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Another fintech has been quietly growing in the mortgage space, looking to solve the age-old “buy before you sell” conundrum.

A major challenge for prospective move-up buyers these days is unloading their old property while securing a new residence.

Exacerbating the issue is a continued lack of for-sale inventory, coupled with waning affordability thanks to high home prices and mortgage rates.

This can make it difficult to float two mortgage payments while finding a buyer for their old home.

Enter Calque, which partners with local mortgage lenders to ensure the home loan piece is solved.

Calque’s Trade-In Mortgage

The Austin, Texas-based company actually offers two products to make it easier to buy and sell a home at the same time.

Their so-called “Trade-In Mortgage” allows home sellers to gain access to their home equity ahead of time without needing to sell first.

This second mortgage acts as a bridge loan, freeing up liquidity so you can make a stronger offer.

And it comes with a guaranteed back-up offer where Calque will buy your old home, allowing you to submit cash-like offers.

This gives buyers increased purchasing power in a number of different ways, whether it’s an increased down payment, larger cash reserves, or the ability to pay off other high-cost debt.

It can also make the buyer more competitive in a housing market that continues to be plagued by low inventory.

If you find yourself in a bidding war, coming in with a larger down payment can help you win the property over other bidders.

Even if competition isn’t strong, a larger down payment may allow you to make a low-bid offer, as the seller will favor an offer with more money down.

In addition, you can offset the cost of a higher mortgage rate on the replacement property by putting more money down.

A few months back, a friend of mine sold his old home with a super cheap mortgage and used the sales proceeds to pay down the new high-rate mortgage.

While this was a good solution to cut down on his interest expense, it didn’t lower his mortgage payments, which still amortize normally despite the extra payment.

This means he’ll either need to request a loan recast to lower future payments, or he’ll need to wait for a good opportunity to apply for a rate and term refinance.

The Trade-In Mortgage allows you to apply a larger payment on the new home upfront before you sell your old one.

As a result, you won’t necessarily need to refinance or complete a recast since lower monthly payments will be reflected by the smaller loan amount.

You may even be able to get a lower mortgage rate thanks to a lower loan-to-value ratio (LTV), and/or avoid private mortgage insurance (PMI) in the process.

And you can use some of the money from the bridge loan to fix up your old home so it sells for a better price!

Calque’s Contingency Buster

Recently, Calque rolled out a “lighter” buy before you sell option known as “Contingency Buster.”

It allows home buyers to achieve the same basic result without taking out a second mortgage.

In the process, they can make offers without home sale contingencies and exclude the old mortgage payment from their DTI ratio.

As long as your lender is approved to work with Calque, you can make a non-contingent offer on a new home while not worrying about having to qualify for two mortgages.

It’s hard enough to afford one mortgage, so attempting to float two at the moment is likely a deal-breaker for most.

Like the Trade-In Mortgage, Contingency Buster leverages the company’s Purchase Price Guarantee (PPG).

It’s a binding backup offer put in place that will only be employed if your current home doesn’t sell within 150 days.

The agreed-upon price will likely be below-market, with the sample calculator on their website displaying 70% or 80% of estimated value offer.

So obviously you’d still want to sell your home on the open market to a buyer other than Calque.

How Much Does Calque Cost?

There are three possible fees depending on which program you choose.

This includes a $2,000 flat fee paid to Calque, along with 1% of the Purchase Price Guarantee amount.

For example, if they offer to buy your old home for $600,000, it’d be $6,000 + $2,000, or $8,000 total, taken from your sales proceeds.

If you needed the bridge loan to access your equity ahead of time via the Trade-In Mortgage program, there’s also a $550 flat fee. And the interest rate is apparently 8.5% on that loan.

So you’d be paying some interest until you closed on the new home and were able to pay off the bridge loan with the proceeds.

Those simply using the Contingency Buster would only owe the $2,000 plus 1% of the offer price. This seems to be the case whether they sell the property on the open market or not.

Is This a Good Offer?

Whenever I come across programs like this, I try to determine if they’re a good deal or not.

Ultimately, many prospective home buyers can’t buy a new home without it being contingent on the sale of their old home.

It’s just impossible for a lot of folks to carry two mortgages from a qualification standpoint.

Even if they could, there’s also the uncertainty of the old home being stuck on the market and continuing to carry that cost.

So from that perspective, this alleviates those problems and concerns. But as noted, there are costs involved with the program.

And the biggest potential cost is selling your home for just 70% or 80% of its value. While the other fees are reasonable sounding, selling for a 20-30% haircut isn’t great.

In other words, Calque could be beneficial, but you’d still want to sell your old home to a third-party buyer for top dollar (or as close to it as possible).

Otherwise you could be leaving a ton of money on the table. And it kind of defeats the purpose of using the program to begin with.

For me, this means understanding upfront how easy it’d be to sell your current home and at what price to avoid any unwanted surprises.

Lastly, you’d need to use a mortgage lender who is approved to work with Calque. So you’ll also need to ensure this lender is competent and well-priced!

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

Oops, mortgage rates did it again. After playing with your heart in September — briefly flirting below 6% — they’ve gone up five weeks in a row.

The 30-year fixed-rate mortgage averaged 6.6% in the week ending Oct. 24, an increase of 14 basis points over the previous week. A basis point is one one-hundredth of a percentage point.

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A long climb

Rates have climbed unceasingly in the five weeks since Sept. 19, when the 30-year mortgage averaged 5.89%. Have mortgage rates lost all their senses? No, they’ve been so typically themselves, falling when it looks as if the economy is slowing, and rising when the economy seems to be revving up:

  • Mortgage rates fell in September because investors knew that the Federal Reserve was about to cut short-term interest rates. There were “concerns about potentially weakening in the labor market,” said Lisa Sturtevant, chief economist for Bright MLS, a multiple listing service in the mid-Atlantic region.

  • But mortgage rates turned upward and then got lost in the game in early October, rising nonstop after the September employment report was released. That report showed better-than-expected job creation. There’s a risk that strong job growth could push wages higher as employers compete for workers, which in turn could stall progress on taming inflation. That possibility is pushing rates higher.

Explore mortgages today and get started on your homeownership goals

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Lower than a year ago

Housing economists are quick to remind prospective borrowers that mortgage rates have made a lot of progress. A year ago this week, the 30-year mortgage averaged 7.95%. It has fallen 1.35 percentage points since then.

“Even though rates have been on a recent upswing, they are over a full percentage point lower than a year ago, which has kept some home buyers in the market,” said Joel Kan, the Mortgage Bankers Association’s deputy chief economist, in a statement.

But the housing market is not that innocent: Lower mortgage rates are undermined by higher prices, taking some would-be buyers out of the market. The median sales price of an existing home was $404,500 in September, according to the National Association of Realtors. That’s 3% higher than a year earlier, when the median house cost less than $400,000.

First-time home buyers in September accounted for 26% of sales, which is on the low side, says Lawrence Yun, chief economist for NAR. “First-time buyers continue to struggle in the current environment.”

Yun holds out hope that September’s rate dip will end up lifting sales. “We know that the homebuying process is not a snap decision,” he says. “It’s a long process of searching for homes, signing the contract and going to the closing table. So it takes several months.”

Source: nerdwallet.com

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Much ink has been spilled on the 4% rule, including here on The Best Interest.

The short and sweet definition? The 4% rule is a retirement strategy that suggests withdrawing 4% of your portfolio’s value annually, adjusted for inflation, to ensure your savings last for a 30-year retirement.

If you’d like to dive deeper on some nuance of the rule, read this: Updated Trinity Study and the 4% Rule.

And if you’d like to avoid the common mistakes of using the 4% rule, read this: You’re Probably Using the 4% Rule All Wrong

Today, though, I want to show you some compelling data about the optimism and conservatism built into the 4% rule.

Ultimately, you’ll see that the 4% rule comes with major risks.

All Models Are Wrong

All models are wrong?

No, not that kind of model. I’m talking about numerical models. The idea that you can use numbers and figured to represent or simulate reality. Your numbers will never, ever be a perfect representation of reality – you can’t predict the future. All models are wrong!

…but some are useful. Models are used all over modern society. One hopes that their models can “bound” reality, providing bookend scenarios to how reality might shape up (good vs. bad, optimistic vs. conservative, etc). We can use models to explain how particular variables will or won’t affect reality.

Weather forecasting is a terrific example. Meteorologists use numerical models to simulate the atmosphere by solving complex mathematical equations based on physical laws, such as the conservation of mass, energy, and momentum. These models take in data from satellites and weather stations, then simulate how the atmosphere will evolve over time.

They’re never perfect. In that way, they’re always wrong. But they’re certainly useful.

Further reading: The Madness of Forecasting

Retirement Forecasting

It’s a fool’s errand to predict the future performance of investing markets. But the 4% rule provides a numerical “bookend,” giving direction to retirees.

The hardest pill to swallow about the 4% rule is that we know it’s wrong. We just don’t know which direction it’s wrong in.

Most likely, as you’ll see below, it’s too conservative. It’s important for retirees to internalize that truth!

But there’s a possibility the 4% rule is too aggressive. And that’s a scary possibility. It means you might run out of money in retirement. Yikes.

Visualizing the 4% Rule

I used the terrific 4% rule visualizer from Engaging Data to create the charts you’ll see below. I recommend playing around with that tool yourself.

As with any modeling, the input assumptions are vitally important. I assumed:

  • We’re investing in a diversified 60% stock, 40% bond portfolio. Yes, this varies slightly from the 4% rule’s original assumption of a 50/50 portfolio. But 60/40 is more in line with retirement best practice.
  • I assumed a 30 year retirement timeline. To make the math easy, I assumed a $1 million starting portfolio. Thus, a 4% withdrawal in Year 1 is $40,000, and each future withdrawal is adjusted up for inflation.
  • I assumed that taxes and investment fees are included in annual spending. This is a key assumption, but one that’s often overlooked. In other words:
    • Are you withdrawing 4%, and then paying taxes on those withdrawals (perhaps another 0.4%), and then paying investment fees on those assets (perhaps another 0.2 – 1.5%)? That’s actually more like a ~4.5+% annual withdrawal.
    • Or, are you withdrawing 4%, which includes the requisite taxes and fees. Perhaps you’re only “netting” ~3.5% to spend on your lifestyle, and the other 0.5% pays taxes and fees.
    • I’m using the second scenario, not the first.
  • While the Engaging Data website does look at market history back to 1871, I don’t care too much about anything before World War 2. The American and global economic systems were far different then. I can’t cut that data out of my results, but I recommend focusing on 1950 onward.

Caveats Apply…

I’m beating a dead horse here in the world of retirement planning. There’s an asterisk on everything. But, to pre-empt any guff, let’s be clear:

  • The 4% rule is way more rigid than how any normal human would spend in retirement. Lifestyle variations, taxes, inflation rates, healthcare costs, and the potential for longer retirement periods make any withdrawal rule an imperfect one-size-fits-all strategy.
  • The 4% rule doesn’t account for Social Security, which I think is a huge mistake.
  • The 4% rule uses past market results to make future retirement decisions – it’s a numerical model! We know the risks involved there.

Results – How Does the 4% Rule Hold Up?

In short, the 4% rule is like playing rec league basketball with Lebron James on your team. You’ll win, and it will be overkill.

Out of the 123 unique 30-year periods we can observe, only one of them leads to “failure.” It ran out of money in Year 28 (barely a failure, at that).

The median result not only supported our retiree’s lifestyle, but also left them with $2.8 million at death. Again – that’s the median result. 30 years worth of withdrawals, and still another $2.8 million leftover. That’s overkill!

We’ve made a trade-off using the 4.0% rule. That trade-off is: in order to avoid a ~1% chance of retirement failure, are you willing to accept the 50% chance that you underspend in retirement so severely that you end up with 3x the assets at death as when you retired?”

That’s what we’re talking about here. Severe underspending. Severely not enjoying the fruits of your labor. It’s worth thinking about that trade-off. Personally, I don’t think it’s worth it. I don’t mind increasing my “failure odds” above 1% if it means I get to spend a bit more.

Another crazy stat: let’s compare the 90th percentile result against the 10th percentile result. These two scenarios are equally likely, one being on the good side of fortune and the other on the bad side:

  • 90th percentile: our retiree dies with $6M after 30 years.
  • 10th percentile: our retiree dies $800K after 30 years

The 10th percentile result is pretty close to, “I died with as much money as I started retirement with.”

The 90th percentile result is, “I died with 6x more money than I started retirement with.”

And they’re equally likely to happen. Wild!

While it’s important to acknowledge the one failure of the 4% rule (albeit after 28 years of withdrawals), it’s hard to walk away thinking anything other than, “The 4% rule is overkill.”

Adjust the Rate, Adjust the Timeline

So let’s play around with the numbers a bit.

  • Let’s extend the timeline beyond 30 years.
  • And let’s toggle the withdrawal rate higher.

But we should first ask – what’s an appropriate “failure” metric? The answer, by nature, will be completely arbitrary. After all, we’re using a numerical model that we know cannot be correct. Nevertheless, I vote for the following:

  • If more than 20% of test retirements fail, then I think our scenario is too aggressive, too risky.
  • If the median result spends down more than half of our retirement nest egg (e.g. dies with less than $500K after starting with $1M), then I think our scenario is too risky. Why? Because retirement research clearly shows that retirement failure is a slippery-slope/accelerating problem. If our median result is down 50% after 30 years, then many of those individual scenarios would accelerate toward near-term failure.

Timeline Failure

If we keep our withdrawal rule at 4%, but extend the timeline out to 53 years (!!), then we reach ~20% of our test retirements failing.

The median scenario ends with $5.5M. The best timelines here finish with upward of $65 million.

We’re saying that a 40-year old can retire on the 4% rule and reasonably (~80% odds) expect to still have assets at age 90.

That leads me to a similar takeaway as before: the 4% rule has historically skewed toward overkill!

Withdrawal Rate Failure

Let’s go back to a 30-year timeline, but let’s now dial up the withdrawal rate above 4.0%. When do we reach one of failure criteria?

At 4.85%…

Using a 4.85% withdrawal rate, we see that:

  • 20% of our test cases fail before 30 years, the earliest of which being after Year 20.
  • Our median case still has $1.7M after 30 years – more than we started with!

As a reminder, 4.85% equates to 21% more spending every year than the 4% rule. That’s a big difference in lifestyle.

Let’s Get the Median Below $1M

I want to press our luck and push the limits. What withdrawal rate does it take so that our median result has a retiree with less than $1M at death? In other words, I want to see more than half of our simulations outspending their investment growth.

The answer: a withdrawal rate of 5.2%

In this case, about 28% of our scenarios outright fail, and another 22% finish between $0 and $1M.

Let’s Get Failure to 50%

One more experiment: at what withdrawal rate do 50% of scenarios outright fail? Clearly this is too much risk to bear. But it’s helpful to use numerical models to “define your limits,” and this is just that.

The answer: a withdrawal rate of 6.25%

You’d never want to start retirement knowing that you have a 50% chance of go broke prior to death. But it’s worth understanding where the limits of withdrawal rates lie.

“But I’ve Read About 3.5%, 3%, and Lower Rules…”

Yes, some conservative retirement commentators combine multiple factors that result in low withdrawal rates like 3.5%, 3.0%, and less.

Quite simply, I think 3.5%, 3.0%, or lower withdrawal rates are simply beyond the pale. Those commentators are suffering from the crushing costs of conservative retirement planning.

Simply look at the 3.5% withdrawal rate chart below:

3.5% is a recommendation that someone chronically underspends their potential, knowing that anyone who would have done so in the past would have at worst died with the same $1M they started with (for 3.5% withdrawal rate) or at worst died with $1.6M (for 3.0% withdrawal rate).

It’s like driving at 40 miles per hour on the Interstate. “But I want to be safe!”, they clamor as normal traffic wizzes around them. Their obsession with safety causes more harm than good.

What’s Jesse’s Answer?!

My big takeaway from this fun experiment: I plan on starting higher than 4.0%, and adjusting as I go.

On one hand, I would hate to start at 4.75%, then live through an “unlucky future” and ultimately run out of money.

But I would equally hate to start at 4.0%, then live through a “normal” (or better) future, and ultimately end up with many multiples of my original nest egg at death.

The “adjust as I go” takes this into account. If I need to be more conservative for a few years, I will be. If I can press on the gas for a few years, I’ll do that too.

Quite simply, the biggest risk of the 4% rule is underspending your retirement potential. And it’s biggest flaw is its rigidity.

It’s a numerical model. And a helpful one at that. But it’s not real life.

Thank you for reading! If you enjoyed this article, join 8500+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week. You can read past newsletters before signing up.

-Jesse

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Source: bestinterest.blog

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Many landlords will only consider prospective tenants with decent credit scores. However, some private landlords who are eager to fill empty rentals quickly may advertise “no-credit-check” apartments. In other cases, smaller family-owned buildings just don’t have the same documentation requirements as bigger complexes handled by property managers or brokers. Even if the building you’re interested in does require a credit check, there may be ways to get around it.

If you have bad credit or no credit, we’ll explain all the ways you can still rent an apartment.

•  Renting with bad credit or no credit is possible through no-credit-check apartments, which are often managed by private landlords who prioritize consistent rent over credit checks.

•  Strategies include finding a cosigner, paying a higher security deposit, or providing proof of financial stability.

•  Subletting or sharing an apartment can bypass credit checks, as these arrangements often require less documentation.

•  Building credit history by becoming an authorized user on a credit card or paying bills on time could improve rental prospects.

•  Being honest about credit issues and providing references from previous landlords may help secure a rental agreement.

Are There No-Credit-Check Apartments?

A handful of landlords will rent an apartment without a credit check. However, apartment hunters should approach advertised “no-credit-check apartments” with caution. The term can sometimes be code for “these units are problematic,” or “this landlord is difficult,” or even “this is a scam.”

Sometimes, however, private landlords in smaller buildings just don’t see the need for credit checks. They don’t advertise this, but “for rent by owner” (or FRBO) listings can offer a clue.

Instead of pulling a credit report themselves, some landlords will accept a credit reference with the rental application. Credit reference documentation can be a recent credit report that the tenant provides (saving them from paying a fee), or pay stubs and W-2s, or letters from previous landlords or lenders — basically, anything that shows your ability to pay the rent.

Recommended: Trying to Rent in a Tight Housing Market? 4 Steps To Win the Lease

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Why Landlords Perform Credit Checks

Landlords perform credit checks for apartment rentals for the same basic reason that employers run credit checks for employment: to help determine whether a prospect is financially responsible.

Landlords want tenants who pay their rent on time. By checking an applicant’s credit report, a landlord can see how reliably the person pays their bills and manages their credit. If someone has a history of late payments or outstanding debts, a landlord may think twice before renting to them.

When landlords run a credit check, it will be a soft credit inquiry, which won’t affect your credit score.

How the Process of No-Credit-Check Apartments Works

Depending on the landlord, the application process for a no-credit-check apartment can be pretty standard or very casual. Landlords generally ask for the following as part of your application:

•  Proof of identity

•  Proof of employment, income, or financial stability

•  Vehicle information, if parking is provided

•  Personal references

•  Application fee

Typically, it takes one to three business days to process an application. Afterward, you’ll be given a lease to sign. At this time, you can negotiate the security deposit, move-in date, and any details such as minor repairs to be made. When you receive the keys, the place is yours.

Should I Sell My House Now or Wait?

Be Honest

No one likes an unhappy surprise. If you haven’t established credit yet, say so. If you have credit problems, say so. Have a conversation with the landlord before you apply to gauge their flexibility and warn them of red flags in your credit history. Then include a cover letter with your application repeating your explanations. Glowing reference letters also help offset a poor credit score.

Recommended: What Is a Tri-Merge Credit Report?

Get a Roommate

Finding a roommate with good credit can help make the deal go through. A landlord may accept using their name alone on the lease (assuming the roommate is OK with taking full responsibility for rental payments). Or you may be able to put both of your names on the lease.

Look for Sublets and Shares

Sometimes, a leaseholder will “sublet” their apartment while they pursue opportunities elsewhere. This allows them to return to their former home in the event they want to move back. Rather than paying rent to the landlord, the subletter will often pay the leaseholder, so financial documentation may not be required. This is a common arrangement in big cities, especially among leaseholders of rent-stabilized apartments.

In share situations, roommates who are on the lease may sublet an extra room without requiring much, if any, documentation. As long as you make a good impression, they may give you a chance.

Find a Cosigner

A cosigner is someone who promises the landlord to cover your rent if you cannot pay — usually a good friend or family member with great credit. Cosigners may or may not live in the apartment.

Pay a Higher Security Deposit

If you’re brainstorming how to rent an apartment with bad credit and no cosigner, consider laying some cash on the line. Whether you dip into savings or build up your reserves with an online budget planner, putting down several months’ rent as a security deposit can reassure the landlord.

Show Financial Proof

Perhaps you make a decent income that will make it easy to pay your rent. Or you saved up some money as a cushion. Share proof with the landlord in the form of pay stubs and bank statements.

Use Previous Landlords as References

If you’ve rented from other landlords and made those payments on time, bring a reference letter or two to prove it. Ideally, the reference should be on letterhead or at least look neat and professional. That might mean creating the letter yourself and having your previous landlord sign it.

Promote Yourself

Have superior presentation skills? You can use them to persuade your landlord what a great tenant you’ll make. Turn on the charm. Bring homemade baked goods. It works.

Build Your Credit History

If there’s somewhere you can stay for now — with a friend or family member — spend that time building your credit history. To build up poor credit, focus on paying bills on time and paying down credit card balances. During this time, it may help to sign up for free credit monitoring. What qualifies as credit monitoring varies by service, but look for one that offers alerts whenever your score changes.

When you have no credit, you can start to establish your history by becoming an authorized user on a credit card or putting a utility in your name. Just be aware that it may take six months or more for the system to generate your credit score. You may be able to check your credit score for free through your bank, credit card company, or credit counselor.

The credit score needed to rent an apartment varies by location and landlord. But according to FICO®, a credit score of at least 670 is usually enough to rent an apartment.

The Takeaway

If you haven’t yet established credit or have a problematic credit history, no-credit-check apartments are one option. However, there are many other ways to secure a rental, from finding a sublet or share situation to paying a higher security deposit. Beware of shady no-credit-check apartments: There’s no reason to settle for an unsafe or unhygienic environment just because of your credit score.

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

What happens if you don’t have credit but want to rent an apartment?

Let the landlord know up front and ask what you need to do to rent the apartment. Their suggestions may include getting a roommate or cosigner with good credit, or putting down a larger security deposit. If you’ve rented in the past and made payments on time, ask your previous landlords for reference letters and build a case about why you’ll make a great tenant.

Can I rent an apartment with collections?

If you’re planning to rent a no-credit-check apartment, then the landlord won’t consider issues on your credit report. If your credit will be checked, talk to the landlord up front to see if renting with collections on your report is somehow possible.

What’s the minimum score to rent an apartment?

It’s up to the individual landlord. If a landlord requires a “good” credit score, FICO considers that to be in the range of 670-739.

I’m wondering how to pay rent with a credit card, no fee. What can I do?

If you’re renting right now, ask your landlord. If you’ll be seeking an apartment to rent, ask prospective landlords if this is possible. Each landlord has their own policy about credit cards.

Photo credit: iStock/StefaNikolic

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Regulators today ordered Apple and investment banking giant Goldman Sachs to pay almost $90 million in penalties and customer redress over what it termed “Apple Card failures.”

The Consumer Financial Protection Bureau (CFPB) cited “customer service breakdowns and misrepresentations” that affected hundreds of thousands of Apple Card customers. Chief among the issues cited: the failure of Apple to send “tens of thousands” of disputed transactions to Goldman Sachs for resolution. When Apple did send disputes, the CFPB says, Goldman Sachs failed to follow federal rules for investigating the disputes.

The Apple Card was introduced in August 2019, with Goldman Sachs aboard to extend credit and handle account servicing. Both companies had limited experience in the consumer credit market prior to launching the card. There were 12 million Apple Card holders as of January this year, according to Apple.

How the CFPB penalties break down

  • Apple was ordered to pay a $25 million civil penalty.

  • Goldman Sachs was ordered to pay a $45 million civil penalty and $19.8 million in customer redress.

  • Goldman Sachs was also banned from launching any new credit card “unless it can provide a credible plan that the product will actually comply with the law.”

What the CFPB found in its investigation

  • The handling of disputed transactions was central. The CFPB charges that the card was launched despite third-party warnings that there were technological issues with the card’s disputes system. According to the CFPB, this led to long waits for customers looking to resolve disputed charges and, for some, “incorrect negative information” added to their credit reports.

  • The CFPB also found that the companies “misled consumers about interest-free payment plans for Apple devices,” and that Goldman Sachs “misled customers about the application of some refunds.” 

What’s next for affected consumers

Many consumers who are eligible for redress have already received payment, according to an email statement from the CFPB. Any remaining eligible consumers will be contacted by Goldman Sachs.

Company reaction

Goldman Sachs first revealed in a 2022 SEC filing that it was cooperating with the CFPB in its yearslong investigation. In statements to the media, both companies defended the Apple Card, saying the issues under investigation had been resolved.

“Upon learning about these inadvertent issues years ago, Apple worked closely with Goldman Sachs to quickly address them and help impacted customers,” Apple said in a statement, according to CNN.

Goldman Sachs started a foray into consumer banking in 2016 with the introduction of its Marcus brand. It has been rolling back or reshuffling some of those efforts to focus on its core business; earlier this year, it stopped issuing new personal loans.

Co-branded credit cards — issued in partnership between a major brand and a bank — have a spotty track record in recent years, often due to a mismatch between the partners.

Source: nerdwallet.com

Apache is functioning normally

Buying a home is exciting, but coughing up the down payment can be a downer. That’s where down payment assistance enters the picture. Government and nonprofit programs help unlock the door to homeownership for qualified buyers.

It makes sense to put down as much as you can comfortably afford on a down payment. The more you put down, the less you’ll be borrowing, which translates to lower monthly payments and less interest paid over the life of the loan. But many people put down less — in some cases far less — than 20% of the home’s purchase price, the amount often recommended to buyers.

In an April 2024 SoFi survey of 500 people intending to purchase a home, almost a third of respondents (30%) said they were planning to put down between 11% and 20%. Almost one in five (19%) said they would put down 6% to 10%. Ten percent of buyers were aiming for a 5% down payment or less, and fully 7% of people were exploring no-down-payment options. First-time buyers who finance their home are especially likely to have a lower down payment, according to data from the National Association of Realtors®.

Down Payment Defined

Depending on their financial situation, homebuyers may qualify for down payment assistance from the government or a private entity.

Down payment assistance programs come in several forms. Some offer homebuyers loans and grants that can be applied directly to down payments and, in some cases, help with closing costs, too.

The down payment — which covers the upfront “out of pocket” cost of getting a mortgage — is usually made at the mortgage closing and can be paid with a check, cashier’s check, or electronic payment.

The down payment covers a reasonable percentage of the total home purchase price, with the mortgage covering the remainder. Lenders typically won’t approve a mortgage loan unless the borrower pays upfront cash — anywhere from 3.5% to 20% in most cases — against the total price of the property.

💡 Quick Tip: Thinking of using a mortgage broker? That person will try to help you save money by finding the best loan offers you are eligible for. But if you deal directly with an online mortgage lender, you won’t have to pay a mortgage broker’s commission, which is usually based on the mortgage amount.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Homebuyer Assistance Programs and Qualifications

If a first-time homebuyer can’t afford a down payment, that opens the possibility of financial assistance.

The programs that tend to provide the most financial assistance to homebuyers — state and federal governments and local, regional, and national nonprofits — will likely need an applicant to clear hurdles in order to qualify for down payment help.

These criteria usually lead that list:

•   The three-year rule. The buyer must not have owned a home in the past three years. In most scenarios, government agencies and private charities deem anyone who hasn’t owned a home in the previous three years, even a repeat buyer, a “first-time home buyer.”

•   Must be for a primary home. Homebuyers should be clear if the money is going to the purchase of a primary residence. If the home is an investment property designed to draw rent, financial assistance providers usually won’t issue a green light on funding.

•   Income limits. First-time homebuyers may have to meet income limits. The buyer may also have to keep the home price below a specified limit.

•   Funding caveats. Depending on the funder, the first-time homebuyer may have to take a homebuyer education course and may be asked to contribute some money to the down payment.

New homebuyers looking for financial help — and who qualify for that help — can get financial aid from a variety of sources, both public and private.

The help can be substantial.

According to a report from the Urban Institute, up to 51% of potential homebuyers residing in the report’s U.S. metropolitan areas studied would qualify for some form of home down payment assistance. Upon applying, those homebuyers would be in line to receive between $2,000 and $39,000.

Yet in SoFi’s recent survey, only 38% of potential homebuyers who said not having an adequate down payment was their biggest challenge had explored down payment assistance programs. Actively looking for down payment assistance could be a good move. When that search begins, the following funding sources may be a good place for homebuyers to start.

Recommended: First Time Homebuyer Guide for 2023

HUD, the Gatekeeper

A good source for state and nonprofit home down payment assistance is the Department of Housing and Urban Development, or HUD.

HUD is a federal gatekeeper, steering homebuyers to various state and nonprofit programs and offering home buying and down payment advice from HUD home assistance counselors.

Each state may have different rules and requirements, so it’s a good idea to talk to either the state agency directly or to a qualified advisor through the HUD housing counselor portal.

Federal, State, and Local Government Grants

Government grants might be the optimal form of down payment assistance, as it’s free money. Grants usually come from federal, state, or local governments and nonprofit groups.

Each government agency or charitable group has its own rules for down payment assistance grants, but in general, you have to pass an eligibility test (the common criteria are listed above) to qualify.

Again, HUD does not offer direct grants to individuals but works through local governments and nonprofit organizations to make financial assistance and counseling available.
💡 Quick Tip: Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for preapproval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.

Federal Government Loans

While technically not deemed direct down payment assistance, U.S. government-insured housing loans consist of low-interest loans to new homebuyers that enable them to make lower down payments, thus making it easier to afford both a home loan and a down payment.

Federal home loans usually come from three agencies:

The Federal Housing Administration. The FHA provides loans from private lenders to qualified homebuyers. The primary qualifier is a FICO® credit score of 580 or above. A borrower with a credit score of 500 to 579 who brings a 10% down payment to the table may also qualify for an FHA loan. In SoFi’s survey, only 49% of homebuyers had heard of FHA loans, yet these can be a great solution for buyers.

U.S. Department of Agriculture. The USDA offers direct home-buying assistance to rural homebuyers. Loans enable qualified homebuyers to purchase a home with no down payment. The home must be in a qualified rural area, and borrowers’ adjusted annual income cannot exceed 115% of the median income in the area, among other criteria. These loans, too, can fly under the radar with shoppers. In SoFi’s survey, only 4 in 10 buyers (41%) had heard of USDA loans.

There is no minimum credit requirement for a USDA loan, but applicants with a credit score below 640 are subject to more stringent guidelines to qualify.

Department of Veterans Affairs. The VA provides home purchasing assistance to current members of the armed forces, military veterans, and eligible spouses of deceased U.S. military members. Similar to a USDA home loan, a VA loan requires no down payment.

Applicants must meet the VA’s — and the lender’s — standards for credit and income, and be purchasing a primary home.

Forgivable Loans

These loans come from lenders, usually in two forms: deferred payments and forgivable loans.

Forgivable loans are basically second mortgages that borrowers don’t have to repay if they remain in the primary home for a specific time period (for example, 10 years).

Forgivable loans usually have a 0% interest rate, making it easier to afford a home down payment.

State Down Payment Assistance

Assistance programs vary by state. Still, some commonalities exist — especially the urgency to help economically struggling homebuyers afford a home down payment.

These states are examples of that:

Arizona. By and large, homebuyers in most Arizona counties can apply for home down payment assistance through the state’s Department of Housing Home Plus Program.

Homebuyers will need a FICO® credit score of 640 or higher and an annual income of $126,351 or less. Additionally, the purchase price of the home can’t be higher than $371,936.

Florida. The Sunshine State offers home down payment assistance programs via Florida Housing Finance Corp.

•   HFA Preferred and HFA Advantage PLUS Second Mortgage. These down payment and closing cost programs offer 3%, 4%, or 5% of the total loan amount in a forgivable five-year second mortgage.

•   Florida Assist. Eligible homebuyers receive up to $10,000 through an interest-free second mortgage. The money doesn’t have to be paid back unless the homeowner sells or refinances the property.

Recommended: Guide to Buying, Selling, and Updating Your Home

The Takeaway

Government and nonprofit funding are the primary vehicles for down payment assistance, but homebuyers may also seek down payment help from family and friends, retirement and investment funds, or even microlenders.

However a buyer approaches home down payment assistance, the keys are planning, research on available programs, and a disciplined approach to budgeting.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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

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.

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.

SOHL-Q324-107

Source: sofi.com

Apache is functioning normally

With mortgage rates surging higher again, somewhat unexpectedly, a thought came to my mind if you’re currently home shopping.

A couple years ago, I threw out the idea to adjust your maximum purchase price lower when looking for a property.

That post was driven by the many home sales that were going way above asking at the time. In other words, a home may have been listed for $600,000, but eventually sold for $700,000 in a bidding war.

That was all to do with a very hot housing market, driven in large part by a combination of record low mortgage rates and very low for-sale supply.

Today, we still have relatively low inventory, but the cheap mortgage rates have come and gone.

And now that they’re so volatile, you may want to input a higher rate into your mortgage calculator to ensure you don’t get caught out.

Mortgage Rates Are Highly Volatile Right Now

At the moment, mortgage rates are super unpredictable. While they had enjoyed a very good 11 months, falling from as high as 8% to nearly 6% in early September, they’ve since reversed course.

The 30-year fixed was nearly back into the high 5% range before the Fed cut rates and a better-than-expected jobs report arrived.

Sprinkle in some doubting about the Fed’s pivot and the upcoming uncertainty regarding the election outcome and home buyers are now facing a rate nearly 1% higher.

Per MND, the 30-year fixed has risen from a low of 6.11% on September 17th to 6.92% as of October 23rd.

Talk about a rough month for mortgage rates, especially since many expected the Fed’s rate cutting campaign to be accompanied by even lower mortgage rates.

It’s a good reminder that the Fed doesn’t control mortgage rates, and that it’s better to track mortgage rates via the 10-year bond yield.

Also, those yields are driven by economic data, not what the Fed is doing. By the way, the Fed makes moves based on the economic data too. So follow the economic data for crying out loud!

Anyway, this recent move up serves a great reminder that mortgage rates don’t move in a straight line. And to expect the unexpected.

Err on the Side of Caution By Inputting a Higher Mortgage Rate

If you’re currently looking to purchase a home, it’s generally a good idea to get pre-qualified or pre-approved upfront.

That way you’ll know if you actually qualify for a mortgage, and at what price point, including necessary down payment.

The thing is, these calculations are only as good as the inputs. So if your loan officer or mortgage broker puts in overly favorable numbers, it could skew the affordability picture.

In other words, you almost want to ask them to put in a mortgage rate that is 1% higher than today’s market rates.

That way you can absorb a higher payment if rates happen to worsen during your property search, which can take months and months to complete.

If rates happen to fall during that time, wonderful, it’ll just be the icing on the cake. Your expected monthly PITI will be even better than expected.

But like those bidding wars that took place, which resulted in higher asking prices, unexpected spikes in rates should also be anticipated.

And if they are, you might look at properties that are more within your price range, as opposed to homes that only work if everything is just right.

Given that homeowners insurance and property taxes are also on the rise (with just about every other cost), it can pay off to be prudent with your proposed home buying budget.

Adjust the Mortgage Rate on the Property Listing Page

If you’re using a site like Redfin to browse listings, there’s a handy mortgage payment calculator on each listing page.

It provides default amounts based on typical down payments, mortgage rates, property taxes, and homeowner insurance.

Let’s say that interest rate is 6.77% today, which is pretty reasonable given current market rates.

If you click on the little pencil icon, you can change it to anything you want. You can also select a different loan type while you’re at it.

Once you do, it tends to save your inputs, so when you look at other properties, the rate you selected earlier should apply to other homes.

This can give you a faster, perhaps more realistic estimate of the monthly payment, instead of a rate that might turn out to be too good to be true.

So you could put in 7.75%, or maybe 7.50%. That way if rates go up, or you qualify for a higher rate thanks to some loan-level price adjustments, you won’t be caught off guard.

You’re basically playing it more conservatively in case pricing worsens, which is the prudent approach.

While you’re at it, you may want to review the other inputs to ensure they are reflective of your proposed loan.

Are you really going to put 20% down on the home purchase, or just 3% to 5%?

Overestimating these costs instead of potentially underestimating them can help you avoid being house poor. Or worse, missing out on your dream home entirely due to inaccurate estimates.

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

If you’re dreaming of owning your own home, whether that means a cute Colonial or a loft-style condo, you are likely contemplating financing, and that can mean a mortgage. A home loan can give you the funds required to purchase a property, but there can be a learning curve involved, especially if you are a first-time homebuyer. For instance, what term should you select? How do mortgage interest rates work, and is a fixed rate typically best?

In this guide, you’ll get the scoop on how home loans work, what kind of options you have, and how to assess which loan could be right for you.

What is a Mortgage?

A mortgage loan, also known simply as a mortgage, is issued to a borrower who is either buying or refinancing real estate.

The borrower signs a legal agreement that gives the lender the ability to take ownership of the property if the loan holder doesn’t make payments according to the agreed-upon terms.

Once issued a mortgage, the homebuyer will pay monthly principal (that’s the lump sum of the loan) and interest payments for a specific term. The most common term for a fixed-rate mortgage is 30 years, but terms of 20, 15, and even 10 years are available.

A shorter-term translates to a higher monthly payment but lower total interest costs. Put another way, you pay more every month, but the amount of interest over the life of the loan is lower.

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💡 Quick Tip: You deserve a more zen mortgage loan. When you buy a home, SoFi offers a guarantee that your loan will close on time. Backed by a $5,000 credit.‡

A Buffet of Mortgage Choices

When homebuyers apply for a loan, they’ll need to choose whether they want a fixed interest rate or an adjustable rate and the length of the loan.

Fixed-Rate Mortgage

The interest rate on the home loan doesn’t change, so the monthly principal and interest payment remains the same for the life of the loan. Whether mortgage rates increase or decrease, the loan holder is locked in for their monthly payment.

Adjustable-Rate Mortgage (ARM)

With an ARM, the interest rate is generally fixed for an initial period of time, such as five, seven, or 10 years, and then switches to a variable rate of interest. The rate fluctuates with the rate index that it’s tied to.

As the rate changes, monthly payments may increase or decrease. These loans generally have yearly and lifetime interest rate caps (or maximums) that limit how high the variable rate can adjust to.

Next, borrowers will need to decide what type of mortgage loan works best for them.

Conventional Loans

Conventional loans are loans that are not backed by a government agency and must adhere to the requirements of Fannie Mae, Freddie Mac, or other investors. Typically, conventional loans are issued with at least 3% down. However, it’s worth noting that private mortgage insurance (commonly known as PMI) is generally required on loans with a down payment of less than 20%.

The coverage protects the lender against the risk of default. Your mortgage servicer must cancel your PMI when the mortgage balance reaches 78% of the home’s value or when the mortgage hits the halfway point of the loan term, if you’re in good standing.

PMI typically costs 0.2% to 2% of the loan amount per year.

Down payment: Generally between 3% and 20% of the purchase price or appraised value of the home, depending on the lender’s requirements.

FHA Loans

Loans insured by the Federal Housing Authority, or FHA loans, can be attractive to first-time homebuyers or those who struggle to meet the minimum requirements for a conventional loan. In a SoFi survey of 500 would-be homeowners conducted in April 2024, 28% of people who had filled out a loan application had applied for this type of loan, and fully 63% of those who filled out an application had applied for some type of government-backed financing.

These loans usually require a one-time upfront mortgage insurance premium (or MIP vs. PMI), which typically can be added to the mortgage, and an annual insurance premium, which is collected in monthly installments for the life of the loan in most cases.

Down payment: Starts at 3.5%

Recommended: First-Time Homebuyer Guide

VA Loans

Loans guaranteed by the U.S Department of Veterans Affairs are available to veterans, active-duty service members, and eligible surviving spouses. SoFi’s survey showed that 12% of potential homebuyers who applied for a loan had filled out a VA loan application.

VA-backed loans require a one-time “VA funding fee,” which can be rolled into the loan. The fee is based on a percentage of the loan amount and may be waived for certain disabled vets. The current range is from 1.5% to 3.3% of the loan amount.

Down payment: None for approximately 80% of VA-backed home loans.
💡 Quick Tip: A VA loan can make home buying simple for qualified borrowers. Because the VA guarantees a portion of the loan, you could skip a down payment. Plus, you could qualify for lower interest rates, enjoy lower closing costs, and even bypass mortgage insurance.†

How Does a Mortgage Work?

There are several components to a monthly mortgage payment.

Principal: The principal is the value of the loan. The portion of the payment made toward the principal reduces how much a borrower owes on the loan.

Interest: Each month, interest will be factored into payments according to an amortization schedule. Even though a borrower’s fixed payment may stay the same over the course of the loan, the amount allocated toward interest generally decreases over time while the portion allocated to principal increases.

Taxes: To ensure that a borrower makes annual property tax payments, a lender may collect monthly property taxes with the monthly mortgage payment. This money can be kept in an escrow account until the property tax bill is due, and the lender can make the property tax payment at that time.

Homeowners insurance: Mortgage lenders usually require evidence of homeowners insurance, which can cover damage from catastrophes such as fire and storms. As with property taxes, many lenders collect the insurance premiums as part of the monthly payment and pay for the annual insurance premium out of an escrow account. Depending on your property location, you may have to add flood, wind, or other additional insurance.

Mortgage insurance: When a borrower presents a down payment of less than 20% of the value of the home, mortgage lenders typically require private mortgage insurance. When developing a budget for owning a home, it’s important to know the difference between mortgage insurance and homeowners insurance and whether both are required.

Reverse Mortgage Loans: What Are They?

A reverse mortgage is available to homeowners 62 and older to supplement their income or pay for healthcare expenses by tapping into their home equity.

The loan can come in the form of a lump-sum payment, monthly payments, a line of credit, or a combination, usually tax-free. Interest accrues on the loan balance, but no payments are required. When a borrower dies, sells the property, or moves out permanently, the loan must be repaid entirely.

The fees for an FHA-insured home equity conversion mortgage, typically the most common type of reverse mortgage, can add up:

•  An initial mortgage insurance premium of 2% and an annual MIP that equals 0.5% of the outstanding mortgage balance

•  Third-party charges for closing costs

•  Loan origination fee

•  Loan servicing fees

You can pay for most of the costs of the loan from the proceeds, which will reduce the net loan amount available to you.

You remain responsible for property taxes, homeowners insurance, utilities, maintenance, and other expenses.

A HUD site details all the criteria for borrowers, financial requirements, eligible property types, and how to find an HECM counselor, a mandatory step.

If you’re considering a reverse mortgage, learn as much as you can about this often complicated kind of mortgage before talking to a counselor or lender, the Federal Trade Commission advises.

How to Get A Mortgage

For many people, it can be a good idea to shop around to get an idea of what is out there.

Not only will you need to choose the lender, but you’ll need to decide on the length of the loan, whether to go with a fixed or variable interest rate, and weigh the applicable loan fees.

The first step is to have an idea of what you want and then seek out quotes from a few lenders. That way, you can do a side-by-side comparison of the loans.

Once you’ve selected a few lenders to get started with, the next step is to get prequalified or preapproved for a loan. Based on a limited amount of information, a lender will estimate how much it is willing to lend you.

When you’re serious about taking out a mortgage loan and putting an offer on a house, the next step is to get preapproved with a lender.

During the preapproval process, the lender will take a closer look at your finances, including your credit, employment, income, and assets to determine exactly what you qualify for. Once you’re preapproved, you’re likely to be considered a more serious buyer by home sellers.

When shopping around for a mortgage, it can be a good idea to consider the overall cost of the mortgage and any fees.

For example, some lenders may charge an origination fee for creating the loan, or a prepayment penalty if you want to pay back the loan ahead of schedule. There may also be fees to third parties that provide information or services required to process, approve, and close your loan.

To compare the true cost of two or more mortgage loans, it’s best to look at the annual percentage rate, or APR, not just the interest rate. The interest rate is the rate used to calculate your monthly payment, but the APR is an approximation of all of the costs associated with a loan, including the interest rate and other fees, expressed as a percentage. The APR makes it easier to compare the total cost of a loan across different offerings so you can assess what is a good mortgage rate for your budget.

The Takeaway

If the world of mortgages feels like a mystery to you, you are not alone. Before taking on this colossal commitment, it can be best to soak up as much as you can about how mortgage loans work, what kinds of mortgages are available, potential challenges, and steps to qualify. You’ll be better prepared to take on what can be a major step in your personal financial journey.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

‡SoFi On-Time Close Guarantee: If all conditions of the Guarantee are met, and your loan does not close on or before the closing date on your purchase contract accepted by SoFi, and the delay is due to SoFi, SoFi will give you a credit toward closing costs or additional expenses caused by the delay in closing of up to $10,000.^ The following terms and conditions apply. This Guarantee is available only for loan applications submitted after 04/01/2024. Please discuss terms of this Guarantee with your loan officer. The mortgage must be a purchase transaction that is approved and funded by SoFi. This Guarantee does not apply to loans to purchase bank-owned properties or short-sale transactions. To qualify for the Guarantee, you must: (1) Sign up for access to SoFi’s online portal and upload all requested documents, (2) Submit documents requested by SoFi within 5 business days of the initial request and all additional doc requests within 2 business days (3) Submit an executed purchase contract on an eligible property with the closing date at least 25 calendar days from the receipt of executed Intent to Proceed and receipt of credit card deposit for an appraisal (30 days for VA loans; 40 days for Jumbo loans), (4) Lock your loan rate and satisfy all loan requirements and conditions at least 5 business days prior to your closing date as confirmed with your loan officer, and (5) Pay for and schedule an appraisal within 48 hours of the appraiser first contacting you by phone or email. This Guarantee will not be paid if any delays to closing are attributable to: a) the borrower(s), a third party, the seller or any other factors outside of SoFi control; b) if the information provided by the borrower(s) on the loan application could not be verified or was inaccurate or insufficient; c) attempting to fulfill federal/state regulatory requirements and/or agency guidelines; d) or the closing date is missed due to acts of God outside the control of SoFi. SoFi may change or terminate this offer at any time without notice to you. *To redeem the Guarantee if conditions met, see documentation provided by loan officer.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

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.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOHL-Q324-107

Source: sofi.com

Apache is functioning normally

When the housing market crashed in the early 2000s, new mortgage rules emerged to prevent a similar crisis in the future.

The Dodd-Frank Act gave us both the Ability-to-Repay Rule and the Qualified Mortgage Rule (ATR/QM Rule).

ATR requires creditors “to make a reasonable, good faith determination of a consumer’s ability to repay a residential mortgage loan according to its terms.”

While the QM rule affords lenders “certain protections from liability” if they originate loans that meet that definition.

If lenders make loans that don’t include risky features like interest-only, negative amortization, or balloon payments, they receive certain protections if the loans happen to go bad.

This led to most mortgages complying with the QM rule, and so-called non-QM loans with those outlawed features becoming much more fringe.

Another common feature in the early 2000s mortgage market that wasn’t outlawed, but became more restricted, was the prepayment penalty.

Given prepayment risk today, perhaps it could be reintroduced responsibly as an option to save homeowners money.

A Lot of Mortgages Used to Have Prepayment Penalties

In the early 2000s, it was very common to see a prepayment penalty attached to a home loan.

As the name suggests, homeowners were penalized if they paid off their loans ahead of schedule.

In the case of a hard prepay, they couldn’t refinance the mortgage or even sell the property during a certain timeframe, typically three years.

In the case of a soft prepay, they couldn’t refinance, but could openly sell whenever they wished without penalty.

This protected lenders from an early payoff, and ostensibly allowed them to offer a slightly lower mortgage rate to the consumer.

After all, there were some assurances that the borrower would likely keep the loan for a minimum period of time to avoid paying the penalty.

Speaking of, the penalty was often pretty steep, such as 80% of six months interest.

For example, a $400,000 loan amount with a 4.5% rate would result in about $9,000 in interest in six months, so 80% of that would be $7,200.

To avoid this steep penalty, homeowners would likely hang on to the loans until they were permitted to refinance/sell without incurring the charge.

The problem was prepays were often attached to adjustable-rate mortgages, some that adjusted as soon as six months after origination.

So you’d have a situation where a homeowner’s mortgage rate reset much higher and they were essentially stuck in the loan.

Long story short, lenders abused the prepayment penalty and made it a non-starter post-mortgage crisis.

New Rules for Prepayment Penalties

Today, it’s still possible for banks and mortgage lenders to attach prepayment penalties to mortgages, but there are strict rules in place.

As such, most lenders don’t bother applying them. First off, the loans must be Qualified Mortgages (QMs). So no risky features are permitted.

In addition, the loans must also be fixed-rate mortgages (no ARMs allowed) and they can’t be higher-priced loans (1.5 percentage points or more than the Average Prime Offer Rate).

The new rules also limit prepays to the first three years of the loan, and limits the fee to two percent of the outstanding balance prepaid during the first two years.

Or one percent of the outstanding balance prepaid during the third year of the loan.

Finally, the lender must also present the borrower with an alternative loan that doesn’t have a prepayment penalty so they can compare their options.

After all, if the difference were minimal, a consumer might not want that prepay attached to their loan to ensure maximum flexibility.

Simply put, this laundry list of rules has basically made prepayment penalties a thing of the past.

But now that mortgage rates have surged from their record lows, and could pull back a decent amount, an argument could be made to bring them back, in a responsible manner.

Could a Prepayment Penalty Save Borrowers Money Today?

Lately, mortgage rate spreads have been a big talking point because they’ve widened considerably.

Historically, they’ve hovered around 170 basis points above the 10-year bond yield. So if you wanted to track mortgage rates, you’d add the current 10-year yield plus 1.70%.

For example, today’s yield of around 4.20 added to 1.70% would equate to a 30-year fixed around 6%.

But because of recent volatility and uncertainty in the mortgage world, spreads are nearly 100 basis points (bps) higher.

In other words, that 6% rate might be closer to 7%, to account for things like mortgages being paid off early.

A lot of that comes down to prepayment risk, as seen in the chart above from Rick Palacios Jr., Director of Research at John Burns Consulting.

Long story short, a lot of homeowners (and lenders and MBS investors) expect rates to come down, despite being relatively high at the moment.

This means the mortgages originated today won’t last long and paying a premium for them doesn’t make sense if they get paid off months later.

To alleviate this concern, lenders could reintroduce prepayment penalties and lower their mortgage rates in the process. Perhaps that rate could be 6.5% instead of 7%.

In the end, a borrower would receive a lower interest rate and that would also reduce the likelihood of early repayment.

Both because of the penalty imposed and because they’d have a lower interest rate, making a refinance less likely unless rates dropped even further.

Of course, they’d need to be implemented responsibly, and perhaps only offered for the first year of the loan, maybe two, to avoid becoming traps for homeowners again.

But this could be one way to give lenders and MBS investors some assurances and borrowers a slightly better rate.

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.
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Source: thetruthaboutmortgage.com