a steady income and proof of employment. I will discuss later whether a FHA loan is better than a conventional loan. For more information about FHA loan requirements in general, visit the FHA website.

Conventional loan requirements

The requirements for a conventional loan, however, are much stricter. By the way a conventional loan or traditional loan is not insured by the Federal Housing Administration. But instead it is guaranteed by a private lender such as a bank, credit union, mortgage companies, etc…

Of course whether you will qualify for a conventional loan vary from lenders to lenders, but the following are required:

1) A credit score of at least 680 (of course the higher the score is, the more likely you will get qualified, and the lower your interest rate on the loan will be.

2) A down payment of at least 20% of the house purchase price. If you have less than 20%, you still can get the loan. But the problem is, you will have to take out private mortgage insurance, pay its premiums until you achieve at least 20% equity in the house.

3) Your debt to income ratio needs to be around 36% and no more than 43%.

Should you apply for an FHA loan or conventional loan?

As you can see above, the FHA loan requirements are less strict than the conventional loan requirements. However, which one you choose to apply to depends on your personal circumstances.

But if you are a first time home buyer, there are a lot of good reasons why an FHA loan would seem more appealing to you. For one, the down payment is only 3.5% (compare that with a 20% down payment a conventional loan requires). A down payment is the upfront money you need to to make when buying a home.

As a first time home buyer, saving for a 20% down payment on a house can be a big burden. Homes are expensive. For example, saving for $450,000 home can take you years to accomplish, especially if you have other debt like student debt, credit card debt, car loan, etc… So a 3.5% down payment makes it easier for you to buy your own home.

Second, the FHA loan credit score is only 580. Although, you should always take steps to raise your credit score, sometimes certain changes in your life may leave you with a low credit score. Perhaps, you had to file for bankruptcy which resulted in a low credit score.

Or maybe you never had a credit card, which means that you don’t have an established credit history. Or maybe you’re a victim of identity theft which lowered your credit score. So there are several reasons why you could have a low credit score.

However, that shouldn’t mean you can’t buy a house. That’s why the FHA loan requirements make it easier for folks who otherwise would not have been qualified for a conventional loan.

Related Articles:

5 Signs You’re Not Ready To Buy A House

The Biggest Mistakes Millennials Make When Buying a House

How Much House Can I afford

Buy a home with the Right Financial Advisor

You can talk to a financial advisor who can review your finances and help you reach your goals. Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

The post FHA Loan Requirements – Guideline & Limits appeared first on GrowthRapidly.

Source: growthrapidly.com

What Happens to Mortgage Rates When the Fed Cuts Rates?

Just about everybody with a wallet is impacted by the Federal Reserve. That means you—homeowners and prospective buyers. Whether you’re already nestled in to the house of your dreams or still looking to find it, you’ll probably want to track what happens to mortgage rates when the Fed cuts rates. When the Fed (as it’s commonly referred to) cuts its federal funds rate—the rate banks charge each other to lend funds overnight—the move could impact your mortgage costs.

The Fed’s overall goal when it cuts the federal funds rate is to stimulate the economy by spurring consumers to spend and borrow. This is good news if you are carrying debt because borrowing tends to become less expensive following a Fed rate cut (think: lower credit card APRs). But in the case of homeownership, what happens to mortgage rates when the Fed cuts rates can be a double-edged sword.

What happens to mortgage rates when the Fed cuts rates depends on many factors.

The connection between a Fed rate cut and mortgage rates isn’t so crystal clear because the federal funds rate doesn’t directly influence the rate on every type of home loan.

“Mortgage rates are formed by global market forces, and the Federal Reserve participates in those market forces but isn’t always the most important factor,” says Holden Lewis, who’s been covering the mortgage industry for nearly 20 years and is also a regular contributor to NerdWallet.

To understand which side of the sword you’re on, you’ll need an answer to the question, “How does a Fed rate cut affect mortgage rates?” Read on to find out if you stand to potentially gain on your mortgage in a low-rate environment:

How a fixed-rate mortgage moves—or doesn’t

A fixed-rate mortgage has an interest rate that remains the same for the entire length of the loan. If the Fed cuts rates, what happens to mortgage rates if you are an existing homeowner with a fixed-rate mortgage? Nothing should happen to your monthly payments following a Fed rate cut because your rate has already been locked in.

“For current homeowners with a fixed-rate mortgage set at a previous higher level, the existing mortgage rate stays put,” Lewis says.

If you’re a prospective homebuyer shopping around for a fixed-rate mortgage, the news of what happens to mortgage rates when the Fed cuts rates may be different.

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For prospective homebuyers: If the Fed cuts its interest rate and the 10-year Treasury yield is similarly tracking, the rates on fixed-rate mortgages could drop, “and you could lock in interest at a lower fixed rate than before.”

– Holden Lewis, mortgage expert and NerdWallet contributor

The federal funds rate does not directly impact the rates on this type of home loan, so a Fed rate cut doesn’t guarantee that lenders will start offering lower mortgage rates. However, the 10-year Treasury yield does tend to influence fixed-rate mortgages, and this yield often moves in the same direction as the federal funds rate.

If the Fed cuts its interest rate and the 10-year Treasury yield is similarly tracking, the rates on fixed-rate mortgages could drop, “and you could lock in interest at a lower fixed rate than before,” Lewis says. It’s also possible that rates on fixed mortgages will not fall following a Fed rate cut.

How an adjustable-rate mortgage follows the Fed

An adjustable-rate mortgage (commonly referred to as an ARM) is a home loan with an interest rate that can fluctuate periodically—also known as variable rate. There is often a fixed period of time during which the initial rate stays the same, and then it adjusts on a regular interval. (For instance, with a 5/1 ARM, the initial rate stays locked in for five years and then adjusts each year thereafter.)

So back to the burning question: If the Fed cuts rates, what happens to mortgage rates? The rates on an ARM typically track with the index that the loan uses, e.g., the prime rate, which is in turn influenced by the federal funds rate.

If the Fed cuts rates, what happens to mortgage rates? If you have an adjustable-rate mortgage, you may see your rate change.

“If the Fed drops its rate during the adjustment period, you could see your interest rate go down and, in turn, see lower monthly payments,” says Emily Stroud, financial advisor and founder of Stroud Financial Management.

Since ARMs are often adjusted annually after the fixed period, you may not feel the impact of the Fed rate cut until your ARM’s next annual loan adjustment. For instance, if there is one (or more) rate cuts during the course of a year, the savings from the rate reduction(s) would hit all at once at the time of your reset.

If the Fed cuts rates, what happens to mortgage rates for prospective homebuyers considering an ARM? An even lower rate could be in your future—at least for a specific period of time.

“If you’re looking for a shorter-term mortgage, say a 5/1 ARM, you could save considerably on interest,” Stroud says. That’s because the introductory rate of an ARM is usually lower than the rate of a fixed-rate mortgage, Stroud explains. Add that benefit to lower rates fueled by a Fed rate cut and an ARM could be enticing if it supports your financial goals and plans.

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“If the Fed drops its rate during the adjustment period, you could see your interest rate go down and, in turn, see lower monthly payments.” 

– Emily Stroud, financial advisor and founder of Stroud Financial Management

Benefits of other variable-rate loans following a rate cut

If you have a Fed rate cut and mortgage rates on your mind and are a borrower with other types of variable-rate loans, you could be impacted following a Fed rate cut. Borrowers with variable-rate home equity lines of credit (HELOCs) and adjustable-rate Federal Housing Administration loans (FHA ARMs), for example, may end up ahead of the curve when the Fed cuts its rate, according to Lewis:

  • A HELOC is typically a “second mortgage” that provides you access to cash for goals like debt consolidation or home improvement and is a revolving line of credit, using your home as collateral. A Fed rate cut could result in lower rates for variable-rate HELOCs that track with the prime rate. If you are an existing homeowner with a HELOC, you could see your monthly payments drop following a Fed rate cut.
  • An FHA ARM is an ARM insured by the federal government. If you’re wondering about a Fed rate cut and mortgage rates, know that this type of mortgage behaves much like a conventional variable-rate loan when the Fed cuts it rate, Lewis says. Existing homeowners with an FHA ARM could see a rate drop, and prospective homebuyers could also benefit from lower rates following a Fed rate cut.

When it comes to a Fed rate cut and mortgage rates, refinancing to a lower rate could be an option for existing homeowners.

Refinancing: A silver lining for fixed rates

When it comes to a Fed rate cut and mortgage rates, refinancing to a lower rate could be an option if you have an existing fixed-rate loan. The process of refinancing replaces an existing loan with a new one that pays off your old loan’s debt. You then make payments on your new loan, so the goal is to refinance at a time when you can get better terms.

“If someone buys a home one year and a Fed rate cut results in a mortgage rate reduction, for example, it presents a real refinance opportunity for homeowners,” Lewis says. “Just a small percentage point reduction could possibly trim a few hundred bucks from your monthly payments.”

Before a refinancing decision is made based on a Fed rate cut and mortgage rates, you should consider any upfront costs and fees associated with refinancing to ensure they don’t offset any potential savings.

Managing your finances as a homeowner

You might be expecting some savings in your future now that you’re armed with information on what happens to mortgage rates when the Fed cuts rates. Whether you’re a homebuyer and financing your new home is going to cost you less with a lower interest rate, or you’re an existing homeowner with an ARM that may come with lower monthly payments, Stroud suggests to use any uncovered savings wisely.

“Invest that cash back into your property, pay down your home equity debt or borrow with it,” she says.

Understanding the connection between the Fed rate cut and mortgage rates can help you better manage your finances as a homeowner.

While news of a Fed rate cut may entice you to analyze how your mortgage will be impacted, remember there are many factors that help to determine your mortgage rate, including your credit score, home price, loan amount and down payment. The Fed’s actions are only one piece of a larger equation.

Even though the Fed’s rate decisions may dominate headlines immediately following a rate cut, your home is a long-term investment and one you’ll likely maintain for years. To best prepare for what happens to mortgage rates when the Fed cuts rates is to always manage your home finances responsibly and be sure to make choices that will lead you down the right path based on your financial goals.

*This should not be considered tax or investment advice. Please consult a financial planner or tax advisor if you have questions.

NMLS ID 684042

The post What Happens to Mortgage Rates When the Fed Cuts Rates? appeared first on Discover Bank – Banking Topics Blog.

Source: discover.com

Should I Refinance My Mortgage? When to Refinance

The Federal Reserve recently lowered interest rates in an effort to stimulate the economy during the coronavirus pandemic. As a result, more and more people are becoming interested in refinancing their mortgage. Depending on the situation, refinancing your mortgage can prove to be a savvy financial decision that can save you massive amounts of money in the long-term. But is it right for you? 

If you’re curious about refinancing your mortgage, this article should answer many of your questions, including: 

  1. How Does Refinancing Work?
  2. When Should I Refinance My Mortgage? 
  3. What is the Downside of Refinancing My Home? 
  4. How Do I Calculate if I Should Refinance My Mortgage? 
  5. What are My Refinancing Options? 

How Does Refinancing Work? 

“Refinancing your mortgage allows you to pay off your existing mortgage and take out a new mortgage on new terms,” according to usa.gov. So when you refinance your mortgage, you’re essentially trading in your old mortgage for a new one. The new loan that you take out pays off the remainder of the original mortgage and takes its place. That means the terms of the old mortgage no longer apply, and you’re instead bound by the terms of the new one. 

There are many reasons why homeowners choose to refinance their mortgage. They may want to secure a loan with a lower interest rate, switch from an adjustable rate mortgage (ARM) to a fixed-rate, shorten or lengthen their repayment term, change mortgage companies, or come up with some cash in order to pay off debts or deal with miscellaneous expenses. As you can see, there are a vast number of reasons why someone might be interested in refinancing. 

There are also a couple of different ways to go about refinancing. A standard rate-and-term refinance is the most common way to do it. With this method, you simply adjust the interest rate you’re paying and the terms of your mortgage so that they become more beneficial to you. 

However, you could also do a cash out refinance, where you pull equity out of your home and receive it in the form of a cash payment, or take out a new loan that’s greater than the remaining debt on the original mortgage. Even though you’ll get an influx of cash in the short-term, a cash out refinance can be a risky option because it increases your debt and it’ll likely cost you in interest payments in the long-term.


When Should I Refinance My Mortgage?

Maybe you’ve been wondering, “Should I refinance my mortgage?” If you can save money, pay off your mortgage faster, and build equity in your home by doing so, then the answer is yes. Whether you can achieve this is dependent on a variety of things. Take a look at these refinance tips in order to get a better idea of when you should refinance your mortgage. 

Capitalize on Low Interest Rates 

When mortgage rates go down, a lot of people consider refinancing their mortgage in order to take advantage of that new lower rate. And this makes perfect sense—by paying a lower interest rate on your mortgage, you could end up saving thousands of dollars over time. But when it comes to refinancing your mortgage, there are a number of other factors you should consider as well. 

Regarding interest rates, you should take a look at how steeply they drop before making any refinancing decisions. It might be a good idea to refinance your mortgage if you can lower your interest rate by at least 2 percent. It ultimately depends on the amount of your mortgage, but anything less than that amount likely won’t be worth it in the long run. 

Switch to Fixed-Rate Mortgage

It’s also very common for people to refinance in order to get out of an adjustable rate mortgage and instead convert to a fixed-rate. An adjustable rate mortgage usually starts off with a lower interest rate than a fixed-rate, but that rate eventually changes and it can end up costing you. That’s because the interest rate on an adjustable rate mortgage changes over time based on an index of interest rates. It can alter based on the mortgage market, the LIBOR market index, and the federal funds rate. 

By converting to a fixed-rate mortgage—where the interest rate is set when you initially take out the loan—before the low rates on your adjustable rate mortgage increase, you can minimize the amount you have to pay in interest. If you’re able to lock in a low fixed interest rate, you’ll be less susceptible to market volatility and more capable of devising a long-term payment strategy.   

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When debating the question of “Should I refinance my mortgage or not?”, you should also keep in mind what lenders will look at when determining the terms of your loan. In order to come up with an interest rate and approve you for a refinancing loan, lenders will take the following factors into consideration: 

  • Payment history on your original mortgage: Before issuing a refinancing loan, lenders will review the payment history on your initial mortgage to make sure that you made payments on time. 
  • Credit score: With good credit, you’ll have more flexibility and options when refinancing. A high credit score will allow you to take out loans with more favorable terms at a lower interest rate. 
  • Income: Lenders will want to see that you generate a steady, reliable income that can comfortably cover the monthly mortgage payments.  
  • Equity: Home equity is the loan-to-value ratio of a borrower. You can calculate it by dividing the amount owed on the current mortgage loan by the home’s current value. Before you consider refinancing, you should ideally have at least 20% equity in your home. If your equity is under 20% but your credit is good, you still may be able to secure a loan, but you’ll likely be charged a higher interest rate or have to pay for mortgage insurance, which is not ideal.

What is the Downside of Refinancing My Home? 

Refinancing a mortgage isn’t for everyone. If you don’t take the time to do your research, calculate savings, and weigh the benefits versus the potential risks, you could end up spending more money on refinancing than you would have had you stuck with the original loan. 

When refinancing, you run the risk of placing yourself in a precarious financial position. This is especially true when it comes to a cash out refinance, as this can put you on the hook for even more money and bury you in interest payments. 

Don’t refinance your home and pull out equity just to get quick cash, make luxury purchases, and buy things you don’t need—doing this is an easy way to dig yourself into a deep financial hole. In reality, you should only refinance your mortgage if you know that you can save money doing it. 

How Do I Calculate if I Should Refinance My Mortgage? 

Before you refinance your mortgage, it’s crucial to crunch the numbers and determine whether it’s worth it in the long-run. To do this, you’ll first have to consider how much refinancing actually costs. 

Consider Closing Costs

So how much does it cost to refinance? One of the most significant expenses to take into account when refinancing is the closing costs. All refinancing loans come with closing costs, which depend on the lender and the amount of your loan, but average around three to six percent of the principal amount of the loan. So, for example, if you took out a loan of $200,000, you would end up paying another $8,000 if closing costs were set at 4%. 

These closing costs are most often paid upfront, but in some cases lenders will permit you to make the closing costs part of the principal amount, thus incorporating them into the new loan. While closing costs generally don’t cover property taxes, homeowner’s insurance, and mortgage insurance, they do tend to include the following: 

  • Refinance application fee
  • Credit fees 
  • Home appraisal and inspection fees 
  • Points fee
  • Escrow and title fees 
  • Lender fee

Determine Your Break-Even Point

To make an informed decision as to whether refinancing your mortgage is a sound financial decision, you should calculate how long it will take for the refinancing to pay for itself. In other words, you’ll want to determine your break-even point. To calculate your break-even point, divide the total closing costs by the amount you’ll save on a monthly basis as a result of your refinance loan. 

The basic equation for figuring out your break-even point is as follows: [Closing Costs] / [Monthly Savings] = [# of Months to Break Even] 

Taking this into consideration, you can see how the length of time you plan on staying in a home can make a big difference as to whether or not refinancing your mortgage is the right option for you. If you’re thinking of moving away and selling your house in a few years, then refinancing your mortgage is probably not the right move. You likely won’t save enough in those few years to cover the additional costs of refinancing. 

However, if you plan on remaining at the house you’re in for a long stretch of time, then refinancing could potentially save you a lot of money. To make an informed decision, you have to do the math yourself—or, to make the calculations even simpler, use Mint’s online loan repayment calculator. 

What are My Refinancing Options? 

As stated above, you have options when it comes to refinancing loans. You could refinance your mortgage in order to secure a lower interest fee and a change in the terms of your loan; or you might opt for a cash out refinance that lets you turn your home’s equity into extra income that you can use to pay for home improvement, tuition costs, high-interest debt payments, and more. 

In order to actually start refinancing your home, you’ll have to find a lender and fill out a loan application. Shop around at large and small banks alike to see who will offer you the lowest interest rates and the best terms. How long does a refinance take? The timeline depends on a few things, including the lender you borrow from and your own financial situation. But, in general, it takes an average of 45 days to refinance a mortgage. 

You might also consider forgoing the traditional banks and dealing with an online non-banking company instead. Alternative lenders often offer greater flexibility in terms of who qualifies for a loan and they can, in some cases, expedite the refinancing process. For example, Freddie Mac is a government-sponsored mortgage loan company that, in addition to offering no cash out and cash out refinancing, has a third option available for borrowers whose loan-to-value ratio is too high to qualify for the traditional refinancing routes. Learn more by visiting freddiemac.com. 

When tackling any big financial decision, it’s important that you’re informed and organized. Learn the facts, do the calculations, and research your options before beginning the refinancing process to make sure it’s the right choice for you. 

The post Should I Refinance My Mortgage? When to Refinance appeared first on MintLife Blog.

Source: mint.intuit.com

How Long Does It Take To Buy A House?

How long does it take to buy a house? The answer is: it depends. You can buy a house in a matter of weeks or it can take you anywhere from 4 to 6 months. The question is how ready are you? It can take a long time, and that’s just learning about various mortgage options or improving your credit score.

So understanding the various factors involved in buying a house can give you an estimate of how long it will take you to buy the house

Check out now: 5 Signs You Are Not Ready To Buy A House

How long does it take to buy a house? A step-by-step guide.

It can take a homebuyer a few weeks to several months to complete the home buying process. But when determining how long it will take you to buy a house, you first have to find out if you will be pre-approved for a mortgage. There is no sense of shopping for a house to then realize you can’t afford it.

If you are interested in comparing the best mortgage rates through LendingTree click here. It’s completely free.

I. How long does it take to get a pre-approved mortgage letter in order to buy a house?

If you’re serious about buying a house, it’s important to get pre-approved for a mortgage. So when it’s time to make an offer, the seller will know you’re serious. If you don’t have one handy, the seller will likely move to the next buyer.

Getting pre-approved for a mortgage in order to buy a house can take longer. That is because you have to make sure your financial situation is in shape. For example, your income-to-debt ratio, your down payment, and your credit score must be good. That’s exactly what a mortgage lender will look at.

Even when these things are in order, shopping and comparing mortgage rates and fees can take several weeks.

Let’s take a look on how long it will take you to get these things in shape before buying a house.

Click here to compare mortgage rates through LendingTree. It’s completely FREE.

A. How good is your credit score?

A low credit score can make buying a house take longer, because it can take months to a year to improve a bad credit score.

A conventional loan will usually require a 640+ credit score.

In fact, your credit score is the number 1 item mortgage lenders look at to decide whether to offer you a mortgage. And if it is not where it’s supposed to be, you might get rejected.

Luckily for you there are other ways to get a loan with much lower credit score: FHA loans.

FHA loans only require a credit score of 580 with 3.5% down payment. You may get qualified with a 500 credit score, but you’ll have to come with a 10% down payment.

So before you get into the fun part of shopping for a mortgage or visiting homes, it’s best to know what your credit score is and take steps to improve it.

You can get a free credit score at Credit Sesame.

B. Fix errors on your credit report.

Fixing errors on your credit report in order to get pre-approved for a loan in order to buy a house can take 30 days.

According to Transunion, “most investigations are completed within 2 weeks, but some may take up 30 days.”

Again, we recommend you get a free credit report at Credit Sesame. A credit report will give you a detail analysis of your credit history, how much debt you owe, and how creditworthy you are, etc. If there are any errors or inaccuracies, fix them immediately so there’s no surprise when you’re actually applying for a mortgage.

The best way to do that is by filing a Transunion dispute or Equifax dispute.

C. Do you have a down payment for the house?

How long it will take you to buy a house will also depend on whether or not you already have money saved up for a down payment.

Unless you’re going to buy the house with outright cash, you’ll need a down payment. And saving for a down payment can take a long time. Depending on your income and expenses, saving for a down payment on a house can take years.

Assuming, for example, you want to buy a house that will cost you $450,000, and you’re using a conventional loan to finance the house. With a 20% down payment, you will need to come up with $90,000.

Let’s say again, because of other monthly expenses, you can only save $1500 a month for the down payment.

You see how long it will take you to save for a down payment to buy the house? 5 years. And that doesn’t even take into account other upfront costs of buying a house, such as closing cost.

While it’s possible to get a mortgage with a down payment as low as 3.5% of the home purchase price, it’s advisable to put at least 20% down. The reason is because you will avoid paying private mortgage insurance (PMI), which protects the lenders in case you default on your mortgage.

Home buyers with a down payment below 20% are usually charged with PMI.

Another reason for a larger down payment is that it reduces the cost of the mortgage, grows equity much faster, and saves you on interest over the life of the loan.

As you can see, it can take you as much as 5 years from the time you’re thinking about buying the house to the time you’re actually ready to start the process.

But once you have taken care the things above, buying a house can go a lot faster.

II. How long does it take to find a real estate agent?

Average time: 1 day to a month

Once you have been pre-approved for a mortgage, the next step is to find an experienced real estate agent. Finding a good real estate agent can take a day to a month. Websites such as Zillow and Redfin list real estate agents you can use.

III. Shopping for a home.

Average time: a few weeks to a few months

With the help of a real estate agent and your own due diligence, finding a home can can go faster or take longer depending on available homes, the season and your desired location.

But experts say on average it can take a minimum of three weeks to a few months.

IV. Making an offer, negotiation, and inspection.

Average time: 1 to 10 days

Once you have found the home of your dream, the next step is to make an offer. You and the seller can go back and forth negotiating the price.

Once your offer has been accepted, you and the seller sign something called a purchase agreement. Then, the next step is to hire a professional to inspect the home for defects. Depending on your state, a home inspection must be completed within 10 days. And if the inspection finds some defects in the house, that could delay the process.

V. How long does it take to close on a house?

Average time: 30 to 45 days.

Once the inspection is done, your lender will need to officially approve you for the loan. And depending on the lender, it can also affect how long it takes to buy a house. You may need to provide additional documents. But the lender will need to assess the home for its value. And depending on the program (whether it’s conventional loan or FHA loan) it can take anywhere from 30 to 45 days to close on a home.

Bottom line

When asking yourself this question: “how long does it take to buy a house?” The answer is : it depends. If you have your credit score, your down payment, your other finances under control, you can buy your house in two months or less. But if you have to save for a down payment, fix errors on your credit report, raise your credit score, the whole home buying process can take years.

Click here to compare mortgage rates through LendingTree. It’s completely FREE

Still wondering how long it takes to buy a house? Read the following articles:

  • 5 Signs You’re Not Ready To Buy A House
  • 10 First Time Home Buyer Mistakes To Avoid
  • 3 Signs You’re Not Ready to Refinance Your Mortgage
  • The Biggest Mistakes Millennials Make When Buying a House
  • 7 Signs You’re Ready To Buy A House

Work with the Right Financial Advisor

You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc). So, find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

The post How Long Does It Take To Buy A House? appeared first on GrowthRapidly.

Source: growthrapidly.com