Renting

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The nation’s largest mortgage lender, UWM, has launched a new 90% LTV cash-out refi to drum up more business.

While it’s being sold to mortgage broker-partners as a way to “win more business,” it doubles as a worrisome trend of loosening underwriting guidelines.

Typically, homeowners are capped at 80% LTV when it comes to a cash out refinance, but UWM is taking things a little further.

This could be the symptom of low volume, which has plagued many mortgage lenders ever since mortgage rates jumped in mid-2022.

And it could be a sign that some American consumers are struggling to make ends meet as they grapple with surging inflation.

Conventional Cash-Out 90 Lets You Borrow More Than the Other Guys

  • Cash out refinance up to 89.99% LTV
  • Loan amount capped at the conforming loan limit
  • Must be a primary residence
  • Minimum FICO score of 680 required
  • No mortgage insurance required (might be built into rate)

First let’s talk about this new loan program, known as “Conventional Cash-Out 90,” then we’ll talk about whether it’s worrisome or not.

As noted, United Wholesale Mortgage (UWM) will now let you cash out up to 90% of your property value.

Technically, it’s capped at 89.99% LTV, but it’s still considered a conventional loan. Note that there’s a difference between conventional and conforming loans.

Both are non-government loans, but conforming loans must meet the guidelines of Fannie Mae or Freddie Mac.

And Fannie Mae and Freddie Mac have a maximum 80% loan-to-value ratio (LTV) limit for cash out refinances.

So it doesn’t meet their guidelines, which also means many competing lenders can’t offer such high limits.

In other words, UWM is offering something the other guys can’t, assuming you want a whole lot of cash.

On top of that, they aren’t charging private mortgage insurance (PMI). Though as I always say, if it’s not being charged separately, it’s usually baked into the mortgage rate.

However, the maximum loan amount on the program is at the conforming loan limit, currently $766,550 for 2024.

And the property must be your primary residence (the one you live in), and you need a minimum FICO score of 680 to qualify.

It’s unclear just how high the mortgage rates are, but I can’t imagine them being cheap when your typical vanilla purchase or rate and term refinance at 80% LTV or less is still around 6.5%.

We might be talking about rates in the mid-7% range or higher. But I’m just speculating here. You’ll need to speak to a UWM-approved mortgage broker for actual pricing.

Are We Bringing Too Much Risk Into the Housing Market?

Now let’s talk about risk. As noted, Fannie and Freddie have limited cash out refinances to 80% LTV. And they did this to minimize risk to both lenders and homeowners.

It’s generally not a good thing to be overleveraged as a homeowner, especially if the mortgage debt is pricey as it has become today. And even more so if home prices feel a tad frothy.

This means if your property is valued at $500,000, the largest loan amount you can qualify for when tapping equity is $400,000.

In the early 2000s, prior to the mortgage crisis, it wasn’t uncommon to see 100% LTV cash out refinances. Or even 125% LTV loans!

Of course, we all know how well that went. Homeowners had no equity left, and once home prices collapsed, they were the proud owners of underwater mortgages.

That led to one of the worst housing downturns in our lifetimes. The good news is it also led to stricter underwriting guidelines, including the 80% LTV cap on cash out loans.

So the fact that United Wholesale Mortgage (UWM) is pushing past this limit might feel a little troubling.

But it’s likely just the result of loan volume being so dismal today, and their desire to remain the top mortgage lender in the nation.

You also need homeowners to take the bait. Most have very low locked-in 30-year fixed mortgage rates in the 2-4% range with no desire to disturb them.

Chances are volume won’t be high on this new loan program, despite these more accommodating guidelines.

If and when a lender allows 100% cash out refis again, then I’ll really start to worry. Fortunately that seems unlikely at this juncture.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

Last week, I argued that mortgage rates remain in a downward trend, despite some pullback lately.

The 30-year fixed had almost been sub-6% when the Fed announced its rate cut. That “sell the news” event led to a little bounce for rates.

Then a hotter-than-expected jobs report days later pushed the 30-year up to 6.5% and rates kept creeping higher from there.

They’re now closer to 6.625% and have reignited fears that the worst may not yet be behind us.

Whether that’s true or not, you can’t get a rate as low as you could just three weeks ago, and that makes the temporary buydown attractive again.

You Don’t Get Your Money Back on a Permanent Buydown

While some home buyers and mortgage refinancers were able to lock-in sub-6% rates in September, many are now looking at rates closer to 7% again.

This has made mortgage rates unattractive again, especially since there aren’t many lower-cost options around these days, such as adjustable-rate mortgages.

You’re basically stuck going with a 30-year fixed that isn’t worth keeping for anywhere close to 30 years.

And you’re paying a premium for it because the rate won’t adjust for the entire loan term.

One option to make it more palatable is to pay discount points to get a lower rate from the get-go.

But there’s one major downside to that. When you buy down your rate with discount points, it’s permanent. This means the money isn’t refunded if you sell or refinance early on.

You actually need to keep the loan for X amount of months to break even on the upfront cost.

For example, if you pay one mortgage point at closing on a $500,000 loan, that’s $5,000 that will need to be recouped via lower mortgage payments.

If rates happen to drop six months after you take out your home loan, and you refinance, that money isn’t going back in your pocket.

It’s gone forever. And that can obviously be a very frustrating situation.

Is It Time to Consider a Temporary Buydown Again?

The other option to get a lower mortgage rate is the temporary buydown, which as the name implies is only temporary.

Often, you get a lower rate for the first 1-3 years of the loan term before it reverts to the higher note rate.

While these have been painted as higher-risk because they’re akin to an adjustable-rate loan, they could still bridge the gap to lower rates in the future.

And perhaps most importantly, the money spent on the temporary buydown is refundable!

Yes, even if you go with a temporary buydown, then refinance or sell a month or two later, the funds are credited to your outstanding loan balance.

For example, if you’ve got $10,000 in temporary buydown funds and all of a sudden rates drop and a rate and term refinance makes sense, you can take advantage without losing that money.

Instead of simply eating the remaining funds, the money is typically used to pay down the mortgage, as explained in Fannie Mae’s chart above. Say you’ve got $9,000 left in your temporary buydown account.

When you go refinance, that $9,000 would go toward the loan payoff. So if the outstanding loan amount were $490,000, it’d be whittled down to $481,000.

Interestingly, this could also make your refinance cheaper. You’d now have a lower loan amount, potentially pushing you into a lower loan-to-value (LTV) tier.

What Are the Risks?

To sum things up, you’ve got three, maybe your options when taking out a mortgage today.

You can go with an ARM, though the discounts often aren’t great and not all banks/lenders offer them.

You can just go with a 30-year fixed and pay nothing in closing for a slightly higher rate, with the intention of refinancing sooner rather than later.

You can pay discount points at closing to buy down the rate permanently, but then you lose the money if you sell/refinance before the break-even date.

Or you go with a temporary buydown, enjoy a lower rate for the first 1-3 years, and hope to refinance into something permanent before the rate goes higher.

The risk with an ARM is that the rate eventually adjusts and could be unfavorable. As noted, they are also hard to come by right now and may not offer a large discount.

The risk with a standard no cost mortgage is the rate is higher and you could be stuck with it if rates don’t come down and/or you’re unable to refinance for whatever reason.

The risk with the permanent buy down is rates could continue falling (my guess) and you’d leave money on the table.

And the risk of a temporary buydown is somewhat similar to an ARM in that you could be stuck with the higher note rate if rates don’t come down. But at least you’ll know what that note rate is, and that it can’t go any higher.

Read on: Temporary vs. permanent mortgage rate buydowns

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

In the mortgage rate world, it’s sometimes a game of inches.

This can be true for both prospective home buyers and existing homeowners looking for rate relief.

Granted, if you’re that marginal when it comes to affording a home, maybe you should consider renting until it’s a little more decisive.

But if you already own a home and hold a high mortgage rate, the next six months or so could make or break your refinance opportunity.

Lately, mortgage rates have retraced from their recent lows of just over 6%, returning to levels around 6.625%.

As a result, many millions of homeowners are no longer “in the money” for a refinance. But that could change in an instant, just as it already has.

Are Current Mortgage Rates at Least 0.75% Below Your Rate?

A new report from ICE revealed that the refinance population climbed to over 4.3 million thanks to the rally in rates that came to an abrupt end, ironically after the Fed cut rates.

At that time, the 30-year fixed mortgage was averaging around 6.125%, down from nearly 7% as recently as late July.

That meant the refinanceable population had surged from around 1.2 million to 4.3 million in a matter of less than two months.

Of these 4.3M, a whopping 65% received their mortgages over the past two years, including 1.4M in 2023 and 1.3M this year. So that whole date the rate, marry the house thing could actually pan out.

ICE considers a homeowner “in the money” for a rate and term refinance if their existing mortgage rate is at least 0.75% below prevailing market rates.

So basically any borrower with a 7%+ rate would have met that definition in mid-September.

But today it’s only the borrowers with mortgage rates around 7.5% that would benefit from a refi.

If you want to get more into the nitty-gritty, highly-qualified refinance candidates should have a 720+ FICO score and a loan-to-value ratio (LTV) of 80% or less.

Of course, conditions can change quickly. And as I wrote the other day, mortgage rates don’t move up or down in a straight line.

Meaning the recent uptick could just be a temporary hiccup and short-lived. Mortgage rates saw periods of relief on the way up. They could just as well see periods of pain on the way down.

The Refi Boom Depends on Rates Continuing Lower Into 2025

As you can see, even minimal rate changes can impact millions of homeowners looking for payment relief.

The good news is ICE expects 30-year fixed mortgage rates to continue coming down into the last months of the year and 2025. For the record, I agree with them.

Their latest estimate, calculated using the single-day spread between the loan balance weighted average APR futures price and simple average daily rate, has the 30-year down to 5.85% by March 2025.

Granted it also has the 30-year fixed at 6.17% for October 2024, so some recent adjustments may have not been captured by their time-sensitive report.

But as noted, it’s good to zoom out anyway, and pay less attention to the day-to-day or even week-to-week noise.

A lot can happen in a few days, and we’ve got two big reports coming tomorrow and Friday, the CPI report and PPI report.

Both could push rates back onto their downward trajectory. They could also push rates higher…

If ICE’s predictions hold true longer-term, there will be a nice little refi boom for loan officers and mortgage brokers in early 2025.

Rates may also approach that so-called magic number of 5.5%, at which point you’d get more home buyers entering the market too, perhaps just in time for spring.

This is the bullish case for the mortgage market, but still very much up in the air. You can see just how fickle it all is with even a .125% or .25% difference in rate potentially affecting millions.

Read on: The refinance rule of thumb.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

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Did those higher mortgage rates ruin your plans to refinance your mortgage?

Well, there might be a temporary solution to save some money while you wait for interest rates to move lower again.

Assuming you have the extra cash on hand, you can reduce your interest expense by simply paying more each month until you refi.

For example, pay an additional $100, $250, or $500 per month and you’ll save on interest and knock down your loan balance.

In the process, you will reduce the effective interest rate on your existing home loan and potentially make it easier to refinance later.

You Can Still Save Money Without a Refinance

First off, you can save money on your mortgage without refinancing if you simply pay extra each month.

Let’s consider a simple example where you’ve got a 7% mortgage rate and a $400,000 loan balance.

The monthly principal and interest payment is $2,661.21. In just one year, you’d pay $27,871.29 in interest.

Now imagine you pay an extra $500 per month to save on that interest. The payment is $3,161.21 per month.

After a year, your outstanding balance would be $389,740.45 instead of $395,936.77.

After 24 months, the balance would drop to $378,739.26 instead of $391,579.82.

Your total interest expense for that period would fall from $55,448.86 to $54,608.30.

That’d be about $840 in interest saved and a balance that is $12,841 lower.

The cost would be $12,000 ($500×24 months) for savings of $1,681. That’s a return of roughly 14%.

A Lower Balance Could Make Your Refinance Rate Cheaper Later

Now imagine rates finally fall to a point where you are “in the money” to refinance. Say the 30-year fixed slips to 5.5% by that time.

If you originally put 20% down on your home purchase ($500,000 price tag), your balance could be closer to 75% loan-to-value (LTV).

Using that lower outstanding balance of $378,739.26, you could find yourself in a lower LTV tier. You’d only need a new appraised value of around $505,000.

Being in a lower LTV bucket means you are subject to lower loan-level price adjustments (LLPAs).

As a result, your mortgage rate should be lower all else equal. That might mean a rate of 5.375% instead of 5.5%, or perhaps even 5.25%.

Your rate and term refinance just got even better, simply because you made an extra payment to principal for 24 months.

Sure, it requires you to hand over an additional $500 to your loan servicer each month, and if cash is tight, it’s not doable.

But if you do have extra money on hand and are disappointed that rates haven’t fallen as you thought they would, this is one way to limit the damage of a higher interest rate.

If you were just paying the mortgage on schedule, the appraised value would need to be closer to $521,000 to fall into that lower LTV bucket.

So it could be a double-win in terms of saving some money before you refinance, and enjoying even greater savings once you do eventually refinance.

Read on: How to Lower Your Mortgage Rate Without Refinancing

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

Ever since the Fed announced their 50-basis point cut, mortgage rates have been climbing higher.

In fact, they’re basically 50 bps higher since the Fed cut their own federal funds rate (FFR) 50 bps lower.

While we know the Fed doesn’t control mortgage rates, it does seem unusual to see such a disconnect.

But the first important thing to remember here is the Fed’s rate is a short-term one, and mortgage rate are long-term rates, aka the 30-year fixed.

So it’s not really about the Fed. However, this is a good reminder that mortgage rate trends never move in a straight line.

Mortgage Rates Seesawed on the Way Up

If you recall mortgage rates’ ascent from sub-3% to 8% (yes, 8%!), it wasn’t just a straight line up.

Just take a look at my annotated chart from Mortgage News Daily for evidence of this, where I highlighted all the pullbacks.

There were days, weeks, and even months when mortgage rates went down. For example, the 30-year fixed climbed from around 3% in January 2022 to roughly 6.25% that June.

Then mortgage rates “rallied” a bit and fell to around 5% (quotes in the high-4% range) by that August.

Did that mean the worst was behind us? Nope. It sure didn’t. Instead, mortgage rates resurged and climbed to a new cycle high above 7% by that October.

Things were looking pretty bleak until another relief rally took place, sending the 30-year fixed back down to 5.99% by February 2023.

At that point, things were beginning to look better. Maybe that was the worst of it. Wrong again!

Mortgage rates did an about-face in March and made the spring home buying season a lot less pleasant for home buyers.

Then rates got even worse, rising north of 8% by mid-October and making folks question whether double-digit rates were the next stop.

It turned out that was the worst of it, despite all the head fakes and twists and turns along the way.

But it took time to realize that it was finally behind us. And it took false peaks and short-lived valleys for us to get there.

Mortgage Rates Are Falling Now and the Same Thing Is Happening

Now that mortgage rates appeared to have peaked this cycle (I say appear because there’s never ever any guarantee), we’ve been in a downtrend for about a year.

Rates hit their cycle highs last October at around 8% before rallying lower as inflation concerns subsided and unemployment began to worsen.

In short, the overheating economy seemed to run out of steam, and interest rates took solace from that.

It took just two short months for the 30-year fixed to fall from that 8% peak to around 6.5% last December.

And it appeared that the 2024 spring home buying season was going to be a pretty good one, at least with regard to rates.

But guess what happened. Yes, you’re catching on now. Mortgage rates went up. Again! What gives?

Well, similar to the way up, there was economic data released each month that led to bond selloffs, which increased their accompanying yields.

The 10-year bond yield, which tracks mortgage rates really well, had fallen to around 3.75% in December, only to rise about one full percentage point by April.

That pushed mortgage rates back up to around 7.50%, enough to ruin yet another peak home buying season.

Then as if almost on cue, mortgage rates trickled down post-spring to just above 6% in September.

At that time, you could actually get a rate that started with a “4” in certain situations. And rates in the low-to-mid 5s were also quite common.

Good Economic News Ruined the Mortgage Rate Party

In early September, it seemed like the worst truly was over, and just then an optimistic Fed chairman Powell and a jobs report beat surfaced.

The 50-basis point Fed rate cut didn’t really have much of an impact, given it was baked in and telegraphed.

But Powell made comments the same day, essentially proclaiming that the 50-bps cut was bullish because the economy was so in such good shape it could handle a larger cut without reigniting inflation.

Then came the jobs report just over a week later, which was a big beat and enough to propel rates above 6.50%.

If it feels like déjà vu, you’re not wrong, nor are you alone. However, you might take comfort in knowing this same exact thing happened on the way up.

Mortgage rates did not move in a straight line up, and will not move in a straight line down. There will be bad days, weeks, and even months along the way.

Despite this, the trend still feels decidedly lower over time. You just have to be patient and focus less on the day-to-day.

Easier said than done if you’re a loan officer or mortgage broker, or a borrower who needs to lock or float your rate, I know.

If you do have time to wait before buying a home (or refinancing), it might pay to sit back and wait for this trend to continue developing.

After all, the fed funds rate is still expected to fall another 150 bps within a year. And chances are they wouldn’t keep cutting that much if the economy was still running hot.

In summary, trends, whether it’s rising rates or falling rates, take time to develop. Zoom out. Before long, the chart might resemble a “head and shoulders” pattern that slopes down on the right-hand side.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

Recently, Zillow began airing a commercial called “Homeowner Mates.” It depicts three women moving into a home together.

It shows their individual “BuyAbility” followed by “Your BuyAbility,” the latter of which combines the purchasing power of all three.

The three women have individual buying power of $117,000, $124,000, and $131,000, but a combined $372,000 when pooled together.

This apparently allows them to go in on that near-$400,000 home purchase, despite not being anywhere close on their own.

While having co-borrowers does indeed boost your purchasing power, the question is it a good idea when it’s a friend (or two)?

It’s Hard Enough to Buy a Home on Your Own

When I first saw this commercial, I was pretty taken aback. It felt somewhat irresponsible, and a lot related to the current housing market being unaffordable for most.

For me, that doesn’t mean forcing your way into a purchase. It might mean holding off on your homeownership goal, saving up more money, perhaps hoping for a raise, and generally getting all your ducks in a row.

Oh, and maybe lowering your maximum purchase price to something you can actually afford!

Instead, Zillow presents a solution to just find a couple close friends and buy the house today.

It pretty much ignores what happens after the dust settles and the moving boxes are unpacked.

It doesn’t get into what happens when one of the roommates wants to move out. It also seemingly glosses over who gets what room, or what happens if one of the co-owners loses their job.

Simply put, it presents a very simplistic view of homeownership, without giving us the whole picture, which could get pretty dark in a hurry.

Ultimately, it’s hard enough to be a homeowner without having to discuss all the what ifs with two other people.

It’s a big decision to buy vs. rent, and exponentially more complicated once you multiply that by three individuals.

Homes Are Too Expensive for Many Americans Right Now

Making it all much worse is this commercial only exists because homeownership has fallen financially out of reach for many Americans.

Clearly the people behind the ad got together and said what are the main pain points for prospective home buyers right now?

And they likely all agreed that it’s too expensive for most to buy a home thanks to a combination of high home prices and elevated mortgage rates.

But instead of recognizing this, they found a creative workaround to tackle the affordability piece, regardless of what the outcome might be.

Ironically, the commercial says, “That’s when buying a home got real.” When the three women pooled their incomes together to make it work.

Sadly, they probably don’t know how real is will become after living together and paying the mortgage for a year.

It’s hard enough to rent with a friend without facing all sorts of pitfalls. To buy a home with a friend and do so successfully sounds like the feat of all feats.

In other words, it probably won’t go well for most. And how do you even work out who gets what if someone wants to move out?

This all sounds so complex, yet is juxtaposed by the three women eating pizza and joking about one of them breaking the other’s vase.

My guess is that would be an afterthought once real problems reared their ugly head.

Maybe It’s Just Not the Right Time to Buy a Home…

As I wrote in my other piece, Marriage and Mortgage May Not Mix, it’s perfectly fine to rent initially, especially if your wedding date and the housing market conditions don’t exactly line up.

The same is true here. There doesn’t need to be a rush to buy, nor do you need to force the issue if it doesn’t feel quite right. Or simply doesn’t pencil.

While I am a huge advocate of homeownership and believe it brings with it a lot of positives, it’s not for everyone. Nor is it always the right time.

I’d personally never buy real estate with friends, and probably not even with family when it came down to it.

Take the time to really think it through if you’re considering this. What will it look like to own a home with your friend(s) a year from now, three years from now, or five? Will you sell at some point or rent it out?

You’re going to need a serious plan if you expect to pull something like this off. Even those who purchased a home recently on their own are feeling the heat.

Now imagine several people dealing with conflicting emotions at the same time. It’s not for the faint of heart.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

Over the past several years, mortgage lenders have been offering “early bird” conforming loan limits for the upcoming year.

This allows them to make bigger loans that adhere to the underwriting guidelines of Fannie Mae and Freddie Mac without them being considered jumbo loans.

Instead of waiting until January 1st, they make a projection for where the loan limit will land the next year and offer it around the fourth quarter.

For example, in early October 2023 some lenders raised the 2024 loan limit to $750,000 ahead of the announcement that came in late November.

That loan limit wound up being $766,550, which meant the lenders who offered the higher loan limits ahead of time didn’t get caught out.

But that only worked because home prices kept on marching higher and higher.

Some Lenders Are Already Offering 2025 Conforming Loan Limits as High as $803,500

Like last year, lenders haven’t waited for the conforming loan limit announcement in late November to raise it.

And this year it has come even earlier than in years’ past. It has actually become a sort of game between competing mortgage companies to be the first out of the gate.

Rocket Pro TPO, the wholesale division of Rocket Mortgage, was first to come out with the 2025 loan limits this year.

On September 13th, they announced a limit of $802,650, up from the current limit of $766,550. This represents a 4.7% increase.

While that seems like a fairly reasonable estimate, home price appreciation has been slowing this year.

At last glance, home prices as measured by the FHFA HPI were up 4.5% from July 2023 to July 2024.

To come up with the conforming loan limit, the FHFA uses home price movement from the third quarter of the prior year to current year (see FAQ).

So we need the August and September data before they can make that determination.

Since the YoY appreciation is currently below the 4.7% needed to hit those projected 2025 loan limits, the next two releases will need to show home prices rising at a faster clip. What if they don’t?

What Happens If Home Prices Fall Short and the 2025 Loan Limits Are Lower?

Remember how I said this has become a game between lenders to see who comes out with the loan limits first? Well, it has also become a game of who goes highest.

And it appears that the nation’s largest lender, United Wholesale Mortgage (UWM), has won that battle.

They weren’t first, but they came out with the highest 2025 loan limit, offering to fund loans up to $803,500 for the remainder of 2024.

That’s a 4.8% YoY increase in home prices. Not much different than Rocket’s, but well above some other mortgage lenders who are playing it a little safer.

For example, Rate (formerly Guaranteed Rate) has only offered to go as high as $792,000, while Pennymac is only willing to go to $795,000.

Inside Mortgage Finance writer James Dohnert expressed some concern with these varying limits, noting that “it’s possible that some origination shops shot too high.”

And that if the actual 2025 loan limits come in below what these lenders are currently allowing, any of the related conforming loan production would “inherently turn into non-agency product.”

At that point, these lenders would either need to keep the loans on their books or perhaps sell them at a discount (maybe a loss) if they wished to unload them.

They wouldn’t qualify for backing by Fannie Mae or Freddie Mac, meaning they couldn’t be sold to or guaranteed by the pair.

This could present problems for the lenders who do a decent amount of volume using these new provisional loan limits.

It may also change how they offer early bird limits going forward if home prices do indeed come in lower than expected.

Given how home prices have been screaming higher and higher each year, it has yet to be a problem.

But this could finally be a turning point as housing affordability finally weighs on appreciation.

Stay tuned on this one. It might get interesting.

Which Lenders Are Already Offering 2025 Conforming Loan Limits?

CrossCountry Mortgage – $802,650
Guild Mortgage – $799,125
Movement Mortgage – $802,650
Newrez – $795,000
Pennymac – $795,000
Rate – $792,000
Rocket Mortgage – $802,650
TowneBank Mortgage – $795,000
United Wholesale Mortgage – $803,500

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

Even though mortgage rates have fallen quite a bit from their highs seen a year ago, they remain quite elevated relative to much of the past decade.

Sure, a 6% 30-year fixed is better than an 8% 30-year fixed, but it’s still a far cry from a 3 or 4% 30-year fixed.

This might explain why prospective home buyers haven’t exactly rushed back into the housing market in recent months.

And now we’re being told this is as good as it’s going to get for mortgage rates. That remains to be seen, but what’s interesting is I’ve seen quotes down into the high-4s for mortgage rates recently too.

So how are lenders able to advertise rates that low if the Freddie Macs of the world are telling us rates are still above 6%?

Well, the secret is a little thing called mortgage discount points.

Mortgage Rates Are Lower When You Pay Points

After mortgage rates surged since beginning in early 2022, the secondary market where investors buy and sell mortgage-backed securities (MBS) got all out of whack.

Basically, uncertainty and volatility surged while volume plummeted. Long story short, MBS investors wanted more assurances, which generally meant borrowers had to pay points upfront.

This ensured a profit even if the mortgage was short-lived and paid off in a short period of time.

It also allowed lenders to keep mortgage rates from going even higher, completely decimating lending volume in the process.

Conditions have since improved, and it’s again possible to get a home loan today without paying points.

But you’re still seeing lenders offer rates with points attached. And the reason why is because you can offer a lower rate!

Obviously, it looks a lot better if you’re able to advertise a rate starting with a 5 instead of a 6, or a 4 instead of a 5.

And that’s exactly what some lenders do, at least the ones that lead on price as opposed to service or brand name.

Interestingly, I discovered over the weekend that this isn’t a new phenomenon. Back in the 1980s and 1990s this was also common.

Homeowners Paid Over Two Points on Average from 1981 to 1991

Remember those super high mortgage rates in the 1980s? Well if you don’t, the 30-year fixed climbed as high as 18.45% in late 1981, per Freddie Mac.

Despite the rate being astronomically high, the average amount of discount points required at that time was a whopping 2.3.

In other words, on a $250,000 loan amount, you’d be talking about $5,750 in fees just to obtain that ridiculously high rate.

Did that mean a borrower who only paid one point would have been subject to a 20% rate? Perhaps, I don’t know, but that’s generally how it works.

If you opt to pay less or nothing upfront, your mortgage rate will be higher, all else equal.

This average amount of points paid by homeowners hit its peak in 1984 and 1985, when the average amount paid was 2.5 points.

So for every $100,000 borrowed, a home buyer would have to fork over $2,500. And again, to wind up with a mortgage rate around 12 or 14% (they came down a bit after peaking in 1981).

Are Mortgage Rates That Require Upfront Points Legit?

Now that brings me to modern day, where lenders still charge multiple points for the lowest rates.

While not obligatory, as I mentioned, you do typically have the option to pay points at closing.

The tradeoff being a lower interest rate if you do. This is essentially what home builders have been doing to draw in business with their permanent and temporary rate buydowns.

They’re buying the rates down to lure in home buyers, which allows them to keep their asking prices steady (or even rising).

Those who comparison shop mortgage rates may also find that some lenders are offering “below-market rates” versus what they see in the mortgage rate surveys.

The way lenders accomplish this is by asking you to pay points upfront, which are a form of prepaid interest.

So the rate offered might be 6% with no points or for a no cost refinance. But 5.25% if you’re willing to pay a point (or more than a point) at closing.

These are entirely legit rates, they just cost money to obtain them. And that cost is essentially an investment in the mortgage that you’ll only realize if you hold it long enough.

Paying Points at Closing Might Not Be the Best Move

While the promise of a lower mortgage rate, especially something that starts with a 4 is enticing, it might not be worth it.

Let’s consider a quick example where you pay two points to get a rate of 4.875% versus a rate of say 5.75% with no points.

On a $500,000 loan amount that would set you back $10,000 at closing.

The monthly payment would be $2,646.04 versus $2,917.86, or roughly $272 per month.

While that’s a decent amount of savings, it would take about three years to breakeven on the upfront cost.

Now imagine then 30-year fixed falls to the mid-4s or even lower during that span. Or if you want to sell your home and move.

You’ve already paid for the lower rate and might not get the full benefit. This is not to say it’s a bad decision, since you, me, and everyone else doesn’t know what the future holds.

But you’re making a conscious choice when paying points and there are no refunds.

If we look back at those folks who paid 2.5 points back in 1984 for a 14% rate, only to see rates fall to sub-10% by 1986, it makes you wonder.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

Well, it’s been over a week since the Fed cut rates and mortgage rates went up.

While this may have come as a surprise to some, seasoned mortgage industry peeps didn’t bat an eye.

It’s pretty common for the Fed to do one thing and mortgage rates to do another.

Without getting too convoluted, the Fed adjusts short-term rates while mortgages are long-term rates, aka the 30-year fixed.

In other words, the cut (and future cuts too) were already priced in to mortgage rates. So much so that they actually increased over the past week in a sort of “sell the news” correction.

Are Mortgage Rates Still Dropping?

Fitch Ratings recently came out and said the 50-basis point Fed rate cut was already priced in to both the 10-year Treasury yield and 30-year fixed mortgage rates.

In addition, they argued that the 10-year yield, which tracks mortgage rates historically, has “less room to decline” because of that.

It basically already came down in anticipation and might be difficult to drop much lower. In fact, we’ve seen it rise since the Fed cut last week.

The 10-year yield was as low as 3.61% and now sits around 3.77%, putting some mild upward pressure on mortgage rates since then.

Rates actually looked destined for the high-5% range before pulling back and inching their way back toward 6.25%.

And with little economic data out this week, there’s been no reason for them to rally.

But next week we get the employment report, which could help rates resume their downward path if it comes in soft.

Maybe Low 5% Mortgage Rates By 2026

If the 10-year yield isn’t expected to get much better from here, mortgage rates will only be able to move lower with better spreads.

Currently, mortgage spreads are wide because of high prepayment risk, volatility, and general uncertainty.

Investors demand a premium to buy mortgage-backed securities (MBS) versus government bonds and recently they’ve asked for a lot more than usual.

Fitch puts the typical spread at about 1.80%, while I’ve long said it’s about 170 basis points. Either way, it’s markedly higher today.

It was nearly 300 bps at its worst in 2022. It has since shrunk to about 240 basis points, meaning it’s about halfway back to normal.

So if bond yields do indeed stay sticky where they’re at, you’ll need some spread normalization to get mortgage rates to move lower.

It’s certainly possible, and as I wrote a couple weeks ago, could result in mortgage rates falling about .50% from current levels.

That would put the 30-year fixed in the high-5% range, and even lower if a borrower is willing to pay discount points.

Mortgage Rates Unlikely to Fall Below 5% Before 2027

The rating agency also proclaimed that mortgage rates are unlikely to fall below the big 5% threshold before the year 2027.

That means at least another two years of “high rates” before mortgage rates are no longer a concern.

Again, that’s because the 10-year yield is expected to stay mostly level and only drop to around 3.50% by the end of 2026.

If the spreads are back to mostly normal by then, you can do the math and come up with a rate of around 5.30% (3.5+1.8).

Of course, this is all just a forecast and many of these forecasts have been wrong in the past. In fact, they’re rarely right. Most were wrong on the way down to 3% and the way up to 8%!

So who is to say they’ll be right this time around either?

I’m a bit more optimistic on mortgage rates because I think there are a lot of Fed rate cuts projected over the next 12 months, which haven’t all been baked in.

Similar to the ride up for mortgage rates, from sub-3% to 8%, the market was caught off-guard. This could happen on the way down too.

I can envision a 10-year yield dropping to the lower 3% range next year, when combined with some spread compression puts the 30-year fixed in the mid-5% range potentially.

And once you factor in points, lots of rate quotes in the high 4% range. For most home buyers, that would be acceptable.

But I’ve long argued rates are no longer the main sticking point. We’ve got home prices that are perhaps too expensive in many markets, along with sticker shock on insurance, taxes, and everyday goods.

Without a little home price easing, it’ll still be a tough sell for those looking to buy into the market, especially if the wider economy deteriorates.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

I know, I know, mortgage shopping is the worst. It’s not a fun thing to do.

It’s not like shopping for a new car or a new TV, or even a new house. But it’s a necessary evil unless you’ve got a boatload of cash.

The reason it’s not fun is because there’s lot of math, paperwork, and high-pressure salespeople involved.

Not to mention lots of mortgage lingo that will likely go over your head.

But there’s a silver lining to putting in all that time to shop; you’ll learn a lot about mortgages.

I Get It, Mortgages Aren’t Fun

Look, I’ll be the first person to tell you that mortgages are boring af. I’ve been writing about them for nearly 20 years now.

And before that, I was working on the frontlines with mortgage brokers and loan processors and underwriters.

None of it was fun, and it’s probably even less fun when you’re new to it and simply trying to get through it.

Conversely, you might have a blast shopping for a new car and doing test drives while checking out all the cool features.

The same goes for new clothes, a new TV, computer, etc. They call it retail therapy for a reason.

I’ve never heard anyone say mortgage shopping is therapeutic. In fact, it’s usually the exact opposite.

Typically, people say they’d rather go to the dentist than go through the mortgage process.

Okay, so what’s the point here? Well, as mentioned, you can learn a lot if you do shop around.

Learn About Mortgages as You Shop Your Rate

Most people don’t shop around for their home loan. They either just go with the lender their real estate recommended, or the first quote they come across.

Again, this is because mortgages are not at all fun. And not getting any funner.

Not only does this cost people (since studies prove multiple quotes leads to lower rates), it also means you won’t learn a whole lot.

Again, I understand. Most people are literally just trying to get through it so they can move into their new home. Or enjoy a new low rate on their existing mortgage in the case of a refinance.

But aside from potentially paying more, you’ll also learn less. And when you know less about something, the probability of a bad decision increases.

For example, you might pick the wrong mortgage product for your individual situation.

Or you might be told to pay discount points at closing, only to sell your home or refinance before the breakeven period.

You might even refinance even when it doesn’t make sense to do so. Or buy too much house and become house poor because the numbers were only presented to you one way.

Bringing it full circle, you might also get ripped off because you’ll be a novice and more easily taken advantage of.

If you actually make a few phone calls and speak to multiple loan officers, mortgage brokers, etc., you’ll learn more about the ins and outs of it all.

Each time you talk to someone new you’ll have a little bit more knowledge than the prior call.

And this will help you avoid the typical gotchas and perhaps allow you to come off more confident. That can lead to better mortgage rate negotiating and ultimately better odds of a lower rate.

Here Are Some Mortgage Shopping Tips to Make It Less Awful

If you’re stressed about it your credit scores, keep in mind that while mortgage inquiries can lower your credit score, it’s often not by much.

You also don’t need to let everyone run your credit. And FICO now combines multiple mortgage inquiries into one when made within a 14- to 45-day window.

Those who have heard of those annoying trigger leads can employ a strategy I laid out years ago.

Use a temporary phone number like Google Voice for free. Share that number with all the lenders, brokers, etc.

Then ditch it once you’ve found your match and carry on with your real number. Or just keep using the temporary one!

Even if you use a mortgage broker, take the time to compare mortgage brokers too. Because many of them just send all their business to one lender. So it’s not really shopping around.

In addition, they have varying compensation structures, meaning if you compare more than one you might land on the broker who earns less per loan and saves you money.

For example, one broker might earn 2% on each loan, while another is satisfied with just 1% loan origination fee in exchange for more volume. The broker earning less will likely have the lower rate and closing costs.

Lastly, if you already have average or poor credit, know that mortgage rates can vary even more, so shopping around is even more important!

Simply put, rates are priced in a tighter range for those with really high FICO scores. But even those folks should also gather more than one quote!

Read on: How to shop for a mortgage.

(photo: Alan Levine)

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com