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Apache is functioning normally

June 3, 2024 by Brett Tams

Homebuyers should know which moves to make – and which mistakes to avoid – ahead of the new month.

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As the calendar turns to June, many homebuyers may be wondering what’s in store for the real estate market and larger rate environment. With inflation stubborn — if significantly cooled — and interest rates stuck at their highest point in decades, homebuyers haven’t had much luck lately. Combined with limited inventory and higher home prices, this spring hasn’t been an opportune time for many homebuyers.

But June brings both new inflation numbers and another Federal Reserve announcement on rates, both of which will be released on June 12. And if the former is lower or even trending in the right direction, it could lead to positive changes in the rate climate — and give homebuyers a much-needed boost. But if inflation remains inconsistent, the Fed may hint at rate hikes to come, or higher rates for longer.

Against this frustrating backdrop, then, homebuyers should consider making some smart moves now, ahead of June. They should also do their best to avoid making certain costly rate mistakes. Below, we’ll break down three to avoid now.

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3 mortgage rate mistakes to avoid in June

In today’s volatile rate climate, homebuyers need to be judicious in their approach. This means avoiding easy-to-make mistakes such as:

Waiting for the Fed to cut rates

There’s no guarantee that the Fed will cut the federal funds rate, which influences what lenders offer for mortgages, on June 12. It’s more likely that they’ll keep the rate the same at a range between 5.25% and 5.50%, as it has been since last summer. But even if they were to issue a cut, it’s only likely to be a quarter of a percentage point reduction, which will lead to a negligible difference in mortgage rates.

At the same time, if buyers wait and rates rise — or even if the Fed simply hints at potential rate rises — the mortgage rate climate will become even more costly than it already is. So don’t wait for that to happen.

Get started with a mortgage here now.

Not locking in a rate now

While today’s mortgage rate of 7.17% for a 30-year mortgage isn’t most homebuyers’ idea of a good deal, particularly compared to the record-low rates of recent years, it’s also, historically, not that high. Mortgage rates have often been in the double digits in recent decades. And with the potential for rates to rise even further before this inflationary cycle is permanently cooled, it may not make sense to wait for a lower rate that never comes.

Instead, consider locking in the lowest rate you can find now. You could always unlock and relock a lower one before closing — or refinance when rates drop at some point in the future. But not locking in today’s rates now could be a mistake, especially if they head up toward 8% again.

Not knowing exactly which loan type to choose

In today’s mortgage rate climate, you’ll need to be nimble. That may mean exploiting a small window to lock in a mortgage rate. So it’s important to know exactly which mortgage type you plan to use now, before that time comes. While a conventional mortgage is often the most popular, an adjustable-rate mortgage, in which the rate changes over time but may be lower to start, offers unique advantages for borrowers right now.

Similarly, buying mortgage points to secure a lower rate may be helpful for some, especially in June. Whatever route you choose, make sure your lender knows your preference in advance, so that you can capitalize on any favorable rate changes when they arise.

The bottom line

In today’s mortgage rate market, it’s equally important for homebuyers to know what to do as it is to know which mistakes to avoid. To that end, buyers should strongly consider locking in a rate now and avoid waiting for the Fed to help with any favorable rate changes. They should also know exactly which mortgage type they plan to use now, so that they can pursue this loan type when their lender calls with an urgent need to act. With just weeks left before potential rate news in mid-June, buyers should consider getting to work now.

Matt Richardson

Matt Richardson is the managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.

Source: cbsnews.com

Apache is functioning normally

May 25, 2024 by Brett Tams

Our writers and editors used an in-house natural language generation platform to assist with portions of this article, allowing them to focus on adding information that is uniquely helpful. The article was reviewed, fact-checked and edited by our editorial staff prior to publication.

Key takeaways

Non-QM loans provide an option for those who don’t meet the requirements for standard mortgages, such as business owners, self-employed borrowers and gig workers.
These loans offer flexibility in terms of income and credit requirements, but they carry higher down payment requirements and interest rates.
To find a non-QM loan, borrowers should determine their eligibility and shop around for a lender that focuses on this type of mortgage.

Some homebuyers don’t fall into the standard mortgage lending box. Usually, it’s for factors related to their creditworthiness and income level or income predictability. That’s where a non-qualified mortgage — non-QM for short — can fill the gap. While non-QM loans offer more lenient credit and income requirements, they also come with higher down payments and interest rates — and sometimes without important consumer protections.

What is a non-qualified mortgage?

A non-qualified mortgage is a type of mortgage that doesn’t conform to certain standards set by the Consumer Financial Protection Bureau (CFPB). These standards mandate certain features loans may (or may not) have, and delineate certain practices lenders must follow in evaluating applicants’ finances and ability to repay. Asset-based loans and no-income loans are common examples of non-QM loans.

In the case of mortgages, non-QM lenders have more flexibility in underwriting guidelines. They will work with borrowers whom conventional lenders might deem too risky because of their non-salaried income, their low credit score or their blotted credit history — or who just don’t fit the qualified-mortgage criteria.

What are the features of a non-qualified mortgage?

Non-QM loans feature looser income and credit requirements. For example, instead of W-2 forms and paystubs, borrowers may be able to use alternative methods of income documentation, such as tax returns, bank/investment account statements (or other proof of assets), rental income or 1099s, to demonstrate their ability to repay the loan.

Borrowers’ debts may consume a greater percentage of their income than the standard amount conventional lenders like to see — as much as 50 percent.

In some cases, there is no waiting period after bankruptcy or foreclosure, enabling individuals to secure a mortgage soon after these events.

How does a non-qualified mortgage differ from a qualified mortgage?

A qualified mortgage (QM) is a type of loan that adheres to specific guidelines set by the CFPB. These guidelines are designed to ensure that the borrower can afford the loan and include restrictions on negative amortization, interest-only payments and balloon payments, among others. QMs also have loan terms that do not exceed 30 years and require verification of your income and assets.

The QM rule has four key directives lenders must follow:

The “ability-to-repay” rule

Lenders must ascertain whether a borrower can truly afford a loan before giving them any financing — by verifying and documenting certain aspects of the individual’s personal finances (the “underwriting” process). The ability-to-repay rule requires a lender, at a minimum, to evaluate loan applications on these eight components:

Current income/assets
Current employment status
Monthly payment for this mortgage loan
Monthly payment on any simultaneous loan that’s secured by the home such as a piggyback mortgage (usually taken out when a borrower doesn’t have enough cash for a down payment)
Monthly payment for mortgage-related obligations
Current debt obligations, alimony and child support
Monthly debt-to-income ratio or residual income
Credit history

Restrictions on risky features

These include:

Loan terms longer than 30 years
Interest-only payments without paying down the principal
Balloon payment (a big lump-sum payment at the end of a loan term)
Negative amortization, which allows your loan balance to increase over time

Caps on fees and points

Lender fees and points can dramatically increase your borrowing costs. For loan amounts that exceed $100,000, lender fees and mortgage points cannot exceed 3 percent of the loan amount.

Limits on debt-to-income ratio

Expressed as a percentage, the debt-to-income (DTI) ratio is derived by dividing all of your monthly obligations by your pre-tax monthly income. In most cases, a qualified mortgage borrower is limited to a 43 percent DTI ratio.

In contrast, non-QM loans are not subject to these same rules and regulations. They typically have less stringent requirements for credit scores, debt-to-income ratios and repayment schedules. However, they can also feature longer-than-30-year terms, balloon payments and higher fees.

The Consumer Financial Protection Bureau established its Qualified Mortgage standards in 2014. They were largely in response to certain irresponsible lending practices of the early 2000s: lack of due diligence into applicant finances, people receiving loans they really couldn’t afford and terms that made delinquency or default more likely. All of this contributed to the 2007 subprime mortgage crisis, with its wave of defaults and foreclosures.

Is a non-qualified loan the same as a non-conforming loan?

Non-qualified loans and non-conforming loans are not the same thing. Both refer to mortgages that are outside the typical sort of loans most homebuyers get. But they are outside two different sets of rules; in other words, they differ in the standards that they are not adhering to.

A non-QM loan doesn’t conform to the standards set by the CFPB to protect consumers from predatory lending practices — and to ensure they don’t take out loans they won’t be able to repay.
A non-conforming loan doesn’t meet (or conform) to the criteria set by the Federal Housing Finance Agency (FHFA). As a result, it is not eligible for purchase on the secondary mortgage market by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that buy most of the home loans originated in the U.S. Chief among the FHFA’s criteria: The loan can’t exceed a certain amount — $766,550 in most parts of the U.S. in 2024.

There is overlap in the FHFA’s and the CFPB’s standards, especially in the borrower’s finances and creditworthiness. Conforming loans often require applicants to have a DTI of no more than 43 percent, proof of salaried income and a certain credit score, for example. If a loan has other non-traditional features, such as having a term other than 15 or 30 years, or requiring no down payment, it is usually non-conforming, too.

Basically, non-conforming loans are a category of non-QM loans that don’t fit into the typical mortgage framework.

Who can benefit from non-qualified mortgages?

While CFPB’s Qualifying Loan standards are intended to safeguard consumers, they can sometimes seem exclusionary to those whose financial profiles don’t fit the norm. Borrowers who’ve tried getting a conventional or government-insured loan and were turned down may find what they’re looking for working with a non-QM lender.

Here’s who may benefit most from a non-QM loan:

Self-employed borrowers: These borrowers generally have sporadic pay and multiple income streams, making it hard to get a qualified mortgage. Many self-employed, non-QM borrowers get bank statement loans, which are based on their cash flow and liquid assets (rather than relying on W-2s).
Real estate investors: These are the folks who fix-and-flip homes, or who rent out and generate an income from the homes they buy, and need funding quickly. Investors are exempt from the ability-to-repay rule, usually because they sell the homes they buy quickly, or they rely on rental income to repay the mortgage. DSCR loans (short for debt service coverage ratio) and asset depletion home loans (in which you tap the equity in your primary residence to fund the purchase of another property) often accommodate this sort of borrower.
Foreign nationals: Non-resident borrowers who want to purchase property in the U.S. might not qualify for a traditional loan because of a low or non-existent U.S. credit score. Non-QM lenders use international credit reports and letters from creditors to qualify this group for a foreign national home loan. Mitigating factors, such as a high income, robust liquid assets and a large down payment, also help foreign borrowers qualify for non-QM loans.
Prime borrowers: Borrowers who have pristine credit but are in search of a loan with certain features, such as interest-only payments or a debt-to-income ratio limit above the standard 43 percent, are considered “prime non-QM borrowers.”
Near or non-prime borrowers: In many cases, these are borrowers who have insufficient credit, or a prior bankruptcy or recent distressed property sale within the last two years. Lenders tend to require more money down and may have tighter standards elsewhere to lessen the credit risk.
Borrowers with significant assets: A type of non-QM loan, called an asset qualifier loan, is ideal for borrowers with prime credit and substantial assets. Although the assets are enough to buy the home outright, a borrower may decide to finance the purchase to maintain positive cash flow. Credit invisibles — people who have considerable assets but who lack a long credit history or credit score (because they don’t use credit cards) — are good candidates too.

How do lenders verify income for non-qualified loans?

While the process for verifying income for a qualified loan typically involves reviewing tax returns, W-2s and pay stubs, the process for non-QM loans is slightly different. Using manual underwriting, lenders may allow borrowers to demonstrate their ability to repay the loan using alternative forms of income documentation, such as bank/investment account statements, 1099s, receipts from rents or leases or other business receivables.

What are the drawbacks of a non-QM loan?

Non-QM loans can be a viable alternative to conventional financing — but these benefits come at a cost. Non-QM loans typically have higher down payment requirements (as much as 25 percent of the home price) and interest rates.

As for rates, spreads above qualifying mortgages can be as little as 0.25 percent and as much as 5 percent, depending on the terms of the transaction and the creditworthiness of the borrower. Non-QM 30-year fixed rate loan rates are typically a percent or two higher than the prime 30-year fixed mortgage rate, according to Fitch Ratings.

The stiffer terms exist to compensate the lender for the additional risk they’re taking on — since Fannie Mae and Freddie Mac cannot purchase non-QM loans.

Pros

Easier to obtain
Open to non-traditional borrowers
More flexible terms

Cons

Harder to find (reputable lender)
Higher interest rate, down payment
Potentially tougher to repay

Also, the lender still has to do some due diligence on the borrower. It faces the risk of a CFPB enforcement action if the borrower’s ability to repay is not accurately verified.

Finally, the loan could be riskier for the borrower. There’s a reason the CFPB frowns on features like balloon payments and interest-only repayments — they can blow up in a borrower’s face, increasing the likelihood of delinquency and default. At the very least, the non-QM loan is likely to be more expensive than a traditional mortgage of comparable size and term.

Where can you get a non-QM loan?

If you’re interested in a non-QM loan, there are several places you can turn to. Start by determining your eligibility — typically, you’ll need a minimum credit score of 620, stable income and a consistent employment history.

Once you’ve confirmed your eligibility, you can then search for a lender that offers non-QM loans Many mortgage brokers work with non-QM wholesale lenders, so they might be a good resource.

When you find a lender, ask if they’ll first run you through an automatic underwriting, just to make sure you couldn’t get a qualifying loan after all. Also ask lenders whether they originate their own non-QM loans, or if the loan is backed by another company that will service your loan. Take the time to understand what fees you’ll pay, as well as any special loan terms or features that might add to your overall borrowing costs.

You should always fully understand the terms of your mortgage. But it’s especially important to read the fine print and be aware of the worst-case scenario of any non-qualifying loan you consider.

Source: bankrate.com

Apache is functioning normally

May 25, 2024 by Brett Tams

Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.

Home equity loan Home equity line of credit (HELOC) Interest rate Fixed Variable Monthly payment amount Fixed Variable Closing costs and fees Yes Yes, might be lower than other loan types Repayment period Typically 5-30 years Typically 10-20 years

FAQ

What is a rate lock?

Interest rates on mortgages fluctuate all the time, but a rate lock allows you to lock in your current rate for a set amount of time. This ensures you get the rate you want as you complete the homebuying process.

What are mortgage points?

Mortgage points are a type of prepaid interest that you can pay upfront — often as part of your closing costs — for a lower overall interest rate. This can lower your APR and monthly payments.

What are closing costs?

Closing costs are the fees you, as the buyer, need to pay before getting a loan. Common fees include attorney fees, home appraisal fees, origination fees, and application fees.

If you’re trying to find the right mortgage rate, consider using Credible. You can use Credible’s free online tool to easily compare multiple lenders and see prequalified rates in just a few minutes.

Source: foxbusiness.com

Apache is functioning normally

May 23, 2024 by Brett Tams

Loans can help us achieve big goals, like buying a car or going to college. But did you know that the interest rate on your loan can affect how much money you pay back? A lower interest rate means you pay less money over time. So, how can you get a lower loan rate? Here are some simple tips to help you save money.

1. Check Your Credit Score and Credit Reports

We know this is obvious but it needs to be said. Make sure that you are more familiar with your credit than any potential lender could be. This means checking your credit score and your credit reports (all three) because your lender will be looking at more than just your score. You may feel like you have a decent credit score, and then be surprised by what rate your lender quotes you because there are too many negative items in your credit report.

If you’ve never downloaded copies of your credit reports before, you can do so for free at the only official website, AnnualCreditReport.com

If you want a more broken out view of your credit and explanations for what everything means, you can also get a free Credit Report Card from us.

2. Really Spend Time Shopping Around

Don’t settle for the first loan offer you get. Don’t settle for the second. The difference of half a percent can mean thousands of dollars, so really take your time and do your research. Check the rates offered by your own bank, credit unions, digital lenders, mortgage brokers – anyone – to see who has the lowest rates.

Just remember to compare not only the interest rates but also any fees or charges that might be included.

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3. Consider a Co-Signer

If you’re having trouble getting approved for a loan or getting a low interest rate on your own, consider asking someone with good credit to co-sign the loan with you. Having a co-signer with a strong credit history can help you qualify for a lower interest rate.

4. Save Up For a Big Down Payment

Putting more money down upfront can help you secure a lower interest rate on your loan. It shows lenders that you’re serious about paying back the money you borrow. Plus, a larger down payment means you’ll have a smaller loan amount, which can also lead to lower monthly payments and less interest paid over time.

5. Choose a Shorter Loan Term

The length of your loan term can affect your interest rate. Generally, shorter loan terms come with lower interest rates because the lender takes on less risk. While a shorter loan term means higher monthly payments, it also means you’ll pay less in interest over the life of the loan. So if you can afford it, choosing a shorter loan term can help you save money in the long run.

6. Improve Your Debt-to-Income Ratio

Lenders also consider your debt-to-income ratio when deciding your loan rate. This is the amount of money you owe each month compared to the amount of money you make. If you have a high debt-to-income ratio, lenders might see you as a higher risk borrower and charge you a higher interest rate. Paying down debt or increasing your income can help improve your debt-to-income ratio and qualify you for a lower rate.

7. Ask About Discounts

Some lenders offer discounts on loan rates for things like setting up automatic payments or having a checking account with them. It doesn’t hurt to ask if there are any discounts or special offers available when you apply for a loan. Even a small discount can add up to big savings over time.

8. Use Mortgage Points

Mortgage points are a way to lower your interest rate by paying extra money upfront to your lender when you close on your mortgage. Each point typically costs 1% of the total amount of your loan.

So, let’s say you’re getting a $200,000 mortgage, and the lender offers you the option to buy one mortgage point for $2,000. If you buy one point, you’d pay an extra $2,000 upfront, but your lender might lower your interest rate by, let’s say, 0.25%.

If you plan to stay in your house for a long time, buying mortgage points might be a good idea because you could end up saving more money on your monthly mortgage payments. But remember, it’s not always the right choice for everyone. Think about how long you plan to stay in the house and whether you’ll actually save enough money in the long run to make up for the extra cost upfront.

By following these tips, you can increase your chances of getting a lower loan rate and save money on interest. Remember, every little bit counts when it comes to your finances, so take the time to explore your options and find the best loan rate for you. With a little effort, you can be on your way to achieving your goals while keeping more money in your pocket!

Source: credit.com

Apache is functioning normally

May 21, 2024 by Brett Tams

Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.

Home equity loan Home equity line of credit (HELOC) Interest rate Fixed Variable Monthly payment amount Fixed Variable Closing costs and fees Yes Yes, might be lower than other loan types Repayment period Typically 5-30 years Typically 10-20 years

FAQ

What is a rate lock?

Interest rates on mortgages fluctuate all the time, but a rate lock allows you to lock in your current rate for a set amount of time. This ensures you get the rate you want as you complete the homebuying process.

What are mortgage points?

Mortgage points are a type of prepaid interest that you can pay upfront — often as part of your closing costs — for a lower overall interest rate. This can lower your APR and monthly payments.

What are closing costs?

Closing costs are the fees you, as the buyer, need to pay before getting a loan. Common fees include attorney fees, home appraisal fees, origination fees, and application fees.

If you’re trying to find the right mortgage rate, consider using Credible. You can use Credible’s free online tool to easily compare multiple lenders and see prequalified rates in just a few minutes.

Source: foxbusiness.com

Apache is functioning normally

May 14, 2024 by Brett Tams

When you take out a mortgage, you can deduct the amount of money you pay on mortgage interest from your taxable income. But is home equity line of credit (HELOC) interest tax deductible, too? Put simply, it depends on when you took out the HELOC and how much mortgage debt you have.

Here’s what you need to know about HELOC tax deductions, including the requirements and limitations on HELOC tax-deductible expenses, plus how to calculate your deduction.

What Is a HELOC?

Whether to cover renovation costs or consolidate debt, homeowners can borrow against the value of their home to secure the necessary funding. There are two main types of home equity loans: a conventional home equity loan and a home equity line of credit, also known as a HELOC. A HELOC functions as a revolving line of credit that uses home equity — the home’s value minus the amount you still owe on the primary mortgage — as collateral.

How much you can borrow typically ranges from 75% to 85% of your home equity. Generally, lenders require a minimum of 15% to 20% equity in your home to be eligible for a HELOC.

When comparing a HELOC vs a home equity loan, a key difference is that a HELOC allows you to draw funds as you need them, up to a maximum limit, over a draw period (often 10 years). By contrast, home equity loans disburse funds all at once.

With HELOC loans, you pay interest only on the amount you withdraw. Once the draw period ends, any remaining borrowed funds and interest are repaid over a repayment period, which can vary but typically spans 10 years.

Dive deeper: What Is a Home Equity Line of Credit?

How Does a HELOC Affect Your Taxes?

The interest paid on a HELOC could qualify as a tax deduction to lower your taxable income. If you own a home and are planning to claim a HELOC tax deduction, there are some requirements and limitations to keep in mind.

Turn your home equity into cash with a HELOC brokered by SoFi.

Access up to 95% or $500k of your home’s equity to finance almost anything.

Requirements for the HELOC Interest Tax Deduction

To answer “is interest on a HELOC tax deductible,” it’s essential to check that you meet certain requirements set by the Internal Revenue Service (IRS).

Since the Tax Cuts and Jobs Act of 2017, there are stricter requirements for how funds are spent to be eligible for a HELOC tax deduction. Specifically, funds from a HELOC must be used to buy, build, or improve a qualifying home — either a primary or second home. Eligible expenses can range from rewiring a house to replacing a roof or remodeling a kitchen. Note that funds must be spent on the same property used to secure the HELOC.

It’s also required that you have positive equity in the home used to secure the HELOC. If you have an underwater mortgage, meaning you owe more on the home than its value, you are not eligible for a HELOC tax deduction.

These requirements are in place for tax years 2018 through 2025. Prior to the rule change, a HELOC tax deduction could be made for interest paid on debt used for any type of personal expenses, not just home improvements.

Recommended: Cash Refinance vs. Home Equity

HELOC Tax Deduction Purchase Limits

HELOC tax deductions are not unlimited. So, up to what amount are HELOC loans tax deductible?

The IRS allows you to deduct interest on a maximum of $750,000 in residential loan debt (or $375,000 if married filing separately), including the primary mortgage and a HELOC. For instance, if you had $700,000 left on a home mortgage loan and $150,000 in HELOC debt, you could only deduct interest on the first $750,000 of debt.

If your primary mortgage or HELOC was approved before the 2018 tax year, you may be eligible to claim interest up to the previous limit of $1 million (or $500,000 if married filing separately). Borrowers who took out a HELOC in 2017 or earlier should note that the rule change did away with the $100,000 limit (or $50,000 if married filing separately) on home equity debt for tax deductions.

Tax Deduction Limits on Primary Mortgages

The tax deduction limits on primary mortgages are based on when the mortgage loan was taken out.
If you took out a mortgage before October 13th, 1987, there is no cap on mortgage interest tax deductions. Homebuyers who got a mortgage between October 13, 1987 and December 16, 2017, can deduct interest on up to $1 million in total mortgage debt for married couples filing jointly and single filers. The limit is $500,000 for married couples filing separately.

If you took your mortgage out after December 16, 2017, you can deduct up to $750,000 (or $375,000 if married filing separately).

These limits applied to all combined mortgage debt, including first homes, second homes, and HELOC loans.

Is Home Equity Loan Interest Tax Deductible?

The tax deduction rules for home equity loan interest is the same as a home equity line of credit. As long as you’re using funds to buy, build, or improve a home, you can claim a tax deduction on mortgage debt up to $750,000.

Recommended: What Is a Home Equity Loan?

How to Calculate a HELOC Interest Tax Deduction

Prior to filing taxes, you should receive IRS Form 1098 from your HELOC and mortgage lenders. This form indicates the interest you paid on your HELOC, primary mortgage, or home equity loan in the previous year.

If you used any HELOC funding for ineligible uses, such as personal expenses or debt consolidation, you’ll need to subtract that portion to get the deductible interest.

Besides the interest you paid on your primary mortgage and HELOC loan, total up other deductions like property taxes, mortgage points, and student loan interest. Since you can only deduct mortgage and HELOC interest payments with an itemized deduction, it’s important to check that the total of your deductions exceeds the standard deduction amount.

Here are the standard deduction amounts for tax year 2024:

• Single or Married Filing Separately: $14,600.

• Married Filing Jointly or Qualifying Surviving Spouse: $29,200.

• Head of Household: $21,900.

If the mortgage and HELOC interest, plus other tax deductions you’re eligible for, exceed the above amounts, then it’s worth considering itemizing.

Recommended: Personal Line of Credit vs. HELOC

How to Deduct Home Equity Loan Interest

To deduct home equity loan interest, you’ll need to gather any receipts or invoices documenting how the money was spent. Be sure to keep records of transactions for eligible home renovations and improvements to verify your deductions in case you are audited by the IRS.

Once you’ve compiled all the necessary documentation, you’ll itemize your deductions using Schedule A of IRS Form 1040.

Does a HELOC Affect Property Taxes?

While the amount you take out through a HELOC won’t affect your property taxes, the improvements you make to your home could potentially increase the value of your home. If your renovation is substantial and involves a permit, it could be more likely to change the appraised value and potentially increase your property taxes.

The Takeaway

You can deduct the interest paid on your HELOC if the funds are used to buy, build, or improve your home. HELOC tax deductions must be itemized, and they are only allowable for the first $750,000 in mortgage debt on qualifying primary and secondary residences.

SoFi now offers flexible HELOCs. Our HELOC options allow you to access up to 95% of your home’s value, or $500,000, at competitively low rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit brokered by SoFi.

FAQ

Do you report a HELOC on your taxes?

You report your HELOC interest on your taxes if you’re claiming an itemized deduction and you used your HELOC to build or improve your home.

Will a HELOC appraisal raise my taxes?

No, a HELOC appraisal will not raise your taxes. Property taxes are based on the appraised value of your home by your local government.

Does HELOC affect capital gains tax?

No, a HELOC does not affect capital gains tax on a home sale.

Photo credit: iStock/damircudic

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All loan terms, fees, and rates may vary based upon individual financial and personal circumstances and state.

You may discuss with your loan officer whether a SoFi Mortgage or a home equity loan from Spring EQ is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit brokered through SoFi. Terms and conditions will apply. Before you apply for a SoFi Mortgage, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and loan amount. Minimum loan amount is $75,000. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria.

SoFi Mortgages originated through SoFi Bank, N.A., NMLS #696891 (Member FDIC), (www.nmlsconsumeraccess.org). Equal Housing Lender. SoFi Bank, N.A. is currently NOT able to accept applications for refinance loans in NY.

In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

SOHL-Q224-1861934-V1

Source: sofi.com

Apache is functioning normally

May 10, 2024 by Brett Tams

Obtaining a mortgage with a reduced interest rate is a crucial objective for many prospective homeowners. Getting a good interest rate can save borrowers thousands of dollars over the course of a loan and have a big impact on your financial health.

It takes research and preparation to navigate the complicated world of mortgage rates, but making the effort can pay off with lower monthly payments and significant long-term savings.

What Is the Best Way to Get a Lower Mortgage Rate?

Although there’s no one-size-fits-all approach that will help homebuyers qualify for a mortgage at a reduced mortgage rate, there are a few crucial steps one can take. These include carefully tending your credit score and diligently comparing lenders and financing choices.

This may be especially daunting to first-time homebuyers, but borrowers who learn how to lower their mortgage interest rate can better their chances of long-term financial stability and successful homeownership.

💡 Quick Tip: SoFi’s award-winning mortgage loan experience means a simple application — we even offer an on-time close guarantee. We’ve made $7.5 billion in home loans so we know a thing or two about what makes homebuyers happy.‡

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

Pros and Cons of a Lower Mortgage Rate as a Home Buyer

As a prospective homeowner, getting a reduced mortgage rate could offer many benefits, though there are a few potential challenges as well.

Pros:

• Decreased monthly payments: A lower interest rate usually results in a lower monthly mortgage payment, giving you more money for investments or other expenses.

• Long-term savings: Depending on the loan amount and term, even a small interest rate reduction can save a significant amount of money over the course of the loan — possibly tens of thousands of dollars. Experiment with a mortgage calculator to see how the interest rate and loan term impact the total interest paid over the life of the loan.

• Building equity faster: As a result of lower interest rates, a larger portion of your monthly payment is applied toward paying off the loan, hastening the process of building equity in your house.

Cons:

• Qualification requirements: Borrowers with a strong credit rating, steady income, and a sizable down payment are frequently eligible for the lowest rates offered by lenders. Achieving these requirements may prove difficult for some buyers.

• Higher upfront costs: Securing a lower interest rate may require paying higher upfront costs, such as points or a big down payment.

• Limited availability: Some purchasers may find that the lowest advertised rates are only accessible to customers who qualify for certain loan types under particular circumstances.

• Market volatility: Interest rates can change over time for an array of economic reasons. An adjustable-rate mortgage may offer a borrower a low initial interest rate, but savings could be outweighed by rate hikes in the future.

Recommended: The Best Affordable Places to Live in the U.S.

Ways to Get a Lower Mortgage Rate

If you’re wondering how to get a lower interest rate on a mortgage, here are tactics you’ll want to take a look at:

Shop for Mortgage Rates

Finding the best loan terms for a house purchase requires doing your research on mortgage interest rates. Get quotes first from a variety of lenders, such as banks, credit unions, and online lenders. Consider whether you are eligible for a loan guaranteed by the government, such as a VA loan (from the U.S. Department of Veterans Affairs) or an FHA loan, backed by the Federal Housing Administration. Don’t accept the first mortgage deal you run across; shop around and compare rates offered by different lenders.

To evaluate rates, fees, and terms side by side, make use of online comparison tools. Never be afraid to ask a lender if they can match a competitor’s rate or give better conditions. Other considerations, like closing expenses and the caliber of the customer service, may influence your choice of mortgage, and the lowest rate that is advertised may not always be the best one. Make sure you have researched your selection and that it is in line with your long-term financial objectives.

Nurture Your Credit Score

Borrowers with better credit scores usually receive reduced rates from lenders. A better rate might result from paying your bills on time, cutting overall debt, fixing any inaccuracies on your credit report — or all three. Get a copy of your credit report from each of the big credit reporting agencies, check it for accuracy, and quickly request fixes for any inaccuracies. Next, focus on paying off current debts on time, maintaining modest credit card balances, and refraining from creating new credit lines unnecessarily.

Choose Your Loan Term Carefully

Investigate different types of mortgage loans, including fixed-rate and adjustable-rate mortgages (ARMs). Each type has a different interest rate structure and set of requirements. Shorter loan terms of 15 or 20 years usually have cheaper interest rates than 30-year mortgages, which results in significant savings over the course of the loan. They also typically have larger monthly payments.

Longer loans spread out payments over an extended period of time, which lowers the monthly payment but comes with higher overall interest charges. When choosing a loan term, take your cash flow, long-term objectives, and financial status into account. While a longer term could offer more flexibility with lower monthly payments, choosing a shorter term can help save money and allow you to pay off the mortgage sooner.

Make a Larger Down Payment

Increasing your down payment is one of the best ways to get a lower mortgage rate. For borrowers who are able to make a substantial down payment — typically 20% or more of the purchase price of the home — lenders frequently offer lower interest rates. A higher down payment shows financial responsibility and lowers the lender’s risk, which makes for a more desirable borrower. Borrowers can also eliminate private mortgage insurance (PMI) with a sizable down payment, which further reduces your monthly payment. Although stowing away a down payment takes time and discipline, there could be significant interest savings over the course of the loan.

Buy Mortgage Points

Purchasing discount points, sometimes referred to as mortgage points, can be a calculated move to obtain a cheaper mortgage rate. Each point costs 1% of the total loan amount and lowers the interest rate by a specific amount, usually 0.25% per point. Although purchasing points necessitates a one-time payment, it might provide substantial savings during the loan term. Before you purchase points, make sure you set aside cash reserves for emergencies. And ask yourself if you plan to stay in the house past the breakeven point (the point at which the monthly savings from a lower payment equal the initial cost of purchasing points).

Lock in Your Mortgage Rate

Once you’ve found a good rate and gone through the mortgage preapproval process, locking in your rate is a crucial step in protecting against potential rate increases during the closing process. When a rate is locked in, the lender agrees to guarantee the agreed-upon interest rate for a predetermined amount of time — usually 30 to 60 days — while the loan application is being processed. This guarantees that the rate won’t change during this time, even if market rates rise. If rates drop, though, one might not be able to benefit from the lower rates unless the lender has a float-down option.

Refinance Your Mortgage

If mortgage rates drop significantly (or your financial profile improves markedly) after you purchase your home, refinancing your mortgage can cut monthly payments and total loan costs. But it’s crucial to take into account refinancing charges, like appraisal and closing costs, and balance these against the possible savings from a lower rate. Homebuyers should think about long-term financial objectives and how refinancing fits within their total budget. Working with a reliable lender and thoroughly weighing options can help one decide if refinancing is the best course of action.

💡 Quick Tip: Have you improved your credit score since you made your home purchase? Home loan refinancing with SoFi could get you a competitive interest rate with lower payments.

Searching for Mortgage Rate Tips

Start by keeping an eye on market developments and learning how the economy affects mortgage rates. To be eligible for reduced rates, carefully manage your credit score. You can also get reasonable rates and better conditions by shopping around and comparing offers from different lenders. To optimize savings, think about the advantages of increasing your down payment, buying discount points, and selecting the ideal loan term. Lock in a cheaper rate while the market is favorable.

Recommended: Home Loan Help Center

The Takeaway

Prospective homeowners can improve their chances of obtaining a favorable rate and ultimately save a large amount of money over the course of their loan by raising their credit score, shopping around for the best rates, and negotiating with lenders. Market conditions, lender competition, and your individual financial situation will factor into your mortgage terms. Greater financial stability can be achieved from taking proactive measures to achieve a cheaper mortgage rate, whether through buying discount points or increasing the down payment.

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.

FAQ

Can you ask your mortgage company to lower your interest rate?

Yes, you can negotiate with your mortgage company to potentially lower your interest rate before you sign on for a loan. After you have a mortgage, you could ask your lender about a mortgage recast or a refinance.

What makes mortgage interest rates go down?

Mortgage interest rates can decrease due to factors such as economic downturns, changes in federal monetary policy, and market competition among lenders.

Can you negotiate a lower interest rate on a mortgage?

Yes, you can use variables like your creditworthiness, the state of the market, and lender competition to negotiate a lower interest rate on a mortgage.

Photo credit: iStock/Delmaine Donson
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.

*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 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.
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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.

^†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.

SOHL-Q224-1841870-V1

Source: sofi.com

Apache is functioning normally

May 7, 2024 by Brett Tams

With the Federal Reserve meeting again this week, many homebuyers are wondering about the future of mortgage interest rates.

Getty Images

All eyes will once again turn to the Federal Reserve this week as they meet to discuss the next steps with interest rates and economic policy. Specifically, will they raise rates above their current 23-year high? Or will they keep them steady following a series of disappointing inflation reports at the start of 2024? After all, rate cuts that seemed promising at the beginning of the year now seem off the table, possibly for the rest of the year.

And while the Fed doesn’t directly dictate rates for loans like mortgages, personal loans and other borrowing products, what they ultimately decide will greatly affect what rate lenders are willing to offer. Homebuyers will then follow this week’s meeting carefully. After coping with the highest mortgage rates since 2000, buyers are looking for relief — or signs of rate relief to come.

To that point, many are wondering if mortgage rates will rise after this week’s Fed meeting. That’s what we will break down below.

See what mortgage rate you could lock in before a potential increase here now.

Will mortgage rates rise after this week’s Fed meeting?

While no one knows with certainty what will happen after the Fed meeting, set for April 30 and May 1, the chances of a rate cut are minimal. Thanks to sticky inflation and a target inflation rate goal of 2%, more work must be done (the current inflation rate is 3.5%). So rate cuts look out for this week. While a rate hike is possible, it’s also unlikely to happen until more data about the fight against inflation becomes available.

With those scenarios accounted for, then, it’s likely that the Fed will keep its benchmark interest rate unchanged at a range between 5.25% and 5.50%. But what will that mean for mortgage rates?

It won’t be particularly positive. While a rate pause is better than a rate hike, even a hint at an extended pause — or the potential for rate hikes in the months to come — could cause mortgage rates to rise in anticipation. So what Fed chairman Jerome Powell says this week will go a long way toward cooling rates — or making them rise further. However, if homebuyers were hoping for a rate cut, as some were predicting at the end of 2023, that’s not likely to happen, at least for now.

See what mortgage rate you could secure before the Fed announces its rate decision.

How to get a lower mortgage rate now

While the sub-3% mortgage rates of 2020 are unlikely to return anytime soon (or ever again), that doesn’t mean homebuyers still can’t get a lower mortgage rate now. It will just require a bit more work and strategic planning. Here are three ways buyers can get a lower mortgage rate now:

Buy mortgage points: Mortgage points can potentially help you secure a rate half a percentage point or lower than average. By paying points (or a fee) to a lender at closing (or by having it rolled into your overall mortgage loan), you can potentially save hundreds of dollars each month with a lower rate. That said, the amount of points you can typically buy will be limited and will vary from lender to lender.
Get an adjustable-rate mortgage: An adjustable-rate mortgage (ARM) works as it sounds. It’s a mortgage in which the rate will adjust over time, typically starting at a below-average rate before rising after a predetermined period has concluded. That said, it’s important to crunch the savings here before acting because when the rate does adjust, it could become costly for many buyers.
Shop around: While you’re unlikely to find one mortgage lender that offers a rate a full point lower than another, you can, potentially, find one that offers a slightly lower rate than others. And in today’s rate climate, every basis point counts. So shop around for lenders to find one offering the best rates and terms (and be sure to compare fees and closing costs, too, to ensure that the lower rate won’t be canceled out by fees paid elsewhere).

The bottom line

The strong potential for mortgage rates to rise again this week, even if the Fed keeps rates unchanged, could be a motivating factor for buyers to lock in a rate now. That said, there are still effective ways to get a below-average rate, ranging from buying mortgage points to adjustable-rate mortgages to simply shopping around for the best rates and terms. None of these strategies will bring back the record-low mortgage rates of recent years, but they are all worth carefully considering until the Fed finally starts cutting rates again.

Matt Richardson

Matt Richardson is the managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.

Source: cbsnews.com

Apache is functioning normally

April 28, 2024 by Brett Tams

Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.

Home equity loan Home equity line of credit (HELOC) Interest rate Fixed Variable Monthly payment amount Fixed Variable Closing costs and fees Yes Yes, might be lower than other loan types Repayment period Typically 5-30 years Typically 10-20 years

FAQ

What is a rate lock?

Interest rates on mortgages fluctuate all the time, but a rate lock allows you to lock in your current rate for a set amount of time. This ensures you get the rate you want as you complete the homebuying process.

What are mortgage points?

Mortgage points are a type of prepaid interest that you can pay upfront — often as part of your closing costs — for a lower overall interest rate. This can lower your APR and monthly payments.

What are closing costs?

Closing costs are the fees you, as the buyer, need to pay before getting a loan. Common fees include attorney fees, home appraisal fees, origination fees, and application fees.

If you’re trying to find the right mortgage rate, consider using Credible. You can use Credible’s free online tool to easily compare multiple lenders and see prequalified rates in just a few minutes.

Source: foxbusiness.com

Apache is functioning normally

April 25, 2024 by Brett Tams

Were the good old days really all that good? Sure, when mortgage rates were below 3%, it was a lot cheaper to purchase a house, but we were also in the middle of a global pandemic.

At the start of 2021, the average rate for a 30-year fixed mortgage was 2.65%, according to data from Freddie Mac. During the homebuying boom of 2020 and 2021, the number of borrowers taking out new mortgages reached a more than two-decade high.

Over the past two years, a combination of high mortgage rates, low housing inventory and sluggish wage growth has crippled affordability for homebuyers.

While many are holding out for mortgage rates to fall, it’s unlikely we’ll see 2% mortgage rates any time soon. In fact, experts hope we don’t.

A return to that kind of low-rate environment would indicate major problems in the economy, said Alex Thomas, senior research analyst at John Burns Research and Consulting.

Mortgage rates typically fall during a recession. But a recession also comes with widespread unemployment, increased debt, investment losses and overall financial instability.

In today’s housing market, homebuyers should have realistic expectations. Experts predict mortgage rates to inch closer to 6% by the end of the year as inflation cools and the Federal Reserve starts to cut interest rates. Record-low mortgage rates aren’t in the cards again, and that’s likely for the best.

Mortgage rates change every day. Experts recommend shopping around to make sure you’re getting the lowest rate. By entering your information below, you can get a custom quote from one of CNET’s partner lenders.

About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.

How did mortgage rates drop below 3% in the first place?

Economic uncertainty and market volatility — whether during an election cycle or a pandemic — impact the direction of mortgage rates. It’s often said that bad news for the economy is good news for mortgage rates, and vice versa.

A significant lever for mortgage rates is the federal funds rate, which the Fed keeps low when it needs to stimulate economic growth. For example, during the 2008 financial crisis, the Fed slashed that benchmark rate to zero to bolster the economy. When there were signs of recovery in 2015, the central bank started raising interest rates again, sending mortgage rates into the 4% to 5% range until 2020.

The COVID-19 pandemic sparked another economic crisis. To incentivize people to borrow and spend money — and avoid a prolonged recession — the Fed once again cut the federal funds rate to near zero and pumped money into the economy by purchasing government bonds and mortgage-backed securities. Mortgage interest rates fell quickly, bottoming out in the mid-2% range in 2021.

But the combination of supply shocks, record-low rates and an extreme increase in money supply from government stimulus helped send prices way up, according to Erin Sykes, chief economist at NestSeekers International.

In early 2022, the Fed had a new problem on its hands: inflation.

💰 Federal Reserve monetary policy

In a recession, the Federal Reserve tries to spur economic growth through quantitative easing, a monetary policy that consists of cutting the federal funds rate to encourage lending and borrowing to consumers, and increasing its purchase of government-backed bonds and mortgage-backed securities.

If the Fed needs to slow the economy down and reduce the money supply in financial markets, it does opposite: quantitative tightening. By increasing the federal funds rate and tapering its bond-buying programs, the central bank raises the cost of borrowing money, which puts upward pressure on longer-term interest rates, like 30-year fixed mortgage rates.

What caused mortgage rates to surge again?

With prices surging in 2022, the Fed’s main tool was to adjust interest rates, making credit more expensive and disincentivizing borrowing. As a result of a string of aggressive rate hikes, the federal funds rate went from near zero to a range of 5.25% to 5.5%, where it’s remained since last summer. Average mortgage rates skyrocketed, peaking past 8% last October.

Although inflation has gone down, the Fed isn’t ready to start lowering rates just yet. The central bank would like to see evidence of a weaker economy (including consistently lower inflation and higher unemployment) before making any adjustments to its monetary policy.

📈 How the Fed impacts mortgage rates

Though the Federal Reserve doesn’t directly set mortgage rates, it controls the federal funds rate, a short-term interest rate that determines what banks charge each other to borrow money. When the federal funds rate moves up, it impacts longer-term interest rates, like 30-year fixed mortgage rates, as banks raise interest rates on home loans to keep their profit margins intact.

Why won’t mortgage rates move toward 2% again?

Economists and housing market experts agree that mortgage rates will fall over the next several years, but not below 3%.

When mortgage rates hit their record lows just a few years ago, the federal funds rate was near zero. As the Fed starts cutting rates later this year, the plan is to do so slowly and incrementally. Barring another major economic shock, the Fed projects the federal funds rate will take only modest adjustments down.

In the most recent policy meeting, Fed Chair Jerome Powell remarked that the federal funds rate “will not go back down to the very low levels that we saw” during the financial crisis, suggesting that the economy can adapt to a more “neutral” benchmark rate range of between 2.4% to 3.8% in the long run, i.e., less tightening, but not too much easing from the current range of 5.25% to 5.5%.

The Fed would be forced to lower rates close to zero only if there were a dramatic economic shock, such as a pandemic or recession, said Selma Hepp, chief economist at CoreLogic. In that case, if the central bank started purchasing government bonds and mortgage-backed securities again, there’s a possibility mortgage rates could return to those record lows.

However, without such an upheaval, there’s a floor under how low mortgage rates will go, and it’s highly unlikely they’ll ever drop to their 2020-2021 levels.

“With the Federal Reserve ending quantitative easing and stepping out of the market for mortgage-backed securities, rates will settle at a much higher level,” said Matthew Walsh, housing economist at Moody’s Analytics.

Moody’s Analytics predicts mortgage rates will stabilize between 6% and 6.5% over the next few years. That’s high compared with the recent past, yet it’s a historically normal range for mortgage rates.

How can homebuyers adapt to higher mortgage rates?

The housing market is frustrating, but prospective homebuyers are starting to come to terms with this new reality. Following the pandemic, people are moving on with their lives, whether that’s building a family, relocating, downsizing or upgrading.

For some households, that means making room in their budget for a monthly mortgage payment at a 6% or 7% rate.

When you monitor mortgage rate movement, you’re usually looking at national averages determined by weekly rate information provided by lenders. While those rates give a picture of the “typical” mortgage rate, that’s not necessarily the rate you’ll get when applying for a mortgage.

It’s possible to get a better deal on your mortgage.

To qualify for a mortgage, most lenders require you to have a minimum credit score of 620, but lenders offer the lowest mortgage rates to consumers with excellent credit scores, around 740 and above.

You might also consider purchasing mortgage points, also known as discount points. This is an extra fee you pay upfront in exchange for a lower interest rate. Each mortgage point typically costs 1% of the purchase price of a home and will lower your mortgage rate by 0.25%.

A shorter-term loan like a 15-year or 10-year mortgage will have a lower interest rate than a 30-year fixed mortgage. Your monthly payments will be higher with a shorter-term loan because you’re paying the loan off in less time, but you’ll save big on interest.

Buying a home is likely the biggest transaction you’ll make in your lifetime. Regardless of the market, carefully assess your needs and what you can afford.

And don’t hold your breath for 2% mortgage rates.

Source: cnet.com

3 mortgage rate mistakes to avoid in June

Waiting for the Fed to cut rates

Not locking in a rate now

Not knowing exactly which loan type to choose

The bottom line

Key takeaways

What is a non-qualified mortgage?

What are the features of a non-qualified mortgage?

How does a non-qualified mortgage differ from a qualified mortgage?

The “ability-to-repay” rule

Restrictions on risky features

Caps on fees and points

Limits on debt-to-income ratio

Is a non-qualified loan the same as a non-conforming loan?

Who can benefit from non-qualified mortgages?

How do lenders verify income for non-qualified loans?

What are the drawbacks of a non-QM loan?

Pros

Cons

Where can you get a non-QM loan?

FAQ

What is a rate lock?

What are mortgage points?

What are closing costs?

1. Check Your Credit Score and Credit Reports

2. Really Spend Time Shopping Around

3. Consider a Co-Signer

4. Save Up For a Big Down Payment

5. Choose a Shorter Loan Term

6. Improve Your Debt-to-Income Ratio

7. Ask About Discounts

8. Use Mortgage Points

FAQ

What is a rate lock?

What are mortgage points?

What are closing costs?

What Is a HELOC?

How Does a HELOC Affect Your Taxes?

Turn your home equity into cash with a HELOC brokered by SoFi.

Access up to 95% or $500k of your home’s equity to finance almost anything.

Requirements for the HELOC Interest Tax Deduction

HELOC Tax Deduction Purchase Limits

Tax Deduction Limits on Primary Mortgages

Is Home Equity Loan Interest Tax Deductible?

How to Calculate a HELOC Interest Tax Deduction

How to Deduct Home Equity Loan Interest

Does a HELOC Affect Property Taxes?

The Takeaway

FAQ

Do you report a HELOC on your taxes?

Will a HELOC appraisal raise my taxes?

Does HELOC affect capital gains tax?

What Is the Best Way to Get a Lower Mortgage Rate?

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

Pros and Cons of a Lower Mortgage Rate as a Home Buyer

Ways to Get a Lower Mortgage Rate

Shop for Mortgage Rates

Nurture Your Credit Score

Choose Your Loan Term Carefully

Make a Larger Down Payment

Buy Mortgage Points

Lock in Your Mortgage Rate

Refinance Your Mortgage

Searching for Mortgage Rate Tips

The Takeaway

FAQ

Can you ask your mortgage company to lower your interest rate?

What makes mortgage interest rates go down?

Can you negotiate a lower interest rate on a mortgage?

Will mortgage rates rise after this week’s Fed meeting?

How to get a lower mortgage rate now

The bottom line

FAQ

What is a rate lock?

What are mortgage points?

What are closing costs?

How did mortgage rates drop below 3% in the first place?

💰 Federal Reserve monetary policy

What caused mortgage rates to surge again?

📈 How the Fed impacts mortgage rates

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