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Buying a home is an exciting milestone, but it comes with its fair share of financial responsibilities, including the often-misunderstood closing costs. These costs are a vital part of your home purchase budget and can significantly impact your financial planning as a new homeowner.

Far from being just a trivial detail, closing costs encompass a range of fees and charges that, when understood correctly, can help you make more informed decisions and potentially save money in your home-buying journey.

Here’s everything you need to know about mortgage closing costs to avoid any last-minute surprises.

Who Pays the Closing Costs: Buyer or Seller?

When it comes to closing costs in a home purchase, the question of who pays what is often a topic of negotiation and varies by transaction. Generally, both buyers and sellers have their own set of fees to handle, but the exact distribution can differ.

Your mortgage lender is required to provide you with an estimated breakdown at multiple points in the loan process. The loan estimate outlines the estimated closing costs and lists out all the different fees, as well as who is responsible for paying them.

Buyer’s Responsibility

Typically, the buyer shoulders a significant portion of the closing costs, which can include:

  • Loan-related fees (such as application and origination fees)
  • Appraisal and inspection fees
  • Initial escrow deposit for property taxes and mortgage insurance
  • Title insurance and search fees

Seller’s Contribution

Sellers commonly pay for:

  • Real estate agent commissions
  • Transfer taxes and recording fees
  • Any homeowner association transfer fees

Room for Negotiation

It’s important to note that these are not hard and fast rules. In many cases, closing costs are a point of negotiation in the sale agreement. For example, in a buyer’s market, a seller might agree to cover a larger portion of the closing costs to attract buyers. Conversely, in a seller’s market, the buyer might take on a larger share to make their offer more appealing.

Case Example

Imagine you’re buying a home priced at $300,000. The closing costs, amounting to approximately 3% of the purchase price, would be around $9,000. As a buyer, you might agree to pay $6,000 of this, covering most of the loan-related fees and escrow deposits. The seller, in turn, might handle the remaining $3,000, covering their portion of fees like the agent’s commission and transfer taxes.

Comprehensive List of Fees Associated with Mortgage Closing Costs

Mortgage closing costs can be broken down into a few different categories: lender fees, real estate fees, and mortgage insurance fees.

Lender Fees

These fees may vary depending on the lender you choose. Here’s a basic rundown of each closing cost to give you an idea of what you can expect.

  • Application fee: Covers processing your mortgage loan application and obtaining your credit report.
  • Attorney fee: In some states, an attorney must review the mortgage paperwork; fees vary and can be hourly or a flat rate.
  • Broker fee: If using a mortgage broker, they typically charge a commission, usually between 1% and 2% of the home’s purchase price.
  • Origination fee: The origination fee compensates the lender for administrative tasks and is typically around 1% of the loan amount.
  • Discount points: Paying points upfront can lower your interest rate; each point equals one percent of your loan amount.
  • Prepaid interest: Covers the interest that accrues between the closing date and the first mortgage payment.
  • Recording fee: Charged by local governments for recording the mortgage documents; it covers the administrative costs of maintaining public records.
  • Underwriting fee: Charged for the underwriter’s services in evaluating and preparing your loan; includes costs like due diligence and legal fees.

Real Estate Fees

Real estate fees are related to costs surrounding the property itself. Some are one-time fees, while others are recurring.

  • Appraisal fee: Necessary to assess the market value of the home. Costs vary, but typically around $500 to $600, payable before the appraisal or at closing.
  • Property tax: Generally an annual or biannual payment. Most lenders require at least two months’ worth pre-paid into an escrow account at closing.
  • Homeowners’ insurance policy: An annual premium required for a home loan. The first year’s premium is often paid at closing, with subsequent payments included in your mortgage.
  • Title search and insurance: Ensures the property is lien-free. Lender’s title insurance protects the lender, while owner’s title insurance safeguards the buyer.
  • Transfer tax: Imposed by governments when a property is sold, usually a percentage of the sale price.
  • HOA fees: For properties in a homeowners association, this may include a transfer fee and potentially the first year’s annual assessment.

Mortgage Insurance Fees

When you pay less than 20% of your home purchase price as part of your down payment, you’re usually required to pay mortgage insurance. Your private mortgage insurance (PMI) premium is typically assessed as a monthly fee within your mortgage payment. However, you may also have some costs at closing.

Upfront mortgage insurance fee: Depending on your loan type and lender, you may have to pay an additional application fee for a loan with mortgage insurance. Additionally, some loans require that you pay a one-time fee at the time of closing on top of your annual fee throughout the mortgage.

Government-backed loan fees: If your loan is from the FHA, USDA, or VA, then you may have extra mortgage insurance fees if your down payment is under 20%. FHA loans require an upfront mortgage insurance premium (MIP) of 1.75% and a monthly fee. The VA and USDA don’t charge mortgage insurance, but instead have guarantee fees. VA fees fall between 1.25% and 3.3% while USDA fees are a flat 2%.

Understanding How Closing Costs Are Calculated

That list may seem huge and overwhelming. However, before making an offer on a house, you can estimate your closing costs using some shortcuts. Average closing costs are usually about 2% – 6% of the loan amount.

Let’s look at that in real numbers.

Say you buy a home for $200,000. You can realistically expect your closing costs (not including your down payment) to extend anywhere between $4,000 and $10,000. That’s a pretty big range, so use that as a starting point when you begin to compare loan offers.

But don’t wait until you’ve fallen in love with a house to financially plan for closing costs.

Instead, use an online closing costs calculator early in the process to get a more specific estimate. You will want to use real information like average property taxes in your area and the costs associated with your type of loan.

A good mortgage lender can walk you through the variables, including how different loan types affect your closing costs.

Strategies for Reducing Closing Costs: Negotiation Tactics

Negotiating closing costs can be an effective way to reduce the financial burden of buying a home. While some fees are fixed, others offer room for negotiation. Here are strategies and insights to help you lower these costs:

Understand What Can Be Negotiated

Identify which fees are negotiable. These often include certain lender fees like the origination fee, broker fees, and some third-party charges. Knowing what can be adjusted is the first step in negotiation.

Compare and Shop Around

Before settling with one lender, shop around. Get Good Faith Estimates from multiple lenders and compare their closing costs. This can give you leverage in negotiations, as lenders are often willing to offer competitive pricing to win your business.

Ask the Seller to Contribute

In some real estate markets, it’s common for buyers to ask sellers to cover a portion of the closing costs. This is particularly feasible in buyer’s markets, where sellers are motivated to make the sale.

Look for Lender Credits

Some lenders offer credits in exchange for a slightly higher interest rate on your loan. These credits can be used to offset closing costs. While this increases your long-term interest cost, it can significantly reduce upfront expenses.

Negotiate with Service Providers

For services like home inspections and title searches, you have the option to choose your provider. Shop around and negotiate with these providers for better rates.

Review the Closing Disclosure Form

Before closing, you’ll receive a Closing Disclosure form listing all the fees. Review it carefully and question any fees that seem off or weren’t previously disclosed. Sometimes, errors can be corrected, leading to lower costs.

Time Your Closing

By scheduling your closing towards the end of the month, you can reduce the amount of prepaid interest you’ll need to pay.

Seek Legal or Financial Advice

Consider consulting with a real estate attorney or a financial advisor. They can provide valuable advice on which costs can be cut and how to negotiate effectively.

Options for Financing Your Closing Costs

In some cases, you can roll your closing costs into the mortgage, but you have to meet some basic requirements. First, it depends on your type of loan, since not all loans allow you to do this. Most government-backed loans, like FHA and USDA loans, do offer the possibility to add them into your home loan.

What’s the downside to this idea?

A higher loan amount means a higher monthly mortgage payment and a larger amount of interest paid over the life of your mortgage. Furthermore, your new home needs to appraise for the higher amount you want to finance. Plus, your debt-to-income ratio needs to be able to support that larger payment to qualify for such a loan.

If you’re getting a loan that doesn’t allow for closing costs to be rolled into the mortgage, you can still get around it. However, you must meet those criteria we just talked about.

Simply ask the seller (through your real estate agent) to pay for closing costs in exchange for paying the extra amount as part of the purchase price. Here’s an example.

If your $200,000 offer is accepted, but closing costs are $5,000, ask the seller to contribute $5,000 and change your offer to $205,000. At the end of the day, the seller still walks away with the same amount of money.

Again, this strategy is contingent upon the numbers working for you, your financial situation, and your mortgage application.

Finalizing Payment: Methods to Cover Your Closing Costs

When you finally get to closing day, it’s almost time to relax and move into your new home. But first, don’t forget to set up a way to pay closing costs.

You can ask your lender or settlement company for the preferred payment method. However, in most cases, you can either get a cashier’s check from your bank or set up a wire transfer. There’s usually a minor fee associated with each one. It’s a quick and easy process, but it shouldn’t be forgotten before you get to closing.

Conclusion

Closing costs are a crucial aspect of buying a home. Being well-informed and prepared for these expenses can make a significant difference in your financial planning. Remember, while some fees are fixed, others offer room for negotiation, and shopping around can lead to potential savings.

By factoring in these costs from the start, you can ensure a smoother, more predictable home-buying experience. Buying a house is a major step – financially and personally. Approach it with the right knowledge, and you’ll be set to make this important decision with confidence and peace of mind.

Frequently Asked Questions

What is an escrow account, and how does it relate to closing costs?

An escrow account is a third-party account where funds are held during the process of a transaction, like buying a home. Regarding closing costs, part of these costs often includes initial deposits into an escrow account for future property taxes and homeowners’ insurance. This ensures that there is enough money set aside to cover these recurring expenses.

Can closing costs be included in the mortgage loan?

In some cases, closing costs can be rolled into the mortgage loan. This is more common with certain types of loans, like FHA loans. However, including closing costs in the loan increases the total loan amount and, consequently, your monthly mortgage payments and the total interest paid over the life of the loan.

Are there any tax benefits related to closing costs?

Yes, certain closing costs can have tax benefits. For example, points paid to lower your interest rate may be deductible in the year you buy your home. Always consult a tax professional to understand how your closing costs might affect your taxes.

How can first-time homebuyers prepare for closing costs?

First-time homebuyers should start saving early for closing costs, which typically range from 2% to 6% of the home purchase price. It’s also helpful to research and understand the different types of fees involved in closing costs, and consider attending homebuyer education courses for more detailed information.

What happens if I can’t afford closing costs?

If you find that you can’t afford closing costs, there are a few options. You can negotiate with the seller to pay some or all of the costs, look for lender credits, or explore programs available for first-time buyers or low-income buyers that offer assistance with closing costs.

Source: crediful.com

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Vendor and Lender Tools; Agency News; 2023: Hottest Year on Record

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Vendor and Lender Tools; Agency News; 2023: Hottest Year on Record

By:
Rob Chrisman

Tue, Jan 9 2024, 8:37 AM

Is it just my imagination or do restaurants no longer have salt and pepper shakers on the tables after COVID? Is it just my imagination or do organizations with initials that begin with “N” have trouble keeping their leadership? In August of 2023 the chief of NAR resigned, last week it was the NRA, and this week it is NAR’s turn again, this time losing Tracy Kasper to blackmail!

Meanwhile, keeping on with real estate news, and realizing that anyone can sue anyone, news came out after Christmas that Zillow, which also owns Zillow Home Loans, is suing rivals over software that schedules property showings. 

Agency news

Freddie Mac (FHLMC) and Fannie Mae (FNMA) still have the lion’s share of the applications coming through lenders. What’s going on with their conventional conforming products?

Fannie Mae SVC-2023-06 December Servicing Guide update advises large non-depository sellers/servicers of updates to the frequency of financial reporting requirements and provides other miscellaneous updates.

Fannie Mae and Freddie Mac are equipping lenders with updated resources for Uniform Loan Delivery Dataset (ULDD) Phase 5. Updates include an enhanced ULDD extension schema, featuring Phase 5 extension data points, and updated ULDD FAQs referencing the schema.

Fannie Mae posted the December Appraiser Quality Monitoring (AQM) list.

Pennymac Announcement 23-89 addresses Fannie Mae SEL-2023-09, Rental Income and Self-Employed Borrowers Update.

AmeriHome Mortgage Announcement 20231209-CL summarizes previously published changes made during December, additional changes made with the announcement, and recent Agency and regulatory news.

Mother Nature bats last

Yes, storms are a regular event around the world. For example, the storm hitting the Midwest and Southeast of the United States with blizzard conditions and potential flooding is “normal.”

What isn’t “normal” is 2023 being the hottest year on record, whether it is caused by man or part of a natural cycle over thousands of years. “Climate change deniers” can shrug it off, but when the increased likelihood of major storms, flooding, and forest fires impact mortgage pricing and insurance rates (if you can get insurance at all), and therefore your clients, it is a problem. Or if places like Honduras become unlivable due to the heat and lack of air conditioning, forcing shifts in where populations live, then it matters.

Tennessee Tornadoes: DR-4751-TN. and 4751-DR-TN Amendment 001.

On 12/28/2023, with Amendment No. 1 to DR-4751, FEMA declared federal disaster aid with individual assistance has been made available to three Tennessee counties, Cheatham, Gibson, and Stewart, affected by severe storms and tornadoes on 12/9/2023. See AmeriHome Mortgage Disaster Announcement 20231210-CL for inspection requirements.

Capital markets: pretty quiet out there

Economic data over the past week has highlighted the various effects tighter economic policy has had on different sectors of the economy. Interest rate sensitive areas remain the most strained, but 216k jobs were added during December and the unemployment rate remained at 3.7 percent, which shows labor markets have only moderated slightly. Most new jobs were concentrated in government, healthcare, and leisure and hospitality. November’s JOLTS report showed job openings continue to shrink as demand for labor slowly subsides and the quit rate fell below its pre-pandemic level.

December was also the 14th consecutive month of contraction in the manufacturing sector of the economy, according to the ISM Manufacturing Index. Spending on durable goods has fallen five of the last ten months compared to spending on services which has only dipped once in the past 40 months. However, demand for services is expected to moderate as the economy slows. Construction spending ticked up 0.4 percent in November though most spending was concentrated in single family housing. Multi-family construction spending has lost momentum as vacancy rates have risen.

After a lack of news to open the week (we learned that consumer credit increased by $23.7 billion in November), today’s economic calendar is already under way with the NFIB Small Business Optimism Index for December (91.9 versus 90.6, so a slight increase) and the November trade deficit ($63.2 billion, down from the prior month but little changed). Later today brings Redbook same store sales for the week ending January 6 and Treasury auctions headlined by $52 billion 3-year notes. Markets will also receive remarks from Fed Vice Chair of Supervision Barr. We begin the day with Agency MBS prices worse .125 from Monday’s close, the 10-year yielding 4.05 after closing yesterday at 4.00 percent, and the 2-year at 4.38.

Lender and broker services and software

Orion Lending slashed its annual expenses by $300,000 and boosted their conversion rate by 32 percent using Truv’s income and employment verification solution. “Truv transformed our verification process, expanding our reach and cutting costs,” asserts Richard Plummer, EVP of Operations at Orion Lending. Stop Overpaying. Contact TRUV today for your income, employment, insurance, and asset verifications.

“Wish you had a New Year’s resolution you could actually keep in 2024? How about 5? Contact PHH today and get on track to reduce delinquencies, shorten default timelines, resolve more loans in foreclosure, lower subservicing costs and increase customer satisfaction. No other servicer has been more highly decorated with top servicing awards from all three agencies (Fannie, Freddie, and HUD) over the past two years. We can onboard your portfolio (no matter the size) in 90 days or less, and a recent client saw a 70 percent reduction in complaints in the first 6 months after switching to PHH. What are you waiting for? Start 2024 by reaching out to Chris Sabbe today and let PHH help you reach your goals in the new year!”

Maximize your return on every loan with better secondary pricing and industry-leading technology. Now more than ever, lenders need solutions that allow scale while reducing operational costs and increasing revenue per loan. With Maxwell Capital, lenders can access competitive secondary market pricing on a wide array of products, including non-QM and jumbo, and full-service fulfillment support on both wholesale and mini correspondent offerings. Plus, Maxwell Capital customers gain access to Maxwell Point of Sale, a digital mortgage platform with built-in business intelligence to track and benchmark performance. Schedule a call with Maxwell today and start doing more for your bottom line.

“Processor & Underwriter Automation: Zoral’s automation platform delivers amazingly accurate results in record time! Improve processing and underwriting turn times from days to minutes. Zoral analyses, calculates, and compares LOS data to document data. Dynamic notifications and conditions provide your team with a concise roadmap of what is needed on every loan, at every milestone, all the way to CTC. Our engines accurately categorize, analyze, and calculate eligible income from all income sources, including 3rd party providers such as Account Check. Bank statements are analyzed to identify EMD, cash to close, large deposits, recurring debits, and credits etc. For the past 20 years, Zoral has been creating the most advanced, AI powered, automation solutions anywhere in the world. Our proprietary solutions are designed and built in-house and rapidly implemented. Stop messing with headcount at every turn of the market. Zoral’s automation platform will provide the elasticity to handle even the most unpredictable environments. To learn more about our automation solutions for mortgage, contact Peter Sandler.”

As we usher in the Year of the Wood Dragon, a mythical creature thought to signify unprecedented opportunities, the folks at Down Payment Resource (DPR) contend 2024 also will be the Year of Down Payment Assistance, with DPA offering unprecedented opportunities for lenders to qualify more homebuyers. DPR has been in the business since 2008, amassing a national database of 2,200+ verified DPA programs. As the original keepers of all things DPA, DPR makes it easy for lenders to match otherwise qualified applicants to assistance programs across the United States. DPA can help you qualify more buyers, especially LMI and minority buyers, reduce declined loan numbers and make you a strong contender for referrals and repeat business. That’s an unprecedented opportunity for 2024 you shouldn’t pass up. Need more info? Meet with Tani Lawrence at MBA IMB (Feb. 22-24) or schedule a virtual demo.

Partnering with the right subservicer can make the difference in growing your business and staying a step ahead of a dynamic mortgage market. LoanCare®, one of the nation’s top subservicers, can help you better manage and grow your portfolio in 2024 and beyond. We’ve serviced loans for banks, credit unions, independent mortgage companies, and portfolio investors for over 40 years with solutions for any servicing scenario. We’ll be at the MBA IMB Conference in New Orleans Jan. 22-24, contact us to learn why now is the right time to make LoanCare your servicing partner. And don’t miss Jerry McCoy, EVP, Performance Management at LoanCare speak on the conference panel, “Uncover the Hidden Financial Risks & Rewards in Your Servicing,” on Tuesday, January 23 at 1:30 p.m.

Broker & correspondent loan products

“Expanding your Non-QM products and liquidity options with eRESI Mortgage has never been easier. Come see what other eRESI correspondent partners tap into, whether it’s our industry-leading pricing or fast turnaround times, all while gaining direct access to our long-term capital base. Our partners often rely on our experience as a seasoned loan investor with a highly experienced leadership team dedicated solely to your success. We provide access to a streamlined technology platform, a full suite of Non-QM products (including Full Doc, Bank Statement, and DSCR), and a credit team that understands individual needs. We are also thrilled to announce the launch of our Closed-End Second Lien product, allowing borrowers to access their equity without having to refinance their existing loan. To learn how we can help you grow your business, contact your eRESI representative or email our Business Development team to get started (Contact)!”

“Welcome 2024 with AFR Wholesale®, where we see a golden opportunity for prospective homeowners to achieve their dreams. We invite dedicated professionals like you to join us in expanding your business horizons. Why include AFR in your New Year’s resolutions? 1. Empower Borrowers: Our comprehensive suite of services is designed to empower your borrowers, from flexible financing options to personalized support. 2. Grow Your Business: Partnering with AFR means tapping into a wealth of resources and expertise. Our collaborative approach is tailored to support your growth, ensuring you have the tools and support needed to reach new heights. 3. Optimism/Strategic Planning: Making AFR a part of your 2024 journey means joining a community dedicated to success, innovation, and excellence. Let’s make 2024 extraordinary together! Happy New Year! Ready to partner with AFR? Visit www.afrwholesale.com, contact [email protected], or call 1-800- 375-6071 today.”

There is a signalman up in Shasta County, California. He really wants to get a promotion, so he sends a letter to Union Pacific, and they send up an assessor.

He asks him what he would do if two trains were barreling down a track at each other.

The signalman says he would put one train on a passing loop.

“But what if the points are jammed?”

“I would throw the emergency switch”

“But what if the switch is on fire?”

“I would run out and use the lever on the line to switch the train into the passing loop.”

“But what if it was struck by lightning?”

“Then I’d get my uncle Frank.”

“Why?”

“He’s never seen a train crash!”

 Download our mobile app to get alerts for Rob Chrisman’s Commentary.

Source: mortgagenewsdaily.com

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Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors’ opinions or evaluations.

Currently, the current average mortgage rate on a 30-year fixed mortgage is 7.30%, compared to 7.29% a week ago.

For borrowers who want to pay off their home faster, the average rate on a 15-year fixed mortgage is 6.44%, up 0.09 percentage points from the previous week.

Homeowners who want to lock in a lower rate by refinancing should compare their existing mortgage rate with current market rates to make sure it’s worth the cost to refinance.

Current Mortgage Rates for January 9, 2024

30-Year Mortgage Rates

Borrowers will pay more in interest this week as the average rate on a 30-year mortgage is 7.30% compared to a rate of 7.29% a week ago.

The annual percentage rate (APR), which includes the interest and all of the lender fees, on a 30-year, fixed-rate mortgage is 7.19%. The APR was 7.22% last week.

If your mortgage is $100,000 and you have a 30-year, fixed-rate mortgage with the current rate of 7.30%, you will pay about $686 per month in principal and interest (taxes and fees not included), the Forbes Advisor mortgage calculator shows. That’s around $146,806 in total interest over the life of the loan.

15-Year Mortgage Rates

The average interest rate on a 15-year mortgage (fixed-rate) sits at 6.44%. This same time last week, the 15-year fixed-rate mortgage was at 6.35%.

The APR on a 15-year fixed is 6.37%. It was 6.30% this time last week.

At today’s interest rate of 6.44%, a 15-year fixed-rate mortgage would cost approximately $868 per month in principal and interest per $100,000. You would pay around $56,177 in total interest over the life of the loan.

Jumbo Mortgage Rates

On a 30-year jumbo, the average interest rate is 7.20%, higher than it was at this time last week. The average rate was 7.18% at this time last week.

Borrowers with a 30-year fixed-rate jumbo mortgage with today’s interest rate of 7.20% will pay $679 per month in principal and interest per $100,000. That means that on a $750,000 loan, the monthly principal and interest payment would be around $5,090 and you’d pay approximately $1.08 million in total interest over the life of the loan.

How Much House Can I Afford?

Buying a house is a huge purchase and can put a big dent in your savings. Before you start looking, it’s important to calculate how much house you can afford and you’re willing to spend.

Not only do you want to consider your income and debt, but you also want to factor in emergency savings and any long-term financial goals such as retirement or college.

These are some basic financial factors that go into home affordability:

  • Income
  • Debt
  • Debt-to-income ratio (DTI)
  • Down payment
  • Credit score

How Are Mortgage Rates Determined?

Home loan borrowers can qualify for better mortgage rates by having good or excellent credit, maintaining a low debt-to-income (DTI) ratio and pursuing loan programs that don’t charge mortgage insurance premiums or similar ongoing charges that increase the loan’s annual percentage rate (APR).

Comparing rates from different mortgage lenders is an excellent starting point. You may also compare conventional, first-time homebuyer and government-backed programs like FHA and VA loans, which have different rates and fees.

For the most part, several economic factors influence the trajectory of rates for new home loans. The recent Federal Reserve rate hikes don’t directly cause mortgage rates to rise but have indirectly caused the interest rates for many long-term loans to increase. Rates are more likely to decrease when the Fed pauses or decreases its benchmark Federal Funds Rate.

Further, the inflation rate and the general state of the economy directly impact interest rates. High inflation and a strong economy typically signal higher rates. Cooling consumer demand or inflation may help rates decrease.

What Is the Best Type of Mortgage Loan?

As you compare lenders, consider getting rate quotes for several loan programs. In addition to comparing rates and fees, these programs can have flexible down payment and credit requirements that make qualifying easier.

Conventional mortgages are likely to offer competitive rates when you have a credit score between 670 and 850, although it’s possible to qualify with a minimum score of 620. This home loan type also doesn’t require annual fees when you have at least 20% equity and waive PMI.

Several government-backed programs are better when you want to make little or no down payment:

  • FHA loans. Borrowers with a credit score above 580 only need to put 3.5% down and applicants with credit scores ranging from 500 to 579 are only required to make a 10% down payment with FHA loans.
  • VA loans. Servicemembers, veterans and qualifying spouses don’t need to make a down payment when the sales price is less than the home’s appraisal value. VA loan credit requirements vary by lender.
  • USDA loans. Applicants in eligible rural areas can buy or build a home with no money down using a USDA loan. Moderate-income borrowers can qualify for a 30-year fixed-rate term through the Guaranteed Loan Program. Further, buyers with a very low or low income can receive a 33-year term and payment assistance is available through the agency’s Direct Loans program. Credit requirements differ by lender.

Frequently Asked Questions (FAQs)

What is a good mortgage rate?

A competitive mortgage rate currently ranges from 6% to 8% for a 30-year fixed loan. Several factors impact mortgage rates, including the repayment term, loan type and borrower’s credit score.

How to get a lower mortgage interest rate?

Comparing lenders and loan programs is an excellent start. Borrowers should also strive for a good or excellent credit score between 670 and 850 and a debt-to-income ratio of 43% or less.

Further, making a minimum down payment of 20% on conventional mortgages can help you automatically waive private mortgage insurance premiums, which increases your borrowing costs. Buying discount points or lender credits can also reduce your interest rate.

How long can you lock in a mortgage rate?

Most rate locks last 30 to 60 days and your lender may not charge a fee for this initial period. However, extending the rate lock period up to 90 or 120 days is possible, depending on your lender, but additional costs may apply.

Source: forbes.com

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Federal tax brackets are specific taxable income ranges that dictate what your tax rate is. There are different filing types and different ranges for each one, so to determine your federal tax bracket, you must first know if you’re filing as single, married filing jointly, married filing separately or head of household.

The details of tax bracket income ranges can change annually, so if you’re at the lower or upper end of a range, it’s a good idea to pay attention. The published tax brackets for the next calendar year can always bump you up or down.

What Are the Federal Tax Brackets for 2023?

Take a look at the table below to see the federal tax brackets for the 2023 tax year (the 2023 tax year refers to the taxes you file by April 2024—or October 2024 if you get an extension).

Single Filers Married Filing Jointly Filers Married Filing Separately Filers Head of Household Filers Tax Rate for This Income Bracket
$0 to $11,000 $0 to $22,000 $0 to $22,000 $0 to $15,700 10%
$11,001 to $44,725 $22,001 to $89,450 $22,001 to $89,450 $15,701 to $59,850 12%
$44,726 to $95,375 $89,451 to $190,750 $89,451 to $190,750 $59,851 to $95,350 22%
$95,376 to $182,100 $190,751 to $364,200 $190,751 to $364,200 $95,351 to $182,100 24%
$182,101 to $231,250 $364,201 to $462,500 $364,201 to $462,500 $182,101 to $231,250 32%
$231,251 to $578,125 $462,501 to $693,750 $231,251 to $346,875 $231,251 to $578,100 35%
$578,126+ $693,751+ $346,876+ $578,101+ 37%

What Are the Federal Tax Brackets for 2024?

The IRS published some updates to the federal tax bracket ranges for 2024, which you can see in the table below. Updates were driven by inflation and other economic factors. The 2024 tax year refers to the taxes you must file by April 2025—or October 2025 if you get an extension.

Single Filers Married Filing Jointly Filers Married Filing Separately Filers Head of Household Filers Tax Rate for This Income Bracket
$0 to $11,600 $0 to $23,200 $0 to $11,600 $0 to $16,550 10%
$11,601 to $47,150 $23,201 to $94,300 $11,601 to $47,150 $16,551 to $63,100 12%
$47,151 to $100,525 $94,301 to $201,050 $47,151 to $100,525 $63,101 to $100,500 22%
$100,526 to $191,950 $201,051 to $383,900 $100,526 to $191,950 $100,501 to $191,950 24%
$191,951 to $243,725 $383,901 to $487,450 $191,951 to $243,725 $191,951 to $243,700 32%
$243,726 to $609,350 $487,451 to $731,200 $243,726 to $365,600 $243,701 to $609,350 35%
$609,351+ $731,201+ $365,601+ $609,350+ 37%

How Does Your Tax Bracket Impact the Amount of Taxes You Pay?

Your tax bracket is one factor in determining how much federal income tax you may owe. However, it’s not as simple as taking your total income and multiplying it by the rate shown on the above charges. 

First, it’s not your total income as reflected by your W2 or other income document that counts. You must figure out your taxable income, which is your income minus any deductions. 

Second, you don’t pay the indicated tax rate on your entire income. You only pay it on the portion of income that falls within that bracket. 

Let’s consider a hypothetical scenario to understand how this works. Imagine that Mike, who is single, made $109,000 in taxable income for 2023—that’s after he takes all his deductions. If you simply multiplied $109,000 by 24%, you’d think Mike would pay $26,160 in taxes.

However, the calculation actually works like this:

  • Mike pays 10% on the first $11,000. That’s $1,100 in taxes.
  • He pays 12% on the next $33,725 of income. That’s $4,047 in taxes.
  • He pays 22% on the next $50,540 of income. That’s $11,143 in taxes.
  • He pays 24% on the rest of his income, which is $13,625. That’s another $3,270 in taxes.

Mike’s total tax burden in this scenario is $19,560.

What Is a Marginal Tax Rate?

The term marginal tax rate refers to the amount of tax you pay on the last dollar you earn. It’s the amount you pay on the top portion of your income—or the highest tax rate you hit based on your income. In Mike’s hypothetical case above, the last $13,625 of his income puts him in the 24% rate tax bracket. His marginal tax rate would be 24%.

Pay Attention to Details to Reduce Your Tax Burden

Understanding your tax bracket is a good step to knowing how much tax you may pay. When you also work to understand tax credits and deduction options, you can reduce your taxable income. That means you pay less in taxes overall. If you’re not sure how to minimize your tax burden, consider working with a tax professional, continuing to educate yourself on tax topics, or using a software program that walks you through the tax filing process

Source: credit.com

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With most things in life, what’s “best” is inherently subjective and depends on each person’s needs and perspective. It’s no different with credit cards. Even a card with tons of great perks won’t be the right fit for everyone.

When we pick the best credit cards each year, sometimes old winners are surpassed by new cards with superior benefits. In other instances, our picks reflect the new priorities of the people most likely to use the cards.

The three new winners in 2024 reflect both types of changes. Here are the cards that won and why they earned our votes this year.

Category: Best balance transfer credit card

Why the Citi Simplicity® Card won: Basic math tells the tale of the Citi Simplicity® Card’s triumph over last year’s winner, BankAmericard® credit card. The Citi Simplicity® Card gives cardholders 21 months without interest on balance transfers compared with 18 billing cycles on the BankAmericard® credit card.

The balance transfer fee on both cards is 3%, the industry standard. Note, however, that the transfer fee on the Citi Simplicity® Card increases to 5% if the balance transfer is made after the first four months of account opening.

As an added bonus, the Citi Simplicity® Card doesn’t charge late fees. Other cards, including the BankAmericard® credit card, can charge as much as $40 for a single late payment.

Category: Best airline credit card

Why the United℠ Explorer Card won: The Delta SkyMiles® Gold American Express Card had a long run as our top pick for airline credit card, and for good reason. Its perk of a free checked bag for you and up to eight (eight!) traveling companions each time you fly Delta is unmatched. Terms apply. But this year we named the United℠ Explorer Card as the 2024 winner by virtue of its credits and lounge access.

The United℠ Explorer Card offers up to a $100 credit every four years for Global Entry, TSA PreCheck or NEXUS, a nice perk that gets you through airport security faster. You can get a $100 statement credit with the Delta Gold, too — but you’ll have to spend a lofty $10,000 to qualify, and it’s only good toward a Delta flight.

United℠ Explorer Card holders also get two lounge passes a year, good for entry into any of the over 45 United Club lounges. For a mid-tier travel card, that’s a really luxurious benefit. By contrast, the Delta SkyMiles® Gold American Express Card eliminated the ability to access the lounge for a $29 fee (and other Delta cards will restrict lounge access in the future).

Category: Best credit card for college students

Why the Discover it® Student Chrome won: Yes, the Capital One SavorOne Student Cash Rewards Credit Card has a higher rewards rate in some eligible spending categories than the Discover it® Student Chrome. The Discover card earns 2% cash back at gas stations and restaurants up to $1,000 in combined purchases each quarter; 1% thereafter. The Capital One card earns 3% cash back on several popular spending categories, including dining and purchases at grocery stores, but it lacks some key benefits that appeal to many students. The Discover it® Student Chrome offers:

  • A waiver on the first late payment fee. 

  • A breather on interest for new purchases. The card has the following promotional APR: 0% intro APR on Purchases for 6 months and 10.99% intro APR on Balance Transfers for 6 months, and then the ongoing APR of 18.24%-27.24% Variable APR. A break from interest, even for just a semester, can be a big help in financing major purchases like textbooks.

  • A potentially big sign-up bonus. The Discover it® Student Chrome has the same welcome offer found in any one of Discover’s nonstudent cards: INTRO OFFER: Unlimited Cashback Match for all new cardmembers – only from Discover. Discover will automatically match all the cash back you’ve earned at the end of your first year! So you could turn $50 cash back into $100. Or turn $100 cash back into $200. There’s no minimum spending or maximum rewards. Just a dollar-for-dollar match. Say you spent $300 a month on your Student Chrome. Assuming a 1% cash back rate, you would come away with $72 by your account anniversary. 

Source: nerdwallet.com

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If you’re expecting a refund from the IRS, you shouldn’t have to wait too long for your money. According to the IRS, it issues about 90% of refunds within three weeks of receiving your filing. Key to receiving your refund quickly are two actions on your part: using e-file and providing your bank info for direct deposit.

In fact, a directly deposited refund can show up in as little as five days.

This table shows the estimated times for receiving an IRS tax refund depending on how you file and choose to get your refund:

Estimated Federal Tax Refund Schedule
Filing Method and Receiving Method E-File, Direct Deposit Paper File, Direct Deposit E-File, Check in Mail Paper File, Check in Mail
Time between filing date and receiving refund 1-3 weeks 3 weeks 1 month 2 months

What Money Will Be Included In My Tax Refund This Year?

Of course, the size of your refund depends on how much you overpaid. But the average refund for individuals in 2023 was $2,753. That figure is down from 2022, when the average tax refund was $3,012.

To get your refund faster, you may want to file earlier, rather than waiting until the last minute. Typically, the tax season, when the IRS starts accepting and processing returns, starts in late January.
💡 Quick Tip: We love a good spreadsheet, but not everyone feels the same. An online budget planner can give you the same insight into your budgeting and spending at a glance, without the extra effort.

Reasons for Your Tax Refund to be Delayed

People typically receive their tax refund two weeks after the IRS accepts their tax filing if they opt to receive a direct deposit, or in three weeks if they choose to get a check in the mail. But if you’re still waiting after that point and wondering where your tax refund is, here are a few possible reasons for the delay:

•   If anything in your return is incomplete or incorrect, the IRS may need to give the return further review before sending you a refund check. In this case, you may get a notice from the IRS in the mail with instructions for fixing or completing your tax return. It may take up to four months for the IRS to process returns that require extra handling. The sooner you respond to the IRS request for information, the sooner your return will be processed.

•   If you are claiming the Earned Income Tax Credit or Additional Child Tax Credit, there may be a delay in receiving your tax refund. The IRS is required to hold any tax returns for people claiming those two tax credits until mid-February. This hold will show up in the “Where’s My Refund” tool on the IRS site if it applies to you.

•   Your bank or credit union may take more time to post a refund to your account. The time for posting IRS refunds varies from institution to institution.

Recommended: IRS Tax Refund Dates and Deadlines

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How to Use the ‘Where’s my Refund’ Tool on the IRS Site

The IRS has a “Where’s My Refund” tool on irs.gov where anyone can check and see the status of their tax refund. It can also be accessed using the IRS2Go mobile app. If you submit your tax return electronically, you can easily check on the status of your refund online within 24 hours of filing. If you mail your tax return, it will take about a month or longer for any information about refunds to show up on the IRS site.

In order to access your refund information on the IRS website, you will need to input your social security number, tax filing status, and the dollar amount that you expect to receive on the return. Double check your information before submitting it: If the wrong social security number is entered, this could result in an error, extra identity verification steps, and even a delay in receiving your tax refund.

What Do the IRS Tax Return Statuses Mean?

There are three different IRS tax return statuses that you will see when you use the Where’s My Refund tool. Here’s what they mean:

Received

Once the IRS has received a return, it is marked as received. You can check to see if your return has been received using the “Where’s My Refund” tool on the IRS site.

Approved

Once the IRS processes a tax return and there are no errors or missing information, it is marked as approved. At that point, the process of sending a refund by mail or direct deposit can begin.

Sent

When the IRS mails out a refund check or sends a direct deposit refund, the tax return status is marked as “sent.”
💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.

How to Contact the IRS About Your Tax Refund

It’s best to wait at least 21 days after filing your return electronically, and six weeks after mailing your return, to contact the IRS by phone. At that point, you can call the IRS refund hotline at 800-829-1954.

Recommended: 41 Things to Do With Your Tax Refund

The Takeaway

Knowing when you’ll receive your tax refund can be helpful if you’re planning to use the money to pay off debt, create a budget, or save for a big purchase. Filing your return electronically and opting to get your refund via direct deposit will allow you to get your return quickly, typically within three weeks. A money tracker app can help you manage your finances, including your refund, and track your spending and savings.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights—all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

How quickly will I get my refund?

Most refunds are sent within three weeks of the IRS receiving a tax filing, but it can sometimes take longer, especially if you mail your return or opt to get your refund by check through the mail.

It’s been longer than 21 days since the IRS received my return and I haven’t gotten my refund. Why?

Sometimes the IRS needs to manually review tax returns if they are incomplete, have errors, or if fraud is suspected. Also, if a taxpayer claims certain tax credits, such as the Earned Income Credit or Additional Child Tax Credit, his or her return may take longer to process.

Will calling help me get my refund any faster?

Calling may help you track where your refund is, but it won’t necessarily help you get it faster. Wait at least 21 days after filing your return electronically, and six weeks after mailing your return to contact the IRS by phone. You can call the IRS refund hotline at 800-829-1954.

Photo credit: iStock/rez-art

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Source: sofi.com

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When your child heads off to college, you are probably awash in all kinds of emotions. Pride, relief (yes, they got into school!), sadness, anxiety, and excitement can all swirl around you. Your baby is growing up and forging their own independent life. Will they make new friends? Like their classes and excel in them? Find their way around campus easily enough? Will they overspend, sleep through class, and stay out all Friday night?

Part of having a college student as a child means you must get used to some separation and lack of information. But that doesn’t mean you can’t continue to play a vital role in their life. Here, some wise advice about conversations to have, topics to cover, and when to help them have an amazing time at school.

Advice for Parents of College Students

Although each parent-child relationship is unique and each parent may face different challenges with their college student, there are moments that can be universal when your “baby” heads off to university life.

You’ll need to know how much to let go and encourage your child to become independent versus how much you should continue to provide support, whether that’s emotional support or financial.

Where that line should be drawn for each child and parent depends upon things like the seriousness of the problems being faced and how temporary or permanent they may be. In general, though, tips include:

•   Listen, but try not to dive right into problem solving. This may not be the moment to lead with, “Here’s what you need to do…”

•   Be mindful about how often you communicate and give your college student space while also staying available. Texting constantly and expecting quick replies will be unrealistic for many parents.

•   You may be used to getting those report cards regularly and monitoring your child’s checkups at the doctor’s office. Recognize that now, times are changing, and you may not always be kept in the loop. FERPA (or the Federal Education Records Privacy Act) gives college students new privacy rights that can be defined pretty broadly. You may want to talk to your child about signing a FERPA waiver that will give you more access to information.

Accepting that college isn’t just about education but also about your child establishing themselves as an independent adult is an important transition for both of you.
💡 Quick Tip: Pay down your student loans faster with SoFi reward points you earn along the way.

Parenting College Students During Summer Break

Just when you figure out how to parent your child when he or she is away from school, summer break arrives with a different set of challenges. The young adult that you watched leave for college is probably not the same person who is returning. Maybe they don’t want to chat as much as before, or don’t seem as open to talk about daily life, friendships, and relationships.

The parent-child dynamic may be less about directing your kid’s actions and more about creating a collaborative partnership.

This can include things like withholding judgment about your child’s actions and making requests rather than demands — even when you’re sure you’re right. Your child is growing up and stretching their wings, both at school and when they return. They are becoming a full-fledged adult, after all.

Analyze which rules are the most important, and focus on those, letting other ones go. One example is you might ask that he or she call you if dinner will be missed, but not try to impose a curfew.

Recognize that during summer break you’ll probably need to readjust to being together, while also focusing on enjoying your time together.

Conversations about Paying for College

As part of your evolving parent-child relationship, you’ll likely find yourself in conversations about the best ways to pay for college. As the parent, you’ll likely initiate these talks. As part of your discussions, you may want to:

•   Be clear about how much money you’re willing or able to contribute towards your child’s college expenses and how much your child will need to contribute.

•   Discuss how much college will cost once you add tuition, housing, books, and other expenses together.

•   Talk about student loans, including the differences between federal student loans and private student loans.

•   Discuss how your child working during college may help pay for expenses.

•   Talk about money management and how your child may feel some stress over student loan debt.

Here are some valuable topics to mention.

•   There are scholarships and grants that usually don’t need to be repaid. What’s left is the amount that typically needs to be paid for by a combination of parental contributions, student contributions, and student loans.

•   The two main types of student loans are federal and private. To qualify for federal student loans, you’ll need to fill out the FAFSA® (or Free Application for Federal Student Aid). This form needs to be filled out every year to determine eligibility for federal student aid dollars, including federal student loans.

•   Federal loans can be subsidized or unsubsidized. Students may be eligible for a subsidized loan if they have a certain degree of financial need. Subsidized loans do not accrue interest during the six-month grace period after graduation/dropping below half-time enrollment and during any loan deferments.

•   If the student drops below half-time enrollment, the grace period will begin even if he or she has not graduated yet, although there are some circumstances in which the student loan grace period can change.

Unsubsidized federal student loans do not require a demonstration of financial need, but do accrue interest during the entire loan period.

Private student loans are not funded by the government. Your child can apply with individual lenders, and each loan will come with its own terms and conditions, including repayment terms. Private loans can help fill the gap between what your child can pay with scholarships, grants, or federal loans.
​​
💡 Quick Tip: Would-be borrowers will want to understand the different types of student loans that are available: private student loans, federal Direct Subsidized and Unsubsidized loans, Direct PLUS loans, and more.

Saving for Your Child’s College

If you’re still saving for your child’s education, your options may include:

•   What are known as 529 college savings plans, also called qualified tuition plans, allow you to save for college while potentially offering tax benefits. Money saved in an education savings plan (sponsored by some states) can be used for tuition, fees, room and board, and other qualified higher education expenses at a college or university.

•   Prepaid tuition plans (available at some universities) offer the option to prepay tuition and fees at current rates.

•   Traditional or Roth IRAs, although more commonly used to save and invest for retirement, can be used to save for college expenses. .

•   Coverdell Education Savings Accounts allow you to set up an account to pay for qualified education expenses, but contributions are not tax deductible and are only available for people whose income falls under certain limits.

•   Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) accounts are intended as a savings vehicle for beneficiaries under the age of 18. Depending upon your state, the funds will transfer to your child at either age 18 or 21 and do not have to be used for education expenses.

Tax Credits and College

When it’s tax time, if you claim your college-age child as a dependent, you might qualify tax credits related to education.

•   The American Opportunity Tax Credit could be helpful during the first four years of their undergraduate education. Qualifications include MAGI, or modified adjusted gross income, among other factors.

This is a credit for tuition and other qualified education expenses worth up to $2,500 per eligible student and could reduce the filer’s tax bill, not their taxable income.

•   The Lifetime Learning Credit is also a tax credit, but may be harder to qualify for. Each year, you can claim either the AOTC or the LLC, but not both.

Parent Student Loans

You may be able to take out loans for your child’s education expenses, including a federal Parent PLUS Loans, available to parents of dependent undergraduate students for the amount of attendance costs minus other financial aid.

Private lenders may also be an option. Fees, rates, and repayment options vary by lender and they don’t typically offer forbearance or deferment options like federal loans do. As another option, you may be able to co-sign a private student loan with your child.

SoFi Parent Loans

Paying your child’s tuition with SoFi’s flexible, competitive-rate parent loan may be an option for consideration as well.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.


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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
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Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Source: sofi.com

Apache is functioning normally

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