homes

Apache is functioning normally

Rising home prices have pushed the third quarter’s tappable home equity amount near its 2022 peak, but interest rates are making homeowners reluctant to extract that wealth.

Mortgage holders withdrew a mere 0.41% of tappable equity in Q3, about 55% below the average withdrawal rate seen in the 12 years leading up to the Federal Reserve’s most recent tightening cycle, according to the latest ICE Mortgage Technology‘s mortgage monitor report. 

“Indeed, in recent quarters, equity withdrawal rates have been running at less than half their long-run averages. That’s equivalent to $54 billion – $250 billion over the last 18 months – in ‘missing’ withdrawals that might have otherwise stimulated the broader economy,” said Andy Walden, vice president of enterprise research at ICE Mortgage Technology. 

Rising equity levels are also contributing to low default and foreclosure activity.

Foreclosures starts rose to 33,000 in October – the highest level in 18 months – but still remained 35% below COVID-19 pandemic norms. Loans in active foreclosure inched up to 217,000, but remained more than 25% below pre-pandemic levels. 

About 70% of loans currently three or more payments past due are protected from foreclosure by ongoing loss mitigation efforts. In addition, about 58% of these seriously delinquent mortgage holders hold more than 20% equity stakes in their homes.

“Strong equity cushions not only provide borrowers incentive to work with their servicers to return to making mortgage payments, they also open up other options, such as salvaging earned equity with a traditional home sale rather than going through foreclosure. The more the industry can do to educate, and update, borrowers as to their equity positions, the better,” Walden said.

Mortgage originations

Purchase lending dominated the market overall, driving 86% of all first-lien lending in the third quarter. In 2024, roughly 75% of originations expected to come from purchase loans.

Despite compressed volumes, cash-out refinance loans fueled what is left of the refinance market accounting for 92% of the third quarter activity. Borrowers withdrew a record $104,000 on average.

Rising mortgage rates continued to put pressure on homebuyers, with the average debt-to-income (DTI) ratio on purchase loans hitting 40.5% in October, a series high dating back to January 2018.

The average DTI among conventional mortgages reached 37.8% in October, also a series high, while the average among FHA and VA loans hit 45.5% and 44.4%, respectively. These figures are both up sharply from recent months, but slightly below last year’s high of 45.7% for FHA loans and 44.5% for VA loans. 

Lenders have responded by tightening credit requirements and the average credit score among conventional, FHA and VA loans.

Average credit scores for FHA loans rose 14 points in October over the past 12 months while VA loans climbed 13 points. 

Source: housingwire.com

Apache is functioning normally

Some builders may be able to lower your mortgage rate by buying points back.

Getty Images


It’s no secret that this is a difficult time to buy a home. There is a low supply of homes available for sale, and mortgage rates are also a lot higher than they were just a few years ago. These hurdles are enough to cause many potential buyers to wonder whether now is the right time to buy a home — or whether it makes more sense to stay in their current homes or continue renting instead.

There is one option, though, that may lead some buyers to get a better mortgage rate than they otherwise would have. The secret is to look for new construction and find a builder who is willing to go the extra mile to get buyers into their homes. It might take some time, but with enough patience, you may be able to get a mortgage rate that is lower than the average if you take this route.

Start exploring your mortgage loan options online today.

How new builders can help lower mortgage rates

It may seem counterintuitive that a builder can help you get a lower mortgage rate. Builders are not lenders, after all, and don’t have any direct control over mortgage rates. But they do this by buying points on the mortgage that a potential buyer is offered from a lender. 

If this seems confusing, don’t worry – it’s actually pretty simple. Essentially, a person or business that is buying points agrees to pay a fee upfront in order to lower the interest rate offered on a loan, either permanently or temporarily. 

For instance, let’s say you are interested in taking out a mortgage for $500,000 and are offered a mortgage rate of 8%. The lender may tell your builder that they will lower the loan rate by 0.25% in exchange for a point, the cost of which is equal to 1% of the total loan. 

That means that for $5,000, the lender will knock a quarter of a percentage point off your rate. If the lender and the builder agree to buy down 0.75% off of the rate, that would mean purchasing three points. Those three points would cost about $15,000 in this case. You would then have a mortgage rate of 7.25%, which may seem high, but could be a good deal in today’s rate environment.

Note that many lenders will limit the number of points you or your builder can buy down, however. And, not all rate buydowns are permanent. In many cases, the rate buydown is temporary, meaning that it reduces the mortgage rate for the first couple of years before it increases to the regular rate. It all depends on the rate incentives that the builder is offering.

Start your homebuying journey today by shopping for a mortgage.

Why builders buy down mortgage rates

Builders are a business, and they want to get people into their homes as quickly as possible. They don’t always have the ability to wait out the market the way those selling their homes do. Builders need to offload inventory — and the longer it takes to fill a development, the longer it may take for a builder to move on to new projects.

Builders are especially likely to use this tactic to sell homes to people looking to buy their first home, says Doug Duncan, senior chief economist and vice president at Fannie Mae. These buyers aren’t coming into the sale with any equity, and are more interested in solid financing than in fancy cosmetic touches like “marble countertops and finished basements,” Duncan notes.

What’s more, builders will explain to these potential buyers that they will save them time and effort in the long run.

“They’re going to buy it down to the level that they think it’s going to be refinancable in the next couple of years,” Duncan says. 

By lowering the rate now to what might be available via refinancing in a few years, new homeowners can avoid the hassle and cost of the refinancing process down the line.

The bottom line

Mortgage rates are high right now, and it is understandable that some potential buyers are scared off by the prospect of paying too much in interest. Looking for new construction, though, may give you a leg up, as some builders are willing to buy down rates in order to get you into their new homes faster. 

More

More

Ben Geier

Ben Geier is a personal finance writer based in Brooklyn, New York.

Source: cbsnews.com