Home Buying Archives - Page 3 of 29

Apache is functioning normally

March 8, 2024 by Brett Tams

The Biden Administration has just unveiled a number of proposals to make homeownership more affordable.

Aside from legislation to build and renovate more than two million homes, they are calling on Congress to approve a pair of new “mortgage relief credits.”

One targets prospective home buyers grappling with significantly higher mortgage rates, while the other addresses home sellers dealing with mortgage rate lock-in.

Both are intended to increase the supply of homes for sale, which has been below healthy levels for several years now.

The question remains whether incentivizing home buying is what’s necessary for the housing market at the moment.

$5,000 Tax Credit for Two Years for First-Time Home Buyers

The mortgage relief that targets home buyers would provide a tax credit of $5,000 for two years to first-time home buyers.

Generally, this is defined as someone without ownership interest in the three years preceding the home purchase.

In total, these new home buyers could snag $10,000 in tax savings over the first two years.

A tax credit directly reduces your tax bill, unlike a deduction, which simply reduces your taxable income.

This piece of legislation is intended to tackle the high mortgage rates currently available, which nearly tripled from below 3% to above 8% recently.

Per the White House fact sheet, the $10,000 in savings is the equivalent of reducing the borrower’s mortgage rate by more than 1.5 percentage points on a median-priced home.

At last glance, the median home was valued at roughly $418,000. Of course, these savings only exist for two years. More on that in a moment.

The Biden administration believes this credit could help more than 3.5 million middle-class families purchase their very first home over the next two years.

$10,000 Tax Credit for Home Sellers

The other mortgage relief credit would incentivize home sellers, many of whom have been reluctant to sell because of their very cheap mortgages.

Known as the mortgage rate lock-in effect, it’s the concept of staying put for fear of losing your existing mortgage rate if you move. And having to replace it with a much higher one.

To offset this lock-in effect, middle-class families who sell their “starter home” to another owner-occupant would receive a tax credit of up to $10,000.

They define a starter home as one valued below the area median home price in the county where it’s located.

The Biden administration thinks this could unlock homes that no longer fit the needs of many households nationwide, and help an estimated three million families i the process.

On top of these tax credits, they are still pushing for $25,000 in down payment assistance to first-generation home buyers.

And they’re targeting the elimination of certain closing costs, such as lender’s title insurance, which could save the average homeowner $750 when refinancing.

But Won’t This Just Increase Demand at a Time When Supply Is Already Too Low?

While the new proposals might be well-intentioned, one has to wonder if they won’t simply stoke demand at a time when supply remains far too low.

Sure, there’s an incentive to both buy and sell a home with these tax credits, but it’s unclear how many existing owners would sell just to get the $10,000 tax credit.

After all, if they’re sitting on a 2-3% 30-year fixed mortgage rate, it wouldn’t take long for the $10,000 to be absorbed via their new, much higher housing costs.

Just pretend a family holds a $300,000 mortgage set at 2.75%. Their monthly principal and interest payment is $1,224.72.

If they sold and then bought another property for say $400,000 with a rate of 6.5%, their new monthly P&I would be $2,528.27.

That’s a difference of over $1,300 per month, which would eat up the $10,000 credit in less than eight months!

These sellers would also have to incur moving costs, closing costs on a new mortgage, and compete with other home buyers to find a replacement property.

The credit for first-time home buyers could also arguably result in hotter demand, even if more homes were coming online.

Lastly, it seems they’re banking on lower mortgage rates in the near future, at which point these first-time buyers would be able to get more permanent savings beyond year two via a rate and term refinance.

In the end, it appears we’re stuck between a rock and a hard place. Ultimately, the accommodative interest rate policy of the past decade created a serious divide of haves and have nots.

And without a lot more inventory, or perhaps slightly lower mortgage rates that allow transactions to occur naturally again, it might be a while before things normalize again.

Source: thetruthaboutmortgage.com

Apache is functioning normally

March 7, 2024 by Brett Tams

Lately, mortgage rates have surged higher, climbing from as low as 2% to over 8% in some cases.

Despite this, home builders have been enjoying healthy sales of newly-built homes.

And somewhat incredibly, they haven’t had to lower their prices in many markets either.

The question is how can they continue to charge full price if financing a home has gotten so much more expensive?

Well, there are probably several reasons why, which I will outline below.

Home Builders Don’t Have Competition Right Now

The first thing working in the home builders’ favor is a lack of competition. Typically, they have to contend with existing home sellers.

A healthy housing market is dominated by existing home sales, not new home sales.

If things weren’t so out of whack, we’d be seeing a lot of existing homeowners listing their properties.

Instead, sales of newly-built homes have taken off thanks to a dearth of existing supply.

In short, many of those who already own homes aren’t selling, either because they can’t afford to move. Or because they don’t want to lose their low mortgage rate in the process.

This is known as the mortgage rate lock-in effect, which some dispute, but logically makes a lot of sense.

At the same time, home building slowed after the early 2000s housing crisis, leading to a supply shortfall many years later.

Simply put, there aren’t enough homes on the market, so prices haven’t fallen, despite much higher mortgage rates.

They Don’t Need to Lower Prices If Demand Is Strong

There’s also this notion that home prices and mortgage rates have an inverse relationship.

In that if one goes up, the other must surely come down. Problem is this isn’t necessarily true.

When mortgage rates rose from record lows to over 8% in less than two years, many expected home prices to plummet.

But instead, both increased. This is due to that lack of supply, and also a sign of strength in the economy.

Sure, home buying became more expensive for those who need a mortgage. But prices didn’t just drop because rates increased.

History shows that mortgage rates and home prices don’t have a strong relationship one way or the other.

Things like supply, the wider economy, and inflation are a lot more telling.

For the record, home prices and mortgage rates can fall together too!

Lowering Prices Could Make It Harder for Appraisals to Come in at Value

So we know demand is keeping prices mostly afloat. But even still, affordability has really taken a hit thanks to those high rates.

You’d think the home builders would offer price cuts to offset the increased cost of financing a home purchase.

Well, they could. But one issue with that is it could make it harder for homes to appraise at value.

One big piece of the mortgage approval process is the collateral (the property) coming in at value, often designated as the sales price.

If the appraisal comes in low, it could require the borrower to come in with a larger down payment to make the mortgage math work.

Lower prices would also ostensibly lead to price cuts on subsequent homes in the community.

After all, if you lower the price of one home, it would then be used as a comparable sale for the next sale.

This could have the unintended consequence of pushing down home prices throughout the builder’s development.

For example, if a home is listed for $350,000, but a price cut puts it at $300,000, the other homes in the neighborhood might be dragged down with it.

That brings us to an alternative.

Home Builders Would Rather Offer Incentives Like Temporary Buydowns

Instead of lowering prices, home builders seem more interested in offering incentives like temporary rate buydowns.

Not only does this allow them to avoid a price cut, it also creates a more affordable payment for the home buyer.

Let’s look at an example to illustrate.

Home price: $350,000 (no price cut)
Down payment: 20%
Loan amount: $280,000
Buydown offer: 3/2/1 starting at 3.99%
Year one payment: $1,335.15
Year two payment: $1,501.39
Year three payment: $1,676.94
Year 4-30 payment: $1,860.97

Now it’s possible that home builders could lower the price of a property to entice the buyer, but it might not provide much payment relief.

Conversely, they could hold firm on price and offer a rate buydown instead and actually reduce payments significantly.

With a 3/2/1 buydown in place, a builder could offer a buyer an interest rate of 3.99% in year one, 4.99% in year two, 5.99% in year three, and 6.99% for the remainder of the loan term.

This would result in a monthly principal and interest payment of $1,335.15 in year one, $1,501.39 in year two, $1,676.94 in year three, and finally $1,860.97 for the remaining years.

This assumes a 20% down payment, which allows the home buyer to avoid private mortgage insurance and snag a lower mortgage rate.

If they just gave the borrower a price cut of say $25,000 and no mortgage rate relief, the payment would be a lot higher.

At 20% down, the loan amount would be $260,000 and the monthly payment $1,728.04 at 6.99%.

After three years, the buyer with the higher sales price would have a slightly steeper monthly payment. But only by about $130.

And at some point during those preceding 36 months, the buyer with the buydown might have the opportunity to refinance the mortgage to a lower rate.

It’s not a guarantee, but it’s a possibility. In the meantime, they’d have lower monthly payments, which could make the home purchase more palatable.

Home Price Cuts Don’t Result in Big Monthly Payment Savings

	Price Cut Payment	Post-Buydown Payment
Purchase Price	$325,000	$350,000
Loan Amount	$260,000	$280,000
Interest Rate	6.99%	6.99%
Monthly Payment	$1,728.04	$1,860.97
Difference		$132.93

At the end of the day, the easiest way to lower monthly payments is via a reduced interest rate.

A slightly lower sales price simply doesn’t result in the savings most home buyers are looking for.

Using our example from above, the $25,000 price cut only lowers the buyer’s payment by about $130.

Sure, it’s something, but it might not be enough to move the needle on a big purchase.

You could take the lower price and bank on mortgage rates moving lower. But you’d still be stuck with a high payment in the meantime.

And apparently home buyers focus more on monthly payment than they do the sales price.

This explains why home builders aren’t lowering prices, but instead are offering mortgage rate incentives instead.

Aside from temporary buydowns, they’re also offering permanent mortgage rate buydowns and alternative products like adjustable-rate mortgages.

But again, these are all squarely aimed at the monthly payment, not the sales price.

So if you’re shopping for a new home today, don’t be surprised if the builder is hesitant to offer a price cut.

If they do offer an open-ended incentive that can be used toward the sales price or interest rate (or closing costs), take the time to consider the best use of the funds.

Those who think rates will be lower in the near future could go with the lower sales price and hope to refinance. Just be sure you can absorb the higher payment in the meantime.

Read more: Should I use the home builder’s lender?

Source: thetruthaboutmortgage.com

Apache is functioning normally

February 27, 2024 by Brett Tams

A judgment is an order issued by a judge or jury to settle a lawsuit. This decision details the rights, responsibilities, and obligations of each party. For example, if you fail to pay a debt, the lender can take you to court. In this case, the judge may order you to pay the other party as part of the court’s final judgment.

The order can be issued in one of two forms:

A monetary judgment: A judgment that orders one party to pay the other party a specific amount of money.
A nonmonetary judgment: A judgment that involves a nonmonetary type of resolution, such as the exchange of property or services. For example, a contractor may be ordered to complete a service for a client.

There are several classifications for judgments, including:

In personam: This is the most common civil judgment classification. It occurs when one party is liable to another.
In rem: Rather than involving personal liability, in rem judgments hold liability over a specific item, such as property.
Quasi in rem: Quasi in rem judgments consider the legal rights of individuals and not necessarily all parties involved.

Ultimately, if you don’t pay a debt, the lender or bill collector can file a lawsuit against you to recoup the money. The judge or jury determines if and how much money you owe. These terms are laid out in the final judgment.

What Is a Judgment on Property?

Your property includes both physical items and money. That means judgment creditors can seek debt payment from more than your wages and bank accounts. They may also take back a car you financed or other personal property. Another option is placing a lien on some of your property, such as your home.

What Property Can Be Taken to Settle a Judgment?

Creditors must follow the law when applying a judgment to take, or seize, your property. Some things are exempt—which means they can’t touch those items or properties. Some examples include the home you live in, the furnishings inside it, and your clothes. State laws identify these items and set limits based on their value.

Non-exempt property can be taken to help meet a judgment debt. Your creditor can take or leverage these possessions in the following ways:

Wage attachments. This is known as wage garnishment. When your employer receives the proper legal notice, they must withhold a percentage of your wages. These payments are sent to the judgment creditor until your debt is paid. The Consumer Credit Protection Act caps these types of garnishments. The limit is 25% of your disposable weekly wages or the amount you earn that’s above 30 times the minimum wage. The lessor of these two amounts applies. Some states set the cap even lower.
Nonwage garnishment. If you’re retired, unemployed, or self-employed, your bank account may be garnished instead. Here, too, there are exemptions. Veterans payments, social security, and disability benefits are not eligible for nonwage garnishment. Some states add even more restrictions to the garnishment of bank funds.
Property liens. If you own real estate, your judgment creditor may file a legal claim against it. These liens notify lenders of the creditor’s rights to your property. That way, if you sell your real property, the debt must be paid out of the proceeds. In many states, liens are placed automatically when a judgment is entered.
Property levies. Judgments may also allow some of your non-exempt personal property to be taken through a levy. Law enforcement may seize things like valuable collections or jewelry to be sold at auction. Sales proceeds are applied to your debt.

What Are the Types of Judgments?

Judgments come in many forms. Below is a look at the five types of judgments.

Satisfied judgment: A satisfied judgment means the debt is settled. This doesn’t necessarily mean you have paid the debt in full. It could mean there’s a new payment arrangement and you’re making regular payments.
Unsatisfied Judgment: An unsatisfied judgment means the debt is not settled yet. You’re expected to follow the court order and make payments on the outstanding debt. Until you make your final payment or come to another agreement with the other party, it will remain an unsatisfied judgment.
Vacated Judgment: If you don’t agree with the court’s initial judgment, you have the right to appeal that decision. If the judge decides to dismiss the case, the initial order becomes a vacated judgment.
Summary Judgment: If both parties agree to the basic facts of the case, either party may request to skip the trial and go straight to a summary judgment. The judge issues this final judgment without going through the process of holding a trial.
Renewed Judgment: Some states allow creditors to seek a new judgment for specific reasons. If this happens, the judge may issue a renewed judgment. This judgment may void the initial judgment or serve as an additional order.

Three Ways of Getting a Judgment

There are several ways a civil judgment can be determined.

1. Judgment After Trial

As the name suggests, a judgment after trial is a decision that occurs only after a trial. Once the judge or jury hears all the evidence and makes a final decision, the judge issues a formal judgment in the case.

A consent judgment occurs when both parties negotiate a final settlement. The judge must approve this final agreement, which is done by issuing a formal consent judgment.

3. Default Judgment

A default judgment occurs when the defendant fails to respond to a summons and complaint. In this case, the judge issues a default judgment in favor of the plaintiff without hearing any evidence from the defendant.

Can Judgments Affect Your Credit?

Judgments can’t directly impact your credit because the details of these orders aren’t part of your credit report. However, it’s likely that issues leading up to the final judgment could affect your credit. For example, your payment history can remain on your credit report for up to seven years. If you have any missing or late payments that led to the judgment, this history can impact your credit score.

A judgment could also have a positive effect on your credit. For example, once the debt is paid, the account balance should change to zero on your credit report. This could help lower the amount of debt you owe, which could impact your credit utilization rate.

Once the judge issues a judgment, you can use Credit.com’s Free Credit Score service to see if it had any effect on your score. As you work to rebuild your credit, you can enroll in Credit.com’s ExtraCredit® program to monitor your credit score over time.

What Is a Judgment on a Credit Report?

Judgments aren’t reported on your credit report and don’t directly impact your credit score. However, judgments are public records, so lenders could still have access to this information. This could affect your ability to secure credit in the future.

What Happens After a Judgment Is Entered Against You?

Once the judge enters a judgment, both parties must abide by the order. For example, you must pay the amount of money ordered by the judge, and the creditor must mark the account paid in full once payment is made. If you can’t pay the amount all at once, you may be able to set up a payment arrangement. You’re legally obligated to make these payments.

What Happens After a Judgment Is Entered Against You?

The court enters a judgment against you if your creditor wins their claim or you fail to show up to court. You should receive a notice of the judgment entry in the mail. The judgment creditor can then use that court judgment to try to collect money from you. Common methods include wage garnishment, property attachments, and property liens.

State laws determine how much money and what types of property a judgment creditor can collect from you. These laws vary. So, you need to look to your own state for the rules that apply. A consumer law attorney can help you understand your state’s laws on judgment collections.

What Is the Difference Between a Civil Judgment and a Criminal Judgment?

There’s a major difference between civil court and criminal court.

A civil court typically involves disputes between two parties. For instance, it could involve a case between two individuals, two organizations, or one organization and one individual. These cases often pertain to a breach of contract, an unsettled debt or a lack of services.

Unless both parties agree to the facts of the case, the judge gives each party the opportunity to present evidence. For example, if a debt collector takes you to civil court for an unpaid bill, you can provide evidence of any payments you made. After hearing the evidence, the judge issues a final judgment, known as a civil judgment.

On the other hand, criminal court involves someone accused of breaking the law. The federal, state, or local government charges the accused party. If, after holding a trial, the defendant is found guilty or the defendant pleads guilty prior to the trial, the judge issues a criminal judgment. A sentence is issued later, which could include jail time or some other form of punishment.

What Can You Do to Avoid a Judgment?

Heading off a lawsuit is the best way to avoid a judgment. To do so, don’t ignore calls and correspondence from your creditor. Reach out to learn if they’ll accept suitable payment arrangements. Educate yourself on smart ways to pay debt collectors, and consider using the services of a debt management agency.

What if the loan company or debt collector has already started the lawsuit? Don’t skip court. Show up and fight. You may win if the statute of limitations has expired.

If you haven’t made a payment on an old debt for many years, you may have a successful legal defense. Most states set the time frame between four to six years. Collectors often still file suit because they win by default if you don’t show up. So, it’s important that you go to court with proof of your last date of payment.

If you successfully defeat or avoid a judgment, don’t stop there. Take some sensible steps to help you get out of and stay out of debt. Adopting these smart financial habits can also help prevent future judgment actions.

Additional FAQs about Judgments

How Long Can the Judgment Creditor Pursue Payment?

The answer depends on where you live, since state laws differ. Some states limit collection efforts to five to seven years. Others allow creditors to pursue repayment for more than 20 years. With the right to renew a judgment over and over in many states, it may last indefinitely.

Judgment renewals may be repeated as often as desired or limited to two or three times. This is another state-specific issue. Judgments can also lapse or become dormant. The creditor must then act within a specific time frame to revive it.

What Happens When You Can’t Pay a Judgment Filed Against You?

If you own a limited amount of property, it may all be exempt from judgment collection efforts. Also, you may not work or only work part-time. With the CCPA cap, that may mean you don’t earn enough for garnishment.

This inability to pay your debt is called being judgment proof, collection proof, or execution proof. While these circumstances exist, the judgment creditor has no legal way to collect on the debt. It’s not a permanent solution. The creditor may revisit collection efforts periodically for many years.

For a more permanent solution, you may want to consider filing bankruptcy. This process can discharge or eliminate most civil judgments for unpaid debt. Exceptions apply for things like child support, spousal support, student loans, and some property liens. Speak with a bankruptcy lawyer to learn whether this will help your situation.

Can You Settle a Judgment?

If you can afford to pay a decent lump sum, you may be able to negotiate a settlement. The judgment creditor may be willing to settle if they fear you will otherwise file bankruptcy. Get the terms and settlement amount you agree upon in writing. Be sure the creditor agrees to file a satisfaction of judgment with the court after they receive your pay off.

Can a Judgment Be Challenged or Reversed?

Challenging and overturning a judgment is difficult but not always impossible. This is the case if there were errors. Perhaps you weren’t notified of the suit or it was never your debt to begin with. Consult with an attorney to find out whether you have grounds to challenge the decision.

If you want to challenge a judgment, act fast. If you received prior notice of the case, you may have up to six months to reopen it. If you weren’t notified, you likely have up to two years to appeal. By reopening the case, you have the opportunity to fight the claim anew.

Do Credit Reports Still Include Judgments?

For many years, credit reports included judgment information. But that changed in 2017. The National Consumer Assistance Plan is responsible for creating more accurate credit data requirements. These changes resulted in the removal of civil debt judgments from credit reports.

Judgments are still a matter of public record. But the NCAP now requires that there be identifying information on these records for more accuracy. That data includes a social security number or date of birth along with the consumer’s name and address.

Public records cannot include this type of identifying information. It would violate privacy laws. This is the reason these judgments are no longer reported on credit files.

How Do You Find Out if You Have Any Judgments Against You?

You should receive a summons when you’re being sued. So, you can expect a default judgment will follow if you don’t show up in court. You can also expect a notification when a judgment is entered against you.

Mistakes happen, though. You may have missed the notice or moved to a new address. If that happens, you may not learn of the judgment until collection actions start.

What if You Find a Judgment on Your Credit Report?

Take action if you learn that judgments are still being reported by Equifax, Experian, or Trans Union. The NCAP eliminated this practice, so if there’s a judgment on your report, this is definitely something that you should dispute. Credit repair services, like Lexington Law Firm*, can help you challenge the errors on your behalf with the credit bureaus and request that they correct your report.

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Disclosure: Credit.com and CreditRepair.com are both owned by the same company, Progrexion Holdings Inc. John C Heath, Attorney at Law, PC, d/b/a Lexington Law Firm is an independent law firm that uses Progrexion as a provider of business and administrative services.

Source: credit.com

Apache is functioning normally

February 26, 2024 by Brett Tams

Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations.

Zombie debt is a broad term that refers to past debts that are still affecting you. An example of zombie debt is a three-year-old loan that should be paid off.

The term “zombie debt” refers to a past debt that shouldn’t affect you anymore yet continues to appear on your credit report. Dealing with zombie debt can be extremely complicated as debt collectors may repeatedly contact you about an account that belonged to you years ago.

Much like the characters in a post-apocalyptic story, it’s possible to overcome zombie debt with the right know-how. This guide will teach you how to deal with debt collectors and educate you on the laws relating to outstanding debt. We’ll also arm you with tools like Credit.com’s free credit report card to stave off the next wave of debt-related threats.

Key Takeaways:

Zombie debt arises based on collection agencies.
It may be possible to settle zombie debt with your original creditor.
The Fair Debt Collection Practices Act (FDCPA) helps protect you from harassment.

How Does Zombie Debt Work?

Collection activities are the most common causes of a zombie debt outbreak. Here’s a step-by-step breakdown of how a buried debt might rise from the grave:

You default on a loan, which means that you have unpaid debt.
The original lender or collection agency fails to collect within the statute of limitations.
The unpaid debt falls off your credit report after a certain amount of time.
A separate collection agency purchases your unpaid debt and tries to collect it.

That collection agency may report the debt as owed to the three major credit reporting agencies (Equifax®, Experian®, and TransUnion®). This prompts the debt to reappear on your credit report as zombie debt.

How Do I Get Rid of Zombie Debt?

Learning how and why you have zombie debt is the first step to effectively protecting yourself. When devising your zombie debt survival plan, you should also know your .

Debts Past the Statute of Limitations

The law is on your side in cases where a debt collector tries to revive a debt that’s past the statute of limitations. Credit dispute letters can help you challenge a debt with a collector—legally, they must halt collection activity until they provide documented proof that the debt is legal and still collectible.

In some cases, zombie debt collectors may be aggressive in their pursuit of payment. The Fair Debt Collection Practices Act (FDCPA) prevents creditors from harassing you, so consult an attorney if you believe anyone is infringing on your rights.

Remember that one of your Fair Credit Reporting Act (FCRA) rights is to have an accurate credit report. If a collection agency reports a dead debt, you may be able to dispute it.

When Judgments Revive Debts

If a judge rules that the creditor can renew the debt, it could be collectible for years. In some cases, they could hold you liable for decades.

There are a few options for dealing with this type of zombie debt. First, contact the creditor that originally secured the judgment. Work directly with them and not a secondary collection agency.

If the debt is still owed, try to negotiate a settlement. The debt is old now, and they may accept a partial payment of the balance and agree to list the collection as paid. Once that occurs, no one else can continue to take action to collect the money from you.

If you can’t afford to settle the debt or you’re dealing with several collection accounts or judgments, you might consider bankruptcy.

While you’re under the protection of bankruptcy, no creditor covered by the petition can take any action to collect from you. Once the bankruptcy is finalized, the debts are considered settled and paid off.

Protect Yourself From Zombie Debt With Credit.com

An encounter with zombie debt might be spooky, but it’s important to stay calm. Our guide outlined several ways to deal with this unexpected threat, but monitoring your credit can help you stave off future attacks.

Credit.com’s ExtraCredit® service helps you track activity on your credit report and address errors or other surprises if they arise. ExtraCredit can also protect you from bad actors on the internet and alert you if anyone attempts to steal your identity.

Source: credit.com

Apache is functioning normally

February 24, 2024 by Brett Tams

Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations.

Debt consolidation combines multiple debts into one and can help your credit score. Bankruptcy can reduce your total debt at the cost of ruining your credit.

Debt consolidation and bankruptcy are two options for debt relief that have distinct advantages and drawbacks.

Debt consolidation means merging multiple existing debts into a single new loan. Debt consolidation loans won’t clear your current debt, but they can help you minimize late payments and other fees incurred from having multiple loans.
Bankruptcy involves discharging or restructuring all your debts—but it stays on your credit report for many years, depending on which chapter you file for. It’s generally considered a last resort when no other debt-relief options are appropriate for your situation.

Which debt relief option is right for you depends on your financial situation. Below, we’ll compare debt consolidation vs. bankruptcy and discuss some things to consider when choosing a debt relief service.

What Is Debt Consolidation?

Debt consolidation involves merging multiple debts into one loan. The goal here is to streamline the process of paying down your total balance while also improving your credit utilization rate.

Debt consolidation loans and balance transfer credit cards are crucial to this process. That means you need to be able to qualify for new credit, which can be difficult if you regularly make late payments or have collection accounts on your credit report.

When you consolidate, your new debt won’t be in collections, and your previous debts can show up as “paid in full” on your credit report. One of our tips for improving your credit history is to consistently make payments on new accounts. Adopting this habit will help you improve your credit over time.

Is Debt Consolidation a Good Idea?

Debt consolidation can be an excellent tool for people who would rather pay down one loan instead of managing multiple debts. Consolidation is also a good idea for people with good or better credit scores, as better credit can help you secure the best loan terms.

Payment history makes up 35% of your credit score, according to the FICO^®credit scoring model. Knowing how your credit score is calculated and consistently paying off your minimum balance each month are vital to credit score growth.

What Is Bankruptcy?

Bankruptcy is a legal restructuring of your debts. When you file for bankruptcy, the court considers your debts and your income. Depending on the type of bankruptcy you file, you may need to submit a plan for paying back some of your debts. However, the result of finalizing the bankruptcy process is that most or all of the debts you entered with are considered discharged.

Whether you file Chapter 7, 13, or 11, if your bankruptcy is successful, you can start with a “clean slate” as far as what you owe goes. However, your credit score after bankruptcy procedures are finished will be drastically low. Your credit report will still reflect the late payments and issues leading up to the bankruptcy. The bankruptcy itself will also stay on your credit report for seven to 10 years, depending on the type of bankruptcy you file.

When Should I File for Bankruptcy?

As mentioned previously, bankruptcy should usually be your last resort. If you’re unable to secure a reasonable consolidation loan or if you don’t possess the funds needed to pay off your debts, bankruptcy might be worth considering.

It’s worth noting that filing for bankruptcy will affect people with higher credit more than individuals with lower credit. We also strongly recommend learning how to rebuild your credit after bankruptcy long before you file. Taking swift action can lessen the severity of filing for bankruptcy.

What Are Balance Transfer Cards?

For those wondering, “how do debt relief options affect your credit score?” it’s crucial to understand the other options you might have. If you’re primarily dealing with high-interest credit card debt and you feel like you’ll never get ahead on it, you could consider a balance transfer card.

The best balance transfer cards typically come with low introductory APR offers. You can transfer existing balances to the new card and not pay interest on it for a certain amount of time. That lets you make payments on the balance and pay it off faster. One of the most common is closing your older accounts. We recommend keeping your old accounts open and just using them less.

Maintain Strong Credit With Credit.com

If you’re not dealing with credit card debt or don’t want to open another credit card account, then you might consider a debt consolidation loan. These loans let you convert your debt to a single loan, which makes managing your financial life that much easier.

Whatever debt relief option you choose, Credit.com has your back. Sign up for our to keep track of your finances and additional tips and tricks for improving your financial health.

No matter how you plan to increase your revenue, maintaining strong credit is pivotal. Good or even excellent credit scores can help you secure lucrative loans and might even open the door to higher-paying positions. With Credit.com’s ExtraCredit service, you’ll get reliable updates about your credit score and tailor-made strategies to help you increase your standing.

Source: credit.com

Apache is functioning normally

February 15, 2024 by Brett Tams

I had a conversation with a friend the other day about his current housing situation.

In a nutshell, the home he resides in isn’t large enough for his family, nor does it have certain amenities like a swimming pool.

At the same time, he loves his home and the very cheap mortgage attached. Like millions of other Americans, he’s got a 30-year fixed in the low 3% range.

This has created a dilemma for him and many others, who want to move, but can’t make it pencil at today’s rates and asking prices.

But one thought is to rent out his current home and then rent another, as opposed to buying. Or selling for that matter.

It’s Possible to Rent Out Your Current Home and Rent Yourself

One trend that has emerged of late is the ‘rent out and rent’ scheme.

The way it works is relatively simple. If you’re an existing homeowner, you simply rent out your property to someone else and then go rent a different home.

This allows you to keep your low-rate mortgage intact, and it allows you to rent for less than what a new mortgage would cost.

It works because the PITI on the old house is so low, and asking rents are pretty attractive in many markets nationwide.

Sure, there might be a premium for rent on the new property, but it can still be the cheaper option relative to buying a home.

And the homeowner doesn’t need to worry about a large down payment, or losing their original home, which could now be seen as an investment property.

Let’s Look at an Example of Rent Out and Rent

Current monthly PITI: $3,500 per month

Potential rent for existing home: $6,000 per month

Cost to rent a larger home: $7,500 per month

Cost to buy a larger home: $10,000 per month plus $300k down

Cost to rent out and rent: $1,500 per month

As noted, I’ve got a friend considering a rent and rent out arrangement. Somewhat incredibly, the property he has his eye on is literally across the street.

This makes it easier, at least from a moving point of view. He can probably just lug his stuff over on his own, if he’s up for it.

It also allows him to keep an eye on his old property, which can be helpful but also perhaps a bit awkward.

Anyway, the house across the street is larger, has a view, and has a swimming pool. These are all wants and needs.

However, the price tag is a bit higher, we’ll call it $7,500 per month to rent. The good news is his current mortgage payment (full PITI) is just $3,500 a month.

And he can potentially rent his place for $6,000 per month because he got in cheap about a decade ago with that ultra-cheap mortgage rate.

If we do the math, it would cost $1,500 more per month to rent the larger home, using the cash flow on his existing property to offset the increased rent.

But he gets the larger space, the nicer home, the pool, the view, etc.

Perhaps more importantly, he doesn’t need to buy a home at today’s lofty prices and come in with a massive down payment.

Assuming they purchased a similar property, they’d need a $300,000 down payment and the mortgage rate would likely be 6-7% versus their current 3% rate. Ouch!

This Works When Home Prices Are High and Your Existing Payment Is Low

The reason this strategy works right now is because it’s more expensive to buy a home than rent in many places.

You can thank both high mortgage rates and high home prices, which have moved higher in tandem.

As I always say, there isn’t an inverse relationship between home prices and mortgage rates.

They can both go up together, go down together, or sometimes diverge.

This plan also works because many homeowners like my friend got into their current homes when prices and rates were low.

So they essentially have a lot of wiggle room to cash flow if renting out their existing properties, which can then be used toward a new home.

But instead of buying, they can simply pay a little extra in rent to get what they want, while continuing to enjoy appreciation on the old property.

At the same time, any improvements made on the old home benefit them as well. And they can always move back in the future.

For the record, this strategy can also be employed with downsizing. So a pair of empty nesters can rent out their larger home and go rent a smaller one.

In their case, we’re talking lower rent, potentially leading to some additional cash flow without having to commit to a new home purchase.

There Are Pros and Cons to Renting Out and Renting

It’s not without its risks though. When you rent, you’re at the mercy of your landlord. They might want to sell at some point, at which time you’d need to move.

You could also be limited in terms of making improvements or changes to the property.

In addition, you’re now a landlord yourself, which isn’t always a passive job. And the tenants present new risks, such as failure to pay rent.

It’s also possible to find your old home vacant for a month if you’re unable to find a tenant.

So you could be in a situation where you have to float two monthly housing payments. If you’re unable to, well, you’ve got a problem.

But the advantages are there too. You get the property you want/need for a lot less than what it might cost to buy.

And you get to keep your old home, which could be an incredible investment opportunity.

You’ve also got optionality. You can rent for a while then go back to your old home. Or decide after a while to buy something.

You aren’t necessarily locked in beyond the initial rental contracts in place, which might last a year.

It gives you time to determine your next move, assuming you’re not quite sure what you want to do.

Unfortunately, this also speaks to the dearth of for-sale inventory available in the housing market today.

And the incredible position many homeowners are in, thanks to their low-rate fixed mortgages.

Source: thetruthaboutmortgage.com

Apache is functioning normally

February 10, 2024 by Brett Tams

Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations.

Debt relief won’t hurt your credit alone. However, closing your oldest accounts can drastically lower your standing.

Debt relief and debt settlement options don’t hurt your credit score on their own. These programs aim to help reduce your debt and if that debt is revolving credit, it can reduce your credit utilization and improve your credit. However, a debt relief program could accidentally drop your score if it closes your account with the longest payment history.

There are many debt relief options available, so it’s important to consider your unique financial circumstances when choosing a plan. We’ll help you weigh those options and share several resources that can help you learn how to reduce debt over time.

Key Takeaways:

Credit utilization makes up 30% of your credit score.
Each debt relief option has its pros and cons.
Having good credit can help you secure better loans.

How Debt Relief Programs Affect Credit

Your credit utilization rate makes up 30% (roughly one-third) of your overall credit score. When you pay off revolving debt, your credit score often will improve if that is the area most impacting your credit. TIf you’ve nearly reached your credit card’s total credit limit. Keeping your utilization rate below 10% is ideal, but less than 30% is also a strong move.

Below is a breakdown of the five factors that influence credit, according to the FICO^® credit scoring model:

The type of debt relief program you use can also positively or negatively affect your credit. Debt settlement, for example, utilizes some tactics that generally have a more negative effect than other types of debt relief programs.

Credit.com’s free credit report card tool can help you better understand your current creditworthiness and which factors you need to work on to help you improve your standing.

The Main Approaches to Debt Relief

Once you have a clear picture of your credit history, you can choose one of the six main approaches to debt relief to help you get out of debt. Each option has its advantages and drawbacks as well as a distinct impact on your credit score, both short term and long term.

Debt Snowball and Debt Avalanche

Immediate credit impact: None
Long-term credit impact: Reliably positive

The debt snowball is when you pay off your debts one at a time, starting with the ones that have the lowest balance. This eliminates those debts from your credit record quickly.

The debt avalanche is when you pay off your debts one at a time, but you start with those that have the highest balances instead. While it takes longer to clear debt from your credit history, the debt you clear takes a larger chunk out of your overall balance owed.

As long as you stick to the minimum payments needed on all of your other credit accounts while you work to pay down your debt, this method has little immediate impact on your credit report and a reliably positive one in the long term.

Debt Consolidation

Immediate credit impact: Small (positive or negative)
Long-Term credit impact: Minimal

Debt consolidation loans and balance transfer credit cards can help you manage your debt by combining multiple lines of credit under one loan or credit card. While this helps by making one payment out of several, it’s not a strategy that directly gets you out of debt. It’s more like a tool to help you get out of debt faster and easier.

Consolidation loans often offer lower interest rates than the original credit lines, enabling you to pay off your debt faster. In addition, having one lower monthly payment makes it easier to avoid late or missed payments.

Balance transfer credit cards let you transfer debt from other cards for a minimal fee. These cards sometimes require that you pay off the balance transfer balance within a certain time frame to avoid incurring interest. If you choose a balance transfer card, choose one with terms favorable to your situation and needs.

A debt consolidation loan adds a new account to your credit report, which can briefly cause your score to drop. On the other hand, adding a loan or credit card to your credit history could improve your credit mix. You’ll need to consider these factors when determining whether a debt consolidation loan is right for you.

Credit Counseling

Immediate credit impact: None expected
Long-term credit impact: None expected

A credit counselor is a professional adviser who helps you manage and repay your debt. Counselors may offer free or low-cost consultations and educational materials. They often lead their clients to enroll in other debt relief programs, such as a debt management plan, which generally require a fee and can affect your credit.

Be sure you fully understand the potential impact of any debt relief program suggested by a credit counselor before you sign up. Ask as many questions as you can, like “Will this debt relief program have high interest rates?”

Counselors can also help you avoid accumulating too much debt. Seeking advice from a counselor about a loan that you’re interested in can save you money in the long run. Learning how to choose a credit counselor who can meet your needs is essential.

Debt Management Plan

Immediate credit impact: Moderate (positive or negative)
Long-term credit impact: Minimal

A Debt Management Plan is typically set up by a credit counselor or counseling agency. You make one monthly payment to that agency, and the agency disburses that payment among your creditors. This debt management program can affect your credit in several ways—mostly positively.

While individual lenders may care that a credit counseling agency is repaying your accounts, FICO does not. Since FICO is the leading data analytics company responsible for calculating consumer credit risk, a DMP will not adversely affect your credit. Of course, delinquent payments and high balances will continue to bring your score down, even if you’re working with an agency.

When you agree to a DMP, you have to close your credit cards. This will likely lower your scores, but how much depends on how the rest of your credit report looks. Factors such as whether or not you have other open credit accounts that you pay on time will determine how much closing these lines of credit will hurt your score.

Regardless, the negative effect is temporary. Ultimately, the impact of making consistent on-time payments to your remaining credit accounts will raise your credit scores.

Debt Settlement and Debt Negotiation

Immediate credit impact: Severe damage
Long-Term credit impact: Slow recovery

Some creditors may allow you to settle your debt. Negotiating with creditors allows you to pay less than the full balance owed and close the account.

Creditors only do this for consumers with several delinquent payments on their credit report. However, creditors generally charge off debts once they hit the mark of being 180 days past due. Since charged-off debts are turned over to collection agencies, it is important to try to settle an account before it gets charged off.

Debt settlement companies negotiate with creditors on your behalf, but their tactics often require you to stop paying your bills entirely, which can have a severe negative impact on your credit. In general, debt settlement is considered a last resort, and many professionals recommend bankruptcy before debt settlement.

Bankruptcy

Immediate credit impact: Severe damage
Long-term credit impact: Slow recovery

Filing for bankruptcy will severely damage your credit and can stay on your credit report for as long as 10 years from the filing date. However, if you are truly in a place of debt from which all other debt relief programs cannot save you, bankruptcy may be the best option.

Moreover, working diligently to rebuild your credit after bankruptcy can help improve your credit scores. Depending upon which type of bankruptcy you file for—Chapter 7, Chapter 11 or Chapter 13—you will pay back different amounts of your debt, and it will take varying timelines before your credit can be restored.

Learning the difference between bankruptcy types can help you choose the right one. A qualified consumer bankruptcy attorney can help you evaluate your options.

Boost Your Personal Finance Knowledge With Credit.com

Whichever method of debt relief you choose, the ultimate goal is always to pay off your debt. That way, you can save and invest for your future goals. For some, taking a hit to their credit temporarily is worth it if it means finally getting their balances to zero.

Credit.com has an extensive library of personal finance resources that can enhance your knowledge and help you determine if a loan or line of credit is right for you. Plus, you’ll find plenty of resources to help with your debt relief goals.

Source: credit.com

Apache is functioning normally

December 28, 2023 by Brett Tams

Well, another year is nearly in the books, which means it’s time to look ahead to what the next 365 days have in store.

While 2022 felt like it couldn’t get any worse, 2023 surprised all of us by being an even rougher year.

Thanks to the highest mortgage rates in nearly a century, loan origination volume ground to a halt, as did home sales.

The only real bright spot was new home sales, though builders had to make some big concessions to unload their inventory.

So what does 2024 have in store? Well, the good news might just be that the worst is finally behind us.

1. Mortgage rates will drop below 6% (and maybe even 5%)

First things first, mortgage rates. While I (and many others) expected mortgage rates to fall in 2023, they defied expectations.

Rates began the year 2023 on a downward slope, but quickly reversed course and surpassed 7% by spring. Then things got even worse as rates climbed beyond 8% in October.

However, inflation has since cooled and economic reports continue to signal that the worst of it could be over.

The Fed has also gotten on board, with their latest dot plot signaling rate cuts for 2024. After raising rates 11 times in less than two years, there could be three or more cuts next year.

While the Fed doesn’t control mortgage rates, their monetary policy tends to correlate. So if they’re cutting rates due to a cooling economy, mortgage rates should also fall.

We’ve already seen mortgage rates ease in anticipation, and they’re expected to go even lower throughout 2024.

This should be helped on by normalizing mortgage rate spreads, which remain about 100 basis points above typical levels.

In my 2024 mortgage rate predictions post, I made the call for a 30-year fixed below 6% by next December.

The way things are going, it could come sooner. And rates could go even lower, potentially dropping into the high-4% range if paying discount points.

2. Homeowners will refinance their mortgages again

I expect 2023 to go down as one of the worst years for mortgage refinances in history.

Interest rates increased from around 3% in early 2022 to over 7% in about 10 months.

Then continued their ascent higher in 2023, meaning very few homeowners benefited from a refinance.

However, two things are working in homeowners’ favor as we head into 2024.

There were about $1.3 trillion in home purchase loan originations during 2023, despite it being a slow year.

And rates have since come down quite a bit from what could be their cycle highs.

If we consider all those high-rate mortgages that funded over the past year and change, we might have a new pool of refi-eligible borrowers, as seen in the chart above from ICE.

It’s also easier to be in the money when refinancing a high-rate mortgage since the interest savings are larger.

So I expect more rate and term refinances in 2024 as homeowners take advantage of recent mortgage rate improvements.

In addition, we might see homeowners tap equity via a cash out refinance if rates keep coming down and get closer to their existing rate.

Refi volume is forecast to nearly double, from around $250 billion this year to $450 billion in 2024.

3. Mortgage rate lock-in will be less of a thing

With less of a gulf between existing mortgage rate and potential new, more homeowners may opt to list their homes for sale.

One of the big stories of 2023 was the mortgage rate lock-in effect, whereby homeowners were deterred from selling because they’d lose their low mortgage rate in the process.

But if the 30-year fixed gets back to the low-5% range, or even the high-4s, more homeowners will be OK with moving.

This is one part affordability, and another part caring less about their low-rate mortgage.

Very few are willing to give up a 3% mortgage rate when rates are 8%+, but the story will change quickly if and when rates start with a 5.

The chart above from Freddie Mac quantifies the value of a low-rate mortgage.

Aside from allowing people to free themselves of their so-called golden handcuffs, it will also increase existing home sales.

The big question is will it increase available supply, or simply result in more transactions as sellers become buyers?

4. For-sale inventory will remain limited

While I do expect more sellers in 2024, at least when compared to 2023, it might not move the needle on housing supply.

The big story for years now has been a lack of available for-sale inventory. Everyone expected home prices to crash when mortgage rates more than doubled.

Instead, home prices went up because of simple supply and demand. There just aren’t enough homes for sale in most markets nationwide.

As such, prices have defied logic despite worsening affordability. Demand is low but so is supply. And I don’t expect things to get much better.

At last glance, months of supply was around 3.5 months, per Redfin, below the 4-5 months considered balanced.

Sure, lower rates and sky-high prices can get stubborn home sellers off the sidelines. But guess who else is waiting? Buyers. Lots of them who may have been priced out due to 8% mortgage rates.

In the end, it might be a zero-sum game, at least in terms of inventory as more sellers are met with more buyers.

Of course, it will be good for real estate agents, loan officers, and mortgage brokers thanks to a greater number of transactions.

5. Home prices may go down despite lower rates

Lately, there’s been a lot more optimism in the real estate market thanks to easing mortgage rates.

In fact, some folks think the boom days are going to return in 2024 if the 30-year fixed continues to trend lower.

While I’ve constantly pointed out that mortgage rates and home prices don’t share an inverse relationship, it doesn’t stop people from believing it.

Sure, the logic of falling rates and rising prices sounds correct, but you’ve got to look at why rates are being cut.

If the economy is headed toward a recession, even a mild one, home prices could also come down, despite lower interest rates.

Similar to how rates and prices rose in tandem, the opposite scenario is just as possible.

However, because rates are only expected to come off their recent highs, and only a small recession is projected, I believe home prices will continue to increase in 2024.

Interestingly, they may not rise as much in 2024 as they did in 2023, and could even fall in many markets nationwide.

Both Redfin and Zillow expect home prices to fall next year, by 0.2% and 1%, respectively. Fannie Mae is also a bit bearish, as seen in the chart above.

I’m a bit more bullish and believe home prices will climb 3-5% nationally. But this still feels like a modest gain given recent appreciation and the lower rates forecast.

6. The bidding wars won’t be back in 2024

Along the same lines as home prices stumbling in 2024, I don’t expect bidding wars to make a grand return either.

The narrative that lower mortgage rates are going to set off a feeding frenzy seems overly optimistic.

And even flat out wrong. Remember, affordability is historically terrible thanks to elevated mortgage rates and high home prices.

Just because rates ease to the 6s or 5s doesn’t mean it’s a seller’s market again. If anything, it might just be a more balanced market that allows for more transactions.

A lack of quality inventory will continue to plague the market and buyers will still be discerning about what they make offers on.

So the idea of getting in now before it’s too late will be misguided as it typically is. If you’re a prospective buyer, remain steadfast and don’t rush in for fear of missing out.

You might even be able to get a deal if you’re patient, including both a lower interest rate and sales price in 2024.

7. Home sales will increase slightly but remain depressed

Similar to mortgage rates peaking in 2023, I believe home sales may have bottomed as well.

NAR reported that November’s pending home sales were flat from last month and down 5.2% from a year ago. But things could begin to turn around in the New Year.

This means we should see home sales tick up in 2024, though not by much thanks to continued inventory constraints.

Remember, mortgage rates will remain at more than double their 2022 lows, despite some improvements from recent levels.

And while home builders have ramped up construction, there are still few homes available in most markets nationwide.

Most forecasts expect existing home sales to barely budge year-over-year, from maybe just below 4 million to just above.

Meanwhile, newly-built home sales may be relatively flat as well, perhaps rising from the high 600,000s to over 700,000 in 2024.

This will hinge on the direction of mortgage rates. The lower they go, the more sales we’ll likely see.

So things could turn out rosier than expected, though still quite low historically until the inventory picture changes.

8. Home equity lines of credit (HELOCs) will get more popular

The Fed doesn’t raise or lower mortgage rates, but its own rate cuts directly impact rates on home equity lines of credit (HELOCs).

With several rate cuts expected between now and the end of 2024, HELOCs are going to become more and more attractive.

In fact, the latest probabilities from the CME have the Fed cutting rates by 1.5 percentage points by December.

So someone holding a HELOC today will see their rate fall by the same amount, as the prime rate moves in lockstep with the fed funds rate.

For example, a HELOC set at 8% will drop to 6.5% if all pans out as expected.

And because most homeowners still hold 30-year fixed mortgages with rates of 4% or less, they’ll opt for a second mortgage like a HELOC or home equity loan.

If the trend continues into 2025, these HELOCs will be a cheap source of funds to pay for home improvements, college tuition, or even a subsequent home purchase.

All while retaining the ultra-low rate on the first mortgage.

9. More buyers and sellers will negotiate real estate agent commissions

You’ve heard about the many real estate agent commission lawsuits. And changes are already on the way as those cases move along.

While both agents will still get paid to represent buyer and seller, there should be greater transparency in how they’re compensated.

And we may see some different methods of remitting payment. For example, a home seller paying the buyer’s agent directly, not on the listing agent’s behalf.

Of course, this could just result in different paperwork and no real change for the buyer or seller.

However, agents will likely be more transparent about the ability to negotiate, and this could be the key to saving some money.

Instead of being told the commission is 2.5% or 3%, they may tell you that’s their rate, but it’s negotiable.

This could result in home buyers and sellers paying less and/or receiving credits for closing costs.

It’s a step in the right direction as many consumers weren’t even aware these fees could be haggled over.

In the end, it should get cheaper to transact but you’ll still need to be assertive and make your case to receive a discount.

10. The housing market won’t crash

Finally, as I’ve predicted in past years, the housing market won’t crash in 2024.

While we are continuing to experience an affordability crisis of epic proportions, the speculative mania isn’t as pervasive as it was in the early 2000s.

And we can continue to thank the Ability-to-Repay/Qualified Mortgage Rule (ATR/QM) for that, as the screenshot from the Urban Institute illustrates.

After the early 2000s mortgage crisis, many types of exotic mortgages were banned, including interest-only home loans, neg-am loans, and even loans with mortgage terms over 30 years.

At the same time, lenders have to ensure a borrower has the ability to repay the loan, meaning no doc loans and stated income are mostly out as well.

While there are non-QM loans that live outside these rules, they represent a small share of total volume. And the minimum down payments are often 20% or more to ensure borrowers have skin in the game.

Interestingly, it is FHA loans and VA loans that are experiencing the biggest uptick in delinquencies, though they remain low overall.

Even if we see an increase in short sales or foreclosures, we’ve got a severe lack of inventory due to demographics and underbuilding for over a decade.

This explains why home prices are unaffordable today, and also why they’ve remained resilient.

A scenario likelier than a crash would be stagnant home price growth for a number of years, with inflation-adjusted prices potentially going negative at times.

But major declines seem unlikely for most metros nationwide. In the meantime, a combination of wage growth and moderating mortgage rates could make homes affordable again.

Source: thetruthaboutmortgage.com

Apache is functioning normally

December 7, 2023 by Brett Tams

Lately, new home sales have surged as existing housing supply continues to be hard to come by.

This is partially because mortgage rates more than doubled in less than two years, effectively locking in existing homeowners.

With many of these homeowners unwilling to budge, home builders have gained a lot more market share.

After all, they need to move their inventory, and there isn’t a borrower living in the property with a low interest rate to worry about.

To boost sales in spite of high rates, many builders have offered impressive mortgage rate deals that everyday lenders just can’t seem to match. Does this mean there’s no need to look anywhere else?

Most Home Builders Have Their Own Financing Department

Despite being in the business of building homes, many home builders also operate financing divisions.

This means they are also fully-fledged mortgage lenders with the ability to offer home loans on the properties they sell.

And several of them are quite large. For example, D.R. Horton’s DHI Mortgage is a top-25 mortgage lender in the nation. The same goes for Lennar Mortgage.

Both companies originate tens of billions of dollars in mortgages annually to their home buyer customers.

On top of this, they also operate title/escrow companies and insurance agencies. This means a prospective home buyer can do one-stop shopping.

Convenience aside, these builder lenders are also able to offer aggressive financing offers that outside lenders often can’t beat.

So if you’re buying a new home, why look anywhere else?

It’s Wise to Speak with More Than One Mortgage Lender

Even if your home builder doubles as a lender, it’s always prudent to get more than a single mortgage rate quote.

There are studies that prove those who obtain 2-3 quotes (or even more) wind up with a lower rate and monthly savings for years to come.

So even if the home builder’s lender is offering you a spectacular deal, it’s still beneficial to shop your rate.

Sure, you might speak with a third-party lender (or two) and find that they just can’t come close. But if you don’t take the time to do that, you won’t know what else is out there.

In addition, having other quotes in hand allows you to negotiate your mortgage rate with the home builder.

If the builder knows you haven’t looked elsewhere, they might not offer you their lowest rate. With other offers in hand, their deal might get better.

You can also learn a thing or two by speaking to different lenders, mortgage brokers, and so on.

This can make you a more confident home buyer who knows the ins and outs of the process better than someone being led by just one company.

Home Builder Mortgage Rates Are Typically Hard to Beat

Now, from what I’ve seen lately, home builder mortgage rates are hard to beat. They’re buying down their rates aggressively to draw in buyers.

They’re also doing this out of necessity because home prices are so high. This allows more borrowers to qualify for a mortgage and keep their DTI ratio below maximum thresholds.

Remember, they have to move their inventory. Otherwise it sits and costs them money. At the same time, they don’t want to lower their prices.

If they sell homes for less, it could hurt appraised values on subsequent home sales. So it’s more beneficial for them to offer you a lower mortgage rate instead.

This allows them to keep the purchase price intact, while providing you monthly payment relief.

It’s a win-win for both home buyer and home seller. And it makes it very difficult for outside lenders to compete.

They’re able to sell the home more easily and win the loan at the same time.

Lately, home builders have offered both temporary and permanent buydowns, or even a combination of both.

For example, I’ve seen home builder lenders offer 30-year fixed rates as low as 5.5%, with a temporary 2-1 buydown for the first two years.

This means a home buyer gets a rate of 3.5% in year one, 4.5% in year two, and 5.5% for the remainder of the loan term.

Chances are an unaffiliated mortgage lender just won’t be able to compete.

Consider Using Credits from a Home Seller to Buy Down Your Rate

One strategy you can employ if you don’t want to buy a new home is to ask for a credit from the seller.

Known as seller concessions, these can be used to buy down the mortgage rate to something that resembles what new home builders are offering.

Instead of asking for a home price reduction, you can use these credits to pay discount points, which in turn lower the mortgage rate.

This is essentially what the home builder lenders are doing, and there’s really no reason it can’t be done on an existing home.

If you want to go a step further, you could also ask for a credit fro the real estate agent as well.

This may allow you to snag a lower mortgage rate and reduce your closing costs at the same time.

In the end, you might have a deal that resembles that of the builder’s, but on an existing home.

While home builders like to refer to existing homes as “used homes,” they are often located in more desirable, central locations. And they might be bigger too.

As such, it can be in your best interest to purchase a used home as opposed to a newly-built one.

So if the financing is holding you back, the use of seller concessions can make the deal pencil.

There Are Other Advantages to Using the Builder’s Mortgage Lender Beyond Price

While I’ve mostly focused on price, or mortgage rates specifically, there are other perks to using the builder’s captive lender.

For one, they are affiliated businesses, so communication should be strong. There should be a direct line between builder and lender throughout the loan process.

They should know each other’s timelines and processes in and out, which ostensibly means fewer hiccups and issues.

Conversely, an outside lender could have difficulty getting in touch with the builder to check status. And this could result in unnecessary delays and problems.

Of course, that’s how it’s supposed to work. In reality, this might not be the case given the many mixed reviews I’ve come across from builder lenders.

Despite their close relationship with the builder, somehow lots of customers still walk away upset. But this could just boil down to home buying being very emotional in general.

And it could be even worse when using an outside lender if the two companies don’t cooperate well.

In summary, if buying a new home you’ll likely be pushed to use their in-house lender. You are not required to do so. You can use any lender, bank, credit union, or broker you choose.

But there are certainly perks, including mortgage rate specials (the #1 reason to use them) and perhaps the convenience of one-stop shopping.

However, even if you like what the builder’s lender has to offer, you should still take the time to speak with outside lenders and gather additional quotes.

Pros and Cons of Using the Home Builder’s Lender

The Pros

The convenience of one-stop shopping
Get your new home and mortgage all in one place
Affiliated lender might communicate better with the builder
Can offer special mortgage rates to home buyer customers
Mortgage process is short-lived, rate stays with you for decades potentially
Long rate locks that match the longer home buying/building process
Often operate their own title/escrow and insurance agencies as well

The Cons

Lots of mixed/negative reviews for home builder lenders
Mortgage rate specials are often limited to certain homes
May be enticed to buy in an area because the financing alone
May offer limited loan choices

Source: thetruthaboutmortgage.com

Apache is functioning normally

December 5, 2023 by Brett Tams

Well, another year is nearly in the books, which means it’s time to look ahead at what 2024 might have in store.

As is customary, I take a look at mortgage rate predictions from a variety of economists and offer up my own take for the upcoming year.

I also look back at the predictions for the current year to see how everyone did (hint: not well!).

The big story in 2023 was out of control inflation. The story going forward might be cooling inflation.

Though there’s also the risk it resurges, at which point mortgage interest rates could rise again.

Mortgage Rates Are Expected to Go Down in 2024

First let’s talk about the general outlook. Most expect mortgage rates to go down in 2024, which was actually the call in 2023 as well.

But guess what? Everyone was wrong. Expectations that the 30-year fixed would fall back into the 5% range were way off.

Instead, interest rates on the popular loan program surpassed the 8% mark before finally letting up over the past month.

So while many economists are optimistic for the coming year, take note that they felt the same way a year ago. And got it wrong.

But things aren’t exactly the same. The Fed increased its fed funds rate 11 times, which many believe has worked to corral inflation.

And this could lead to weak economic output and rising unemployment, which could result in Fed rate cuts as early as March 2024.

This doesn’t necessarily mean mortgage rates would follow the Fed lower, but it could signal that the worst is behind us.

As such, mortgage rates may have peaked, and it’s possible they could continue to drift lower and find a comfortable medium between their old record lows and recent near-21st century highs.

MBA 2024 Mortgage Rate Predictions

First quarter 2024: 7.1%
Second quarter 2024: 6.6%
Third quarter 2024: 6.3%
Fourth quarter 2024: 6.1%

First up is the Mortgage Bankers Association (MBA), which is often fairly bullish about mortgage rates improving.

They are, after all, fans of mortgages being originated, and lower rates equate to higher funding volume.

Last year, they predicted that the 30-year fixed would ease throughout 2023 and average 5.2% in the fourth quarter.

That didn’t work out as planned, with the 30-year fixed closer to 7% today. And it was actually above 8% just a month ago.

Still, they are predicting lower mortgage rates in 2024, just as they did last year. The difference this time around might the inflation story.

It has cooled a lot since then, which could lead to Fed rate cuts and an easing in the 10-year treasury yield, which correlates well with mortgage rates.

Ultimately, they may have expected inflation to improve faster than it did, which is why they got rates wrong in 2023.

Now that inflation actually is significantly lower, their predictions could come to fruition. Also note that their latest prediction is a full percentage point higher than it was a year ago.

They only expect the 30-year fixed to fall to 6.1% by the end of 2024 versus 5.2% when they made the same forecast a year ago.

Fannie Mae 2024 Mortgage Rate Predictions

First quarter 2024: 7.6%
Second quarter 2024: 7.4%
Third quarter 2024: 7.2%
Fourth quarter 2024: 7.1%

Next up is Fannie Mae, which purchases and securitizes conforming mortgage loans.

They are a lot less bullish than the MBA, as they expect the 30-year fixed to remain in the 7% range for all of 2024.

It’s possible they’ll update their forecast in light of recent improvements in mortgage rates.

But as it stands, they don’t expect the 30-year fixed to drop below 7.10%, which is basically where it’s at now.

So we can take this to mean they expect mortgage rates to remain relatively flat at these new, higher levels for much of 2024.

I will update their numbers if they release a new forecast before the end of 2023.

Freddie Mac 2024 Mortgage Rate Predictions

First quarter 2024: n/a
Second quarter 2024: n/a
Third quarter 2024: n/a
Fourth quarter 2024: n/a

While Freddie Mac stopped releasing a monthly outlook for mortgage rates (for reasons unknown), they still do a monthly commentary.

And from that we can glean some ideas about where they think mortgage rates will go in 2024.

Their latest outlook notes that they expect “recent volatility in Treasury yields to abate which will allow modest reductions in mortgage rates.”

How modest? Well, they said mortgage rates will probably not fall below 6% “in the short run” thanks to the higher for longer narrative.

But given the recent improvement in rates (and the 10-year bond yield), it’s possible rates could get back in the low-6s in 2024.

And if the borrower pays discount points, a rate in the 5% range is also possible, assuming those mortgage rate spreads tighten due to decreased volatility.

A year ago, they expected the 30-year fixed to fall to 6.1% by the fourth quarter of 2023. So perhaps they’re being a bit more conservative.

However, they expect home prices to rise a further 2.6% in 2024 thanks to mortgage rate lock-in effect and favorable demographics, including an elevated share of first-time home buyers.

NAR 2024 Mortgage Rate Outlook

First quarter 2024: 7.5%
Second quarter 2024: 6.9%
Third quarter 2024: 6.5%
Fourth quarter 2024: 6.3%

The National Association of Realtors (NAR) releases a monthly U.S. Economic Outlook that contains their mortgage rate predictions for the year ahead.

I’m going off their October version until I can get a more updated one, so I expect their numbers to get even more optimistic given the recent improvement in mortgage rates.

There’s even a chance they’ll throw out a number in the high-5% range for the fourth quarter of 2024.

NAR chief economist Lawrence Yun also expects the 30-year fixed to average between 6-7% by the spring home buying season.

He added that “we’ve already reached the peak in terms of interest rates.” So his expectation is it’ll get better from here. The question is how much better.

Zillow’s 2024 Mortgage Rate Prediction

Next we have Zillow. Sometimes they make mortgage rate predictions, sometimes they don’t.

Given how wrong everyone has been lately, they said, “Predicting how mortgage rates will move is a nearly impossible task…”

However, they do expect home prices to “hold steady in 2024,” declining by a negligible 0.2%.

They also believe mortgage rates may “hold fairly steady” too in coming months if recent inflation readings are any indication.

Together, the cost of buying a home could level off next year, or even drop if mortgage rates do too. But they aren’t throwing out specific numbers.

Interestingly, Zillow expects more mortgage rate locked-in homeowners to “end their holdout for lower rates and go ahead with those moves.”

So even if rates don’t get much better, the holdouts might say enough is enough and list their properties.

If rates do keep dropping, this argument becomes even more compelling. So much-needed supply could be freed up in the process.

Redfin 2024 Mortgage Rate Predictions

Meanwhile, Redfin believes mortgage rates will steadily decline throughout 2024, but remain above 6%.

Specifically, they expect the average 30-year mortgage rate to linger around 7% in the first quarter, then inch down as the year goes on.

By the end of 2024, the real estate brokerage thinks mortgage rates will fall to about 6.6% thanks in part to 2-3 rate cuts from the Fed.

Offsetting these cuts is the expectation that we will avoid a recession in 2024. So a lack of serious economic pain means more modest declines in rates as opposed to sizable ones.

Still, they see home buyers finally catching a break because home prices are also predicted to be flat.

This means monthly payments will fall further from their recent all-time highs, which we can all agree is a good thing.

Realtor 2024 Mortgage Rate Forecast

Meanwhile, the economists at Realtor.com are predicting a minimal decline in mortgage rates, but still an improvement.

They expect the 30-year fixed to average 6.8% in 2024 after averaging 6.9% in 2023. So just a 10-basis point decrease.

However, they do expect rates to finish off 2024 at 6.5%, which is a little more optimistic.

It’s also markedly better than the 2023 year-end expectation of 7.4%. And would essentially take us back to the end of 2022, when the 30-year fixed averaged 6.42%.

In other words, we might be able to forget 2023 ever happened. But we still won’t be able to revisit early 2022 anytime soon.

At that time, the 30-year fixed was a mindboggling 3.22%.

The Truth’s 2024 Mortgage Rate Predictions

First quarter 2024: 6.875%
Second quarter 2024: 6.625%
Third quarter 2024: 6.25%
Fourth quarter 2024: 5.875%

Like everyone else, I was wrong about mortgage rates in 2023. I thought they’d slowly move lower throughout the year before ending the year around 5%.

Instead, we are closer to 7% today, which is a pretty big miss. That being said, what I assumed would play out last year (lower inflation), seems to be happening now.

There are also several rate cuts now expected in 2024, with the CME FedWatch Tool favoring a 4% – 4.25% range for the federal funds rate by December 2024.

The 10-year bond yield is also expected to moderate further, and could be back to the mid-3% range.

If we assume that mortgage rate spreads also tighten from their current levels near 300 bps to something more reasonable, such as 200 bps, we could see noticeably lower mortgage rates in 2024.

Taken together, a spread of 200 bps and a 3.5% 10-year yield could signal a return to mid-5% mortgage rates.

That might sound a little too good to be true, so I’ll err on the side of caution and go for an average rate as low as 5.875% to end the year.

Remember, there are still a lot of unknowns and potential curveballs ahead. We’ve got multiple geopolitical events that are still unfolding.

And potentially the most contentious U.S. presidential election in history. So as always, mortgage rates will ebb and flow, and opportunities will present themselves.

There will be good months and bad months, but I expect mortgage rates to continue trending lower as 2024 unfolds.

(photo: Marco Verch, CC)

Source: thetruthaboutmortgage.com

$5,000 Tax Credit for Two Years for First-Time Home Buyers

$10,000 Tax Credit for Home Sellers

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Home Builders Don’t Have Competition Right Now

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Lowering Prices Could Make It Harder for Appraisals to Come in at Value

Home Builders Would Rather Offer Incentives Like Temporary Buydowns

Home Price Cuts Don’t Result in Big Monthly Payment Savings

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1. Mortgage rates will drop below 6% (and maybe even 5%)

2. Homeowners will refinance their mortgages again

3. Mortgage rate lock-in will be less of a thing

4. For-sale inventory will remain limited

5. Home prices may go down despite lower rates

6. The bidding wars won’t be back in 2024

7. Home sales will increase slightly but remain depressed

8. Home equity lines of credit (HELOCs) will get more popular

9. More buyers and sellers will negotiate real estate agent commissions

10. The housing market won’t crash

Most Home Builders Have Their Own Financing Department

It’s Wise to Speak with More Than One Mortgage Lender

Home Builder Mortgage Rates Are Typically Hard to Beat

Consider Using Credits from a Home Seller to Buy Down Your Rate

There Are Other Advantages to Using the Builder’s Mortgage Lender Beyond Price

Pros and Cons of Using the Home Builder’s Lender

Mortgage Rates Are Expected to Go Down in 2024

MBA 2024 Mortgage Rate Predictions

Fannie Mae 2024 Mortgage Rate Predictions

Freddie Mac 2024 Mortgage Rate Predictions

NAR 2024 Mortgage Rate Outlook

Zillow’s 2024 Mortgage Rate Prediction

Redfin 2024 Mortgage Rate Predictions

Realtor 2024 Mortgage Rate Forecast

The Truth’s 2024 Mortgage Rate Predictions