A new report released this week revealed that the majority of loan originators make $100,000 or more annually.
This was one of the major takeaways from Mortgage Daily’s 2012 Loan Originator Survey, which included 175 originators (120 who completed ALL questions).
Per the survey, nearly 60% of respondents indicated that they made at least $100,000, which is about double the median household income in the United States.
Additionally, many noted that they would have made even more if it weren’t for the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
However, a small share said they profited from the new requirements, perhaps because of fewer competitors in the space.
The biggest complaint from originators had to do with appraisal requirements, and the fact that many appraisals are coming in low these days (sign of the times).
Most of those surveyed do not work for banks, and more than a quarter are self-employed, meaning many could be mortgage brokers.
A study back in 2011 found that mortgage brokers generated average revenue of 2.25 mortgage points per loan, before the new compensation rules took effect, and predicted that number wouldn’t change.
On a $200,000 loan, we’re talking $4,500, less expense. So for the broker originating numerous loans monthly, you can see how it all adds up.
This figure probably used to be a lot higher during the boom, back when loan officers and brokers could get paid excessive amounts by both the lender and the borrower, not just one.
Is the Survey Skewed?
While this survey gives us a little insight into how much some originators are making these days, the number of participants is a bit limited.
Additionally, you have to wonder how many of the low-producing originators chose to take part in the questionnaire.
Those who aren’t having a banner year might not be keen on filling out a survey.
And salaries are always going to display an enormous range in the real estate business, mainly because there are those who work part-time, those who just entered the fray, and those who have been in business for decades that are well connected.
Just look at real estate agents, excuse me, Realtors, who made a median $34,100 in 2010.
The median salary for those in business for two years or less was just $8,900, while it was $47,100 for those in business 16 years or more, per NAR.
And 16% earned a six-figure income, revealing the major disparity among agents.
Fifth Third Providing Employment Solutions to Unemployed Mortgage Borrowers
Here’s a little something related, as it has to do with employment. Fifth Third Bank said it partnered with NextJob, a “nationwide reemployment solutions company,” to find jobs for its unemployed mortgage borrowers.
The program, which was piloted in 2012, targets bank customers who are at serious risk of default on their mortgages.
Of those who took part so far, 40% were fully employed after six months, making the program a novel way for both the bank and borrowers to avoid foreclosure.
NextJob helps borrowers create an effective resume and cover letter, carry out a targeted job search, and train and prepare for interviews.
Perhaps banks and lenders should consider hiring these at-risk borrowers in their own lending departments, seeing that they’re all having capacity constraints.
That could solve two problems in one, and by the sound of it, the compensation ain’t too shabby. But in all seriousness, if you’re a Fifth Third mortgage customer in need of assistance, check it out.
A cash-out refinancing loan is treated differently by the IRS than a traditional mortgage. Although you receive a lump sum of cash, cash-out refinancing is considered a form of debt restructuring, and you do not pay taxes on the cash you receive.
With cash-out refinancing, you cash out a percentage of the equity that you have accrued in your home and replace your existing mortgage with one with a higher principal. You can use the cash for any reason, such as consolidating debt, paying for home renovations, or unexpected medical expenses.
Here’s what you should know about cash-out refinancing and the tax implications.
How Cash-Out Refinancing Works
When you refinance your mortgage, you cash out equity. Equity is the difference between your current mortgage balance and the value of your home today. Let’s say your home is worth $300,000 and the balance on your mortgage is $150,000, you have $150,000 in home equity.
A lender typically requires you to keep at least 20% of the value of your home in equity. In the above case, you would leave $60,000 in equity and have $90,000 to cash out. Your mortgage lender would also charge around 1% in closing costs.
First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.
The Tax Implications of Mortgage Refinancing
A cash-out refinancing loan is treated differently by the IRS than a traditional home loan because it is considered a form of debt restructuring. You do not pay tax on the money you receive in cash, and you might also be able to deduct some of the interest you pay on that cash from your taxes.
Here’s a closer look at the tax implications of a cash-out refinancing loan.
Is a Cash-Out Refinance Taxable?
Because the IRS considers a cash-out refinance to be a form of debt restructuring, the cash you receive is considered a loan, not income, and is not taxed. In addition, you could receive additional tax benefits depending on how you spend the money you receive.
If you use the cash to increase the value of your home, such as putting on a new addition or replacing your heating or cooling system, you can claim the interest that you pay on the loan as a tax deduction.
Before you do this, however, consult a tax professional to make sure that the work qualifies. Simple repairs like painting or general maintenance do not qualify for tax deductions. You will also have to keep meticulous records and save receipts documenting what you spend so that you can prove your case when you file your taxes.
Requirements for Interest Deductions on a Cash-Out Refinance
Capital improvements to a property that increase its value will qualify for an interest deduction. Examples could include a new addition, a security system, or a new swimming pool. General maintenance and repairs will not qualify, nor can you deduct the interest you pay on the loan if you spend the money on a vacation, medical bills, or credit card debt.
How to Make a Cash-Out Refinance Tax-Deductible
Below is a list of home improvements that qualify for the interest deduction.
Qualifying Home Improvements
• Renovating or adding on an addition, such as a garage or a bedroom
• Putting in a swimming pool
• New fencing
• New roof
• New heating or cooling system
• Installing efficient windows
• Installing a home security system
Improving your property’s value means you can also save money if you sell your home. Capital home improvements count toward the total amount you spent on the property and can potentially lessen your capital gains tax liability when you sell your home.
Deductions for Adding a Home Office
Adding a home office to your home is a capital improvement that qualifies for the interest deduction on a cash-out refinancing loan. There are also additional potential tax benefits to adding a home office for small businesses or the self-employed.
How Home Offices Can Impact Your Taxes
You can deduct the interest on your cash-out refinancing loan if you use the money to add a home office, because it will increase the value of your home and is considered a capital improvement. If you are a business owner or self-employed, you could also qualify for the home office deduction on your federal taxes.
The home office deduction is a benefit that allows you to claim a percentage of what you pay on your loan as a business expense. You must use the designated office space for business purposes only, and it cannot be used as a spare bedroom or family space or it will not qualify. Also, your home office must be the primary place where you conduct business.
Recommended: What to Know Before You Deduct Your Home Office
Tax Implications of a Cash-Out Refinance for Rental Property
Rental income is considered personal income by the IRS. If you use the capital from a cash-out refinance to improve or repair a rental property, the expenses are tax-deductible. Also, interest, closing costs, and insurance paid on a rental property can be deducted from your income as business expenses.
What Are the Limitations for Interest Deduction with a Cash-Out Refinance?
For the 2022 tax year, single filers and married couples filing jointly could deduct mortgage interest up to $750,000. Married taxpayers who file separately could deduct up to $375,000 each. (The limit is higher for debts incurred prior to December 16, 2017: $1 million or $500,000 each for married couples filing separately.)
Can You Deduct Your Mortgage Points?
Mortgage points, also known as discount points, are fees you pay a lender upfront so that you can pay a lower interest rate on your loan. One point is equal to 1% of your mortgage loan. With a cash-out refinance, you cannot deduct the money you paid for points in the year you refinanced until after 2025. But you can spread out the cost throughout the loan. That means if you accumulate $2,500 worth of mortgage points on a 15-year refinance, you can deduct around $166 per year throughout the loan.
Risks of a Cash-Out Refinance
Cash-out refinancing is a risk. You are taking on a larger loan than your original home mortgage, which means that your monthly mortgage payment will increase unless interest rates are lower than when you applied for your current mortgage. If your payments are higher and you can’t keep up with them, you could be at greater risk of foreclosure.
Alternatives to a Cash-Out Refinance
Two financing alternatives that also use equity in your home are a home equity loan or a home equity line of credit (HELOC).
A home equity loan is a second mortgage for a fixed amount that you repay over a set period while keeping your original loan. The payments include interest and principal, just like a traditional mortgage, but the interest rate may be higher than a primary mortgage. This is because the primary lender is paid first in the event of foreclosure, so the secondary lender takes on more risk.
A home equity line of credit (HELOC) is also a second mortgage but with a revolving balance. That means you can borrow a certain amount, pay it back, and then borrow again. As with a credit card, your payments are based on how much you use from the line of credit, not on the available credit amount. If you don’t need to borrow a large sum, this might be a cheaper option than cash-out refinancing because a HELOC tends to have a lower interest rate.
Recommended: Home Equity Loans vs HELOCs vs Home Improvement Loans
The Takeaway
Cash-out refinancing is a way to access the equity in your home and use it to pay for expenses, though it does mean taking on increased debt. The cash from this type of mortgage refinancing can be used any way you like, such as to pay for home renovations, college, or unexpected medical expenses.
When you opt for cash-out refinancing, your original mortgage is replaced by a larger mortgage. If interest rates are lower than when you took out your original mortgage, your monthly payments may go down, but it will take you longer to pay off the loan. Depending on how much cash you need, you can also consider a HELOC or a home equity loan to obtain the money you need.
Turn your home equity into cash with a cash-out refi. Pay down high-interest debt, or increase your home’s value with a remodel. Get your rate in a matter of minutes, without affecting your credit score.*
Our Mortgage Loan Officers are ready to guide you through the cash-out refinance process step by step.
FAQ
Is cash-out refinance tax-deductible?
Some of the interest you pay on a cash-out refinancing loan might be tax deductible if you use the money to make capital improvements on your home and you keep meticulous documentation to prove it. It’s best to consult with a tax professional to make sure the improvements you do on your home qualify for the deduction.
Do you pay taxes on a cash-out refinance?
No. The funds you receive from cash-out refinancing are not subject to tax because the IRS considers refinancing a form of debt restructuring, and the money isn’t categorized as income.
How do I report a cash-out refinance on my tax return?
You don’t need to report the cash you receive from a cash-out refi as income, so the refi would only show up if you record the interest you are paying on the new mortgage on an itemized return.
What are the tax implications of a cash-out refinance on a rental property?
Rental income is taxed as personal income by the IRS. The good news is that if cash from a refinancing is used to improve or repair a rental property, the expenses are tax-deductible. Also, closing costs, interest, and insurance paid on a rental property may also be deductible from your income as business expenses.
How does the timing of a cash-out refinance affect my taxes?
As long as you meet the requirements for capital improvements, you can deduct the interest paid on your refinanced loan every year that you make payments throughout the life of your refinance loan. So, if you refinance your mortgage to a 15-year term, you must spread your deductions over the 15 years. However, you can only deduct the interest you pay each year, and the amount of interest paid will become less as the loan matures and you pay more toward the principal.
Photo credit: iStock/Jun
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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With the mortgage industry still rightsizing, mortgage professionals are worried about regulation of the industry and inflation that thins already tiny margins. Industry players are largely pessimistic about the economic climate and expect interest rates to trend up in the near term future, according to the HousingWire Q2 2023 LenderPulse survey.
Roughly 30% of 155 respondents of the LenderPulse survey pointed to increased regulation, rising interest rates and inflation as the biggest challenge they face in the next three months, out of a total of 11 options that included lender stability, underwriting problems and competitiveness of product offerings.
About 19.4% of the surveyed mortgage professionals said loans falling through was the biggest challenge, ranking as the second most challenging factor. Lead generation ranked as the third biggest hurdle at 15.5% and staying motivated trailed at the fourth place at 14.2%.
Other challenges selected by mortgage professionals were relationships with real estate agents at 8.4%; competitiveness of rate sheet and underwriting problems at 5.8%; lender stability at 3.9%; competitiveness of product offerings at 1.9%. None of the surveyed mortgage professionals said staff cuts caused decreased ability to close loans and lack of training were the challenges they faced.
LenderPulse requests surveys from 24,000 mortgage professionals across the country on market trends and lender opportunities and challenges. Of the 155 completed surveys, 32.3% of the respondents were from the Southwest, 21.3% from the Midwest, 16.8% from the Northeast, and 14.8% of the respondents from the Northwest and Southeast. RealTrends LenderPulse is a forward-looking quarterly survey. The survey was conducted from February 27 to April 3.
Economic and Housing Market Outlook
Amid theFederal Reserve‘s efforts to tame inflation, 44.5% of surveyed mortgage professionals expressed pessimism about the economy in the next three months. Of the total, 36.1% were neutral and 19.4% were optimistic.
Mortgage professionals’ pessimism about the economy in the near term stemmed from expectations of interest rates trending higher.
About 47.1% of the respondents said rates will likely go up in the next three months, 30.1% of the survey participants said rates will remain flat while 22% said rates will trend down.
A total of 45% of participants said home sales in their markets will remain flat for the next three months; 30.3% said sales will go up more than 5%; and 25.2% expected sales to go down more than 5%
In the latest report from the National Association of Realtors (NAR), existing home sales rose 14.5% in February month over month for the first time after 12 months of decline.
Incentives in the Market
In a higher-rate environment, temporary rate buydowns funded by sellers, lenders or builders were widely offered as an incentive for buyers.
The majority of the 155 respondents – about 70% of the total – noted temporary rate buydowns funded by the seller, builder or lender are offered as incentives to buyers.
“Sellers are entertaining offers with rate buydowns and concessions to keep this market going but also to sell their property,” a loan originator in California said.
In a high-rate environment, lenders call the temporary rate buydown a win-win strategy for both sellers and buyers when used appropriately.
For example, a 2-1 buydown can be paid for by the homebuyer or the home seller can pay for it as a seller concession. That payment can be made in the form of mortgage points or a lump sum deposited in an escrow account with the lender and used to subsidize the borrower’s reduced monthly payments.
“As it pertains to buydowns and or seller funded buydowns, in my opinion and from my perspective I feel this product is really only viable and something that makes sense for a borrower if the buydown is seller or builder funded,” an operations manager based in California said. “It is essentially free money that would be credited back to the borrower should they pay the loan off within the buy down structure (1/0, 2/1, or 3/2/1).”
Seller credit for closing costs, price reductions waiving of fees, and adjustable-rate mortgages (ARMs) were also mentioned by mortgage professionals as incentives offered in the market.
“The 2/1 buydowns were working great, but now the market has tightened with a lack of supply of homes on the market, so a lot of the sellers quit offering this or accepting this,” a mortgage broker in Arizona said.
“Borrowers opt for ARMs more often than a fixed rate for a more competitive rate. Many are curious about buydowns but we are currently operating in what is still a seller’s market so not seeing many seller-funded buydowns,” a loan officer in Boston noted.
Pivot to a purchase mortgage market
In a purchase mortgage-focused market, getting referrals from real estate agents is key to landing business.
Keeping in contact with Realtors periodically, forming new relationships at open houses and setting up in-person meetings were how mortgage professionals strengthened relationships with realtors, according to the submitted written responses.
“Volunteering with our local Board of Realtors, on three (3) committees; Education, Banking & Finance and Membership Engagement. Looking to form relationships that I can turn into referrals down the road once they realize how organized I am, how smart I am and that I am a relationship lender in a local community bank!” a loan officer in Washington noted.
Sharing leads and sending out newsletters are ways loan officers try to get themselves to stand out in a highly competitive industry.
“Actively engaging with them, monthly lending newsletter, training opportunities [is how we strengthen relationships with Realtors],” an executive at a regional bank in Michigan said in a written response.
“Our goal is to strengthen our Realtor partners relative to their competitors. To do this, we’re holding skills and knowledge classes and meeting face to face to share best practices,” a loan officer located in Texas said.
If you have questions about LendingPulse email RealTrends Editorial Director Tracey Velt at [email protected]. Also, be sure to sign up for the new Data Digest newsletter, a weekly breakdown of news, tips and strategies for success.
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For months, experts have been sounding the alarm about how Americans who took out mortgages when rates were low are reluctant to sell and borrow now that they’ve skyrocketed.
New research, however, has found there is a magic number that makes homeowners more motivated to move.
A June survey of 1,815 homeowners from real estate listing site Zillow found that homeowners with mortgage rates 5% or higher were significantly more likely than those with lower rates to say they plan to sell. As home listings tick down amid today’s elevated rates, the findings suggest that supply could increase again in the coming years.
What the data says
Homeowners with mortgage rates 5% and up were twice as likely to say they plan to sell their homes in the next three years than those with rates under 5%. Among homeowners who said they have plans to sell, almost half paying mortgage rates above 5% said they already have their house listed for sale. (Only 20% of homeowners paying rates below 5% said the same.)
For perspective, about 80% of mortgage borrowers said their current rate is below 5%, and 90% have a rate under 6%. Nearly a third said their rate was less than 3%.
Of homeowners with higher mortgage rates who said they were thinking about selling, 65% said rates were an influencing factor. About 35% of lower-rate homeowners said the same.
Keep in mind, though, that factors other than mortgage rates can play a role in a homeowner’s choice. The survey found that fewer than half (42%) of all homeowners thinking about selling said that mortgage rate fluctuations were a reason they decided to move.
What it means
Mortgage rates are hovering around 7% at the moment, and most homeowners would have to take out new mortgages at a higher rate if they were to move. According to Zillow, the ordinary monthly mortgage payment is now twice what it was in 2020, when rates were at historic lows.
Homeowners who took out mortgages when rates were lower could pay hundreds more a month if they take out a new mortgage right now. It’s no surprise that, as a result, homeowners are reluctant to move and locked into their current rates.
Mortgage rate locks push home prices up and listings down, creating a challenging market for buyers. Zillow’s June housing market report found that there were 28% fewer new for-sale listings compared to the same time last year.
Home values have climbed in all the 50 largest metropolitan areas, bringing the typical U.S. home price to more than $350,000. Another recent report from real estate listing site Redfin found that homebuyers have lost $60,000 in purchasing power in the last year. Mortgage rates are so high that “many homeowners will move only for major life events, like a new baby or retirement,” Orphe Divounguy, a senior economist at Zillow Home Loans, said in a news release.
Despite the difficult circumstances, Zillow says its analysis offers hope that more homes could hit the market in the next few years as homeowners accept higher rates as the new norm. About 23% of homeowners surveyed said they were thinking about selling in the next three years or already have their home listed. Among homeowners with a mortgage rate above 5%, 38% said they would consider selling their home in the next three years.
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Getting creative
Additional research from Zillow Home Loans also found that buyers are finding creative ways to cope with high mortgage rates.
A separate survey released in April found that 45% of all buyers are purchasing mortgage points — which allow buyers to pay a fee to buy down the interest rate on a loan — to lower their interest rate. They’re also opting for smaller, cheaper homes and keeping an open mind when it comes to their wish lists.
More from Money:
Foreclosures Are on the Rise in These 10 U.S. Cities
Housing Market Forecast: Will Home Prices Drop in 2023?
Property Values Might Fall Soon — Here’s What Homeowners Can Do to Prepare
High mortgage interest rates have left many buyers with limited options but there are still some things they can do.
Getty Images/iStockphoto
After promising signs that it was cooling off, inflation ticked back up in July, giving many Americans pause. With higher costs come higher interest rates meant to combat it. And, after the Federal Reserve made yet another increase last month interest rates hit a 22-year high, the benchmark interest rate is now sitting at a range of 5.25% to 5.50%, leaving many borrowers with few options.
This has been felt for everything from credit card usage to personal loans to homebuying. With interest rates for mortgages currently around 7%, many buyers have elected to sit tight until they come back down again. But they don’t have to be completely idle, either. In fact, there are some things buyers can do now, even if mortgage rates stay elevated.
Start by exploring your personal mortgage rate options here now to see what you qualify for.
What homebuyers should do in today’s high rate environment
Here are three things prospective buyers can still do in today’s high rate environment.
Shop around for lenders
Will you find the 3% interest rate of the recent past by shopping around for lenders? That’s unlikely. But you still may be able to secure a better rate by shopping around instead of committing to the first lender you find. The difference in rate quotes you get may be small, but every point (and every tenth of a point) still counts, particularly now.
Most experts would recommend getting quotes from at least three lending institutions, although it couldn’t hurt to get more. Just make sure you coordinate your research appropriately and time your requests within a short window. Otherwise, you could damage your credit score with multiple, prolonged credit qualification checks.
You can easily compare rates and lenders online here now.
Consider buying mortgage points
Mortgage points allow borrowers to get a lower interest rate than the market rate — for a fee. By paying the fee upfront (or by rolling it into your overall mortgage loan), you could secure a lower interest rate, thus opening the potential to buy a home now.
While you won’t be able to buy points that drop a 7% mortgage to 2%, you may be able to get it down to 6.6% or slightly lower. That difference could add up over time — making your immediate mortgage payments more manageable.
Just plan on staying in your new home long enough to recuperate the costs spent to obtain the mortgage points. Otherwise, it may not be worth it.
Improve your credit as much as possible
While a 7% interest rate may not be particularly appealing, it could be worse. And it will be if you apply for a mortgage with a low credit score or incomplete credit history. The best and lowest mortgage interest rates are reserved for those with the best credit, so if your score is subpar you’ll want to make every effort to improve it.
This can include paying down (or off) existing debts, paying bills on time (or early) and not applying for any additional credit. Every additional credit application you submit will require a credit check, resulting in your score getting dropped further.
By improving your credit score — and maintaining it at a high level — you’ll be best positioned to get the lowest rate available.
The bottom line
The low mortgage interest rates from 2020 and 2021 are in the past, with no real expectation that they will return anytime soon. That said, there are still some advantages to buying a home now — and there are things buyers can do to get the best rate possible in today’s market. By shopping around for lenders, buying mortgage points and improving your credit score as much as possible, you’ll position yourself for the very best rates and terms available while still keeping an eye on a potential refinance in the future. Get started here now!
Today, Bank of America reached a historic agreement with the U.S. Department of Justice to pay the largest settlement in U.S. history related to toxic mortgage loans it knowingly sold to investors.
In short, the company admitted that it misrepresented the quality of the loans it packaged and sold to investors via its Merrill Lynch and Countrywide Mortgage brands, as well as through Bank of America.
Additionally, the bank has taken responsibility for its faulty loan origination practices that resulted in Fannie Mae, Freddie Mac, and the FHA taking on countless bad loans that eventually hurt American taxpayers (not to mention homeowners).
The bank also settled a case with the SEC in which it knowingly “shifted the risk” of wholesale loans originated by mortgage brokers that were described internally as “toxic waste.”
Simply put, the bank and its affiliates made trillions of very bad loans that they tried to pawn off, and now they must pay.
Speaking of payment, the company has agreed to pay $9.65 billion in cash, including $5.02 billion in civil monetary penalty and $4.63 billion in compensatory remediation payments.
Additionally, BofA will provide $7 billion in consumer relief, which will come in the form of loan modifications, including principal balance reductions, forbearance, and second mortgage extinguishments.
How Does a 2% Interest Rate Sound?
Thanks to a major settlement with the Justice Department
Related to its questionable loan origination practices
Bank of America will offer some lucky homeowners
2% mortgage rates on fixed mortgages
Most significantly, some lucky homeowners will receive principal reductions that lower their loan-to-value ratio to 75%. But that’s not all. They’ll also receive a 2% interest rate on their mortgage that is fixed for the life of the loan.
The Department of Justice provided an example where a homeowner with a $250,000 mortgage balance would see it fall to just $112,000 on a property worth only $150,000 today.
That’s a pretty good deal, regardless of what may have happened to the homeowner.
Let’s be honest, a lot of borrowers knew they weren’t providing proper income documentation either, or that their home appraisal was a tad bit steep. But I’m sure they looked the other way, just like everyone else at the time.
The DoJ also negotiated a tax break for those who receive relief under the settlement assuming the Mortgage Forgiveness Debt Relief Act isn’t extended.
They created a so-called 25/25 Tax Relief Fund where 25% of the value of the relief will be made available to offset any tax liability, up to $25,000. But the amount of money set aside is limited, so not all homeowners will be able to take advantage.
During his speech, Associate Attorney General Tony West called on Congress to extend the Act so homeowners won’t be on the hook for phantom income.
Bank of America will also be required to provide more low- to moderate-income mortgage originations, expand affordable housing initiatives, and provide community reinvestment for neighborhoods experiencing or at risk or urban blight.
The settlement is expected to reduce the company’s third quarter pre-tax earnings by $5.3 billion and reduce earnings per share by 43 cents.
Obviously the stock was up on the news, because that’s how the stock market works. But really, investors are probably happy to see the bank move forward from the mortgage mess once and for all.
And its current price of under $16 a share is still just a fraction of what it was during the previous housing boom when shares traded in the low $50 range.
Bank of America Mortgage Rates Are Fairly Competitive
While Bank of America’s standard rates are pretty competitive
You might find a better deal with a non-household name
And receive a better overall home loan experience
Sometimes smaller is better if you want a more personal touch
At the time of this writing (June 5th, 2018), Bank of America was offering a 30-year fixed mortgage at 4.625% with 0.414 mortgage points. It works out to an APR of 4.798%.
They also have a 20-year fixed at 4.375% (4.638% APR) with 0.655 mortgage points.
And a 15-year fixed is being offered at 4% even (4.339% APR) with 0.699 mortgage points.
Bank of America also offers ARMs, including a 10/1 ARM, 7/1 ARM, and a 5/1 adjustable-rate mortgage.
As of 6/5/18, they were priced at 4.125% (4.659% APR), 4% (4.711% APR), and 3.875% (4.774%), respectively. As you can see, the APR of each product is very similar, so it’s important to look at all the details when deciding on a loan product.
For the record, their advertised rates tend to require a credit score of 740 or higher and a minimum 20% down payment.
Most lenders, including Bank of America, assume you’re a pristine borrower so they can advertise the lowest mortgage rates possible.
Homeowners with a mortgage rate above 5% are nearly twice as likely to say that they plan to sell their home than those paying a rate below 5%, according to Zillow’s quarterly survey report.
Additionally, the survey found that about 80% of mortgage holders reported having a rate of less than 5%, while 90% reported having a rate of less than 6%. Almost one-third reported having a rate of less than 3%.
Mortgage rates, by first being historically low during the pandemic and then jumping into the 7% range, have incentivized homeowners to stick around instead of moving. As a result, total existing home sales slipped 3.3% in June from the prior month to a seasonally adjusted annual rate of 4.16 million.
“We expect mortgage rates may notch down slightly as inflation comes under control, but they are unlikely to return to 5% in the near future,” said Orphe Divounguy, a senior economist at Zillow Home Loans. “That means many homeowners will move only for major life events, like a new baby or retirement. Over time, homeowners will likely accept higher rates as the new normal, but until then, the market could remain challenging for home shoppers, who will see fewer options and higher prices.”
Nearly one-quarter of homeowners are considering selling their home in the next three years or currently have their home listed for sale (23%), per Zillow. It is significantly higher than the 15% of homeowners who said the same one year ago. In fact, the share is even greater among mortgage holders who have a mortgage rate above 5%. Nearly 40% of those homeowners say they would consider selling their home in the next three years.
Of the homeowners considering selling in the next three years, two-thirds (66%) cited a desire for an upgraded home with nicer features as the reason. Half said it was because they expect to get more money now than in the future, and 45% said a growing family would influence their decision to sell and find a new house.
All of this suggests inventory could meaningfully rise as mortgage rates tick down into the 5% range.
In the meantime, the shortage of for-sale homes is pushing up prices, adding to an already severe affordability crisis. A typical monthly mortgage payment is more than twice as much as it was in 2020 and 13% higher than a year ago.
However, demand remains strong. Buyers are persisting and getting creative to achieve homeownership. According to a recent survey from Zillow Home Loans, nearly half of them are buying points to lower their interest rate and reduce their monthly mortgage payment (45%). Mortgage points give buyers an option to pay an upfront fee to buy down the interest rate on a loan. Buyers are also forced to compromise on their initial wish, settling for smaller, more affordable homes.
You may remember GMAC Bank, which was taken down by its fateful mortgage arm Residential Capital (ResCap) before eventually requiring a government bailout.
It wasn’t an uncommon story at the time; many other mega mortgage companies took a fall too, including the likes of Countrywide and IndyMac, to name but two.
Anyway, ResCap was a big mortgage player back in the day, originating billions of residential home loans in the lead up to the housing bubble. Then it all came crashing down…
Once the company recovered from the financial crisis, it rebranded itself as Ally Financial, offering auto loans and high-yield savings accounts. Those businesses seemed like a safe way to dip their toes back in the lending waters.
The auto loan portion of the business actually runs deep in its history seeing that GMAC stood for General Motors Acceptance Corporation. So you knew they were going to get back into that business, but the mortgage business was still a big question mark.
They’re Back…with a Brand New Name
After the Great Recession it became common to rebrand if you made it through
Seeing that many companies faced lawsuits and bad PR
That explains why ResCap is now known as Ally Home
It gives them a fresh start and lets them forget all those painful memories
Somehow these large companies have a way of reinventing themselves, with fresh new names and logos that can make us all forget the ugly past very quickly.
And so without further ado, say hello to “Ally Home,” which is the company’s new direct-to-consumer mortgage offering.
It’s yet another home loan option available to borrowers in the post-crisis mortgage world.
In line with the name change, they seem to want to be your buddy in the financial world, hence the word ally. And they deploy a so-called “Home Team” to help you get your mortgage.
What Does Ally Home Offer?
They other both home purchase and refinance loans
Including the ability to get cash out if you need it
Ally accepts conforming and jumbo loan amounts
And has a variety of home loan products including fixed mortgages and ARMs
Like other mortgage lenders, Ally offers both purchase and refinance mortgages, including rate and term and cash-out refis.
So whether you’re buying a home or simply looking to improve your existing interest rate/tap equity, they’ve got you covered.
Additionally, Ally Home offers both conventional and jumbo mortgages, the latter of which are above the conforming loan limit of $417,000 (soon to be $424,100). And now $453,100!
In terms of mortgage choice, you’re able to get a 30-year or 15-year fixed, along with less common varieties such as the 25-year, 20-year, and 10-year fixed.
The company also offers a typical selection of hybrid ARMs, including the 10/1, 7/1, and 5/1 ARM. The only obvious absence if the 3/1 ARM.
So they’ve basically got you covered when it comes to home loan options unless you’re looking for something super unique.
Ally Mortgage Rates Are Very Competitive on Jumbo
First things first, they actually advertise their rates on their website
Which is a nice sign of transparency
Their rates seem to be fairly middle-of-the-road for conforming loans
But really competitive when it comes to high-cost/jumbo loans so definitely check them out if you’ve got a big loan
One thing I appreciate about Ally is the fact that they openly advertise their mortgage interest rates, unlike a lot of other lenders.
So they win on transparency right off the bat. Now let’s determine if the advertised rates are any good.
As of the time of this writing (August 1st, 2018), Ally Home Loans was offering a rate of 4.75% on a 30-yr fixed with -0.22 mortgage points, with lots of assumptions like excellent credit, a $300,000 loan amount, and a minimum 20% down payment for a single-family home.
That negative amount of points means you get a credit toward closing costs, which is a good thing since a lot rates often require that you pay points out of your pocket at closing.
Interestingly, their jumbo mortgage rates seem to be significantly cheaper than their conforming ones, so it might be a good place to send a larger loan if you’ve got your eye on a particularly expensive property (or already happen to own one).
For example, they were offering a rate of 4.375% on a 30-year fixed for the same assumptions above, except for a loan amount of $650,000. Technically that’s just a high-cost conforming loan amount, but I won’t get into all that.
The point is they seem to specialize in larger loan amounts and offer really competitive rates on that front.
But even if their rate isn’t the lowest, they offer a so-called Price Match Guarantee where they’ll lower their rate/points to match those of a competitor. Oddly, they won’t go the extra step and beat them…hmm.
Ally Home Wants to Deliver a High-Touch Experience
As noted Ally wants to be your friend and more specifically your ally
That means you should get a lot of contact and guidance along the way
With a loan advisor, loan coordinator and closing coordinator there to assist
You can choose to receive updates via email or phone and dedicated support is available from application to close
Unlike a lot of mortgage newcomers, Ally Home wants to be super involved with you throughout the underwriting process.
They refer to it as a “high-touch experience” in which customers are guided through the entire home loan journey with a knowledgeable stable of so-called “dedicated loan experts.”
This runs counter to some of the fintech startups that cater to Millennials who apparently don’t ever want to speak to another human, ever.
That’s totally fine, but it appears Ally wants to bring back the human element and focus heavily on customer service with its group of loan advisors, loan coordinators, and closing coordinators known as the Ally Home Team.
This will include dedicated support, frequent loan updates, online access to all loan-related documents from any device, and a variety of communication options like text, phone, or e-mail.
Ally Home has also partnered with LenderLive to handle mortgage fulfillment, settlement and document services in an expeditious and compliant manner.
And most recently invested in Better Mortgage, another so-called “digital mortgage disruptor” in the space, to take advantage of their tech-heavy mortgage origination platform.
The hope is to provide the best possible mortgage experience by combining the best people with the best technology in the industry.
If you’re keeping track, three of the largest mortgage lenders during the prior boom have now risen from the ashes.
Former Countrywide execs successfully launched PennyMac, IndyMac transformed into OneWest Bank, and ResCap’s parent company has now introduced Ally Home.
USAA Mortgage, technically known as USAA Bank Home Loans, is one of the larger mortgage lenders out there, though not quite in the top 10.
They’re probably best described as a top 25 mortgage lender, but they’ve got a great website (per my opinion) and good customer service, per J.D. Power, so I figured it would be prudent to take a closer look.
For the record, USAA stands for United Services Automobile Association, an outfit based out of San Antonio, Texas.
The company has that name because they started out in the insurance business, helping military members get auto insurance coverage, then gradually began offering more financial services, including auto loans, personal loans, credit cards, and home loans.
They’re basically a full-fledged bank today, but let’s learn more about those mortgage offerings, including USAA’s mortgage rates, shall we.
What USAA Mortgage Offers
Mainly conforming loans that meet Fannie/Freddie guidelines
Also VA loans for military and their families
Don’t offer FHA or USDA loans
Must be a USAA member to get a mortgage from them
First off, USAA offer plenty of loan options, including conforming loans that meet the underwriting guidelines of Fannie Mae and Freddie Mac, along with VA loans, which are available for active duty military and veterans and their families.
Additionally, they offer jumbo loans on loan amounts as high as $3 million, which should satisfy most home buyers, and even jumbo VA loans.
Notably absent from their mortgage product lineup are FHA loans and USDA loans, but seeing that USAA is geared toward those who serve, it makes sense.
Speaking of, you need to be a member of USAA in order to get a mortgage from them, which can be obtained if you’re active duty, a veteran, have a spouse that is/was, or a parent that is a USAA member.
Back to those loan programs. In the conforming department, they offer the 97% LTV home loan program that requires just 3% down payment, a home loan offered by both Fannie Mae and Freddie Mac. They actually refer to it as the “30-year first-time homebuyer” loan though it may not actually be limited to just first-timers.
There is an assumption that first-time home buyers can’t come up with large down payments, but this isn’t necessarily true.
It’s also fairly common for these home buyers to put down 20% to avoid mortgage insurance and the higher mortgage rates that come at high LTVs.
While the down payment requirement is low, it is only available on primary residences and the only loan option is the 30-year fixed. Still, that should fit most borrowers’ needs.
If you’re able to put down at least 5%, you can get your hands on a 10-year, 15-year, or even a 20-year fixed mortgage.
If you’re looking for a mortgage with no down payment, USAA also offers VA loans, which don’t require any money down or a minimum credit score. However, USAA seems to require credit scores of 620 or higher to qualify, which is a pretty common threshold.
These are available in a variety of different terms, including 10-, 15-, 20-, and 30-year loan terms. You can also get a 5/1 ARM, which is fixed for the first five years of the loan term before becoming annually adjustable.
The ARM option only appears to be available for VA loans, not on conventional USAA loans.
With regard to their jumbo loans, you can get a 30-year fixed or 15-year fixed if you go the conventional route, with a minimum 20% down payment. This means you also avoid PMI.
If you need a jumbo VA loan, you can go with a 30-year fixed or a 5/1 ARM.
USAA also offers home loans on vacation homes (second homes) and investment properties, which I believe are limited to fixed-rate mortgages only.
USAA Mortgage Rates
Their advertised mortgage rates seem to be on par
With what you’ll see elsewhere
Not noticeably higher or lower than the competition
So customer service might be the deciding factor
This always seems to be top of mind, but is a moving target as well because mortgage rates can change daily.
But I can say that USAA’s mortgage rates seem to be pretty competitive and on par with what you’ll see advertised elsewhere.
And a sweet spot might be their 20-year fixed, which at the moment, is priced a half a percentage point below the 30-year fixed.
It also comes with a lender credit, whereas the 30-year fixed requires a fraction of mortgage points to be paid to obtain the advertised rate.
If you can afford it (and want to pay off your mortgage earlier), it could be a good choice. Not all lenders offer the 20-year fixed, so USAA has that going for them too.
USAA Mortgage Refinance Options
You can get a rate and term refinance
Or a cash out refinance
They also offer the VA streamline refinance
But it appears you can only choose a fixed-rate mortgage
Aside from home purchase mortgages, USAA also offers refinance loans if you already have a mortgage and happen to be looking for a lower interest rate or cash out.
They offer both rate and term refinances, which are intended to lower rates and/or shorten loan terms, and cash out refinances, which allow borrowers to tap into their available home equity.
If you’re refinancing a VA loan, they offer Interest Rate Reduction Refinancing Loan (IRRRL) streamlined refinances.
All refinance options offered by USAA Mortgage seem to be limited to 30-year and 15-year fixed mortgages only. It doesn’t appear adjustable-rate mortgages are an option here.
Occasionally, USAA has loan specials, such as no origination fee charged on VA loans, which could sway your decision to use them over a competitor.
Why Choose USAA Mortgage?
Current members might as well check them out
And include them in their home loan search
But you should also gather quotes from the competition
To ensure you land the lowest rate and closing costs
If you’re already a member of USAA, it’s certainly worth checking out their home loan offerings if you’re in the market to buy a home or refinance your mortgage.
I say that because you should broaden your search in general to see what’s out there, and if it’s with a banking institution you already have a relationship with, the loan process might be a bit smoother.
You may have also established trust, which can be a big plus in terms of putting yourself at ease during what is often a stressful time.
On the other hand, just because you have a checking account or homeowners insurance policy with USAA doesn’t mean you should get your mortgage there too.
There might be a better fit elsewhere based on rate, closing costs, service, or a combination of all those things.
Another plus of going with USAA is that they’re probably well-versed in VA loans, seeing that their members are also members of the military and/or their families.
My assumption is they originate a lot of VA loans for their military family of customers, so if that’s what you’re looking for, it might make for a smoother process compared to a general home loan lender.
Of course, there are lots of other lenders out there that specialize in VA mortgages as well, so they aren’t necessarily the be all, end all for your home purchase or refinance needs.
As always, take the time to shop mortgage rates and look at the interest rate, closing costs, points required, and the track record of the company you ultimately do business with.
While cost is certainly important, a competent lender is a must as well to ensure your home loan actually closes!
Average mortgage rates tumbled yesterday following a first-class inflation report. In some cases, they are now back below 7% for an excellent borrower wanting a conventional, 30-year, fixed-rate mortgage. Phew!
First thing, markets were signaling that mortgage rates today might fall but perhaps only a little. However, these early mini-trends often switch speed or direction later in the day.
Current mortgage and refinance rates
Program
Mortgage Rate
APR*
Change
Conventional 30-year fixed
7.122%
7.147%
+0.15
Conventional 15-year fixed
6.297%
6.321%
+0.1
Conventional 20-year fixed
7.34%
7.403%
+0.03
Conventional 10-year fixed
6.872%
6.985%
+0.05
30-year fixed FHA
7.065%
7.685%
+0.02
15-year fixed FHA
6.503%
6.972%
+0.16
30-year fixed VA
6.75%
6.959%
+0.25
15-year fixed VA
6.625%
6.965%
Unchanged
5/1 ARM Conventional
6.75%
7.266%
Unchanged
5/1 ARM FHA
6.75%
7.532%
+0.11
5/1 ARM VA
6.75%
7.532%
+0.11
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions See our rate assumptions here.
Should you lock a mortgage rate today?
The chances of mortgage rates falling far and for long later this year improved yesterday. That day’s inflation report helped a lot.
But I reckon we’ll probably need a heap more similarly rate-friendly data in order to bring about that significant and sustained fall. And, while it’s possible such a heap will be delivered quickly, it’s probably more likely we’ll see any improvements late this year or sometime in 2024.
So, my personal rate lock recommendations remain:
LOCK if closing in 7 days
LOCK if closing in 15 days
LOCK if closing in 30 days
LOCK if closing in 45 days
LOCK if closing in 60days
However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So let your gut and your own tolerance for risk help guide you.
>Related: 7 Tips to get the best refinance rate
Market data affecting today’s mortgage rates
Here’s a snapshot of the state of play this morning at about 9:50 a.m. (ET). The data, compared with roughly the same time yesterday, were:
The yield on 10-year Treasury notes tumbled to 3.81% from 3.91%. (Very good for mortgage rates.) More than any other market, mortgage rates typically tend to follow these particular Treasury bond yields
Major stock indexes were higher. (Bad for mortgage rates.) When investors buy shares, they’re often selling bonds, which pushes those prices down and increases yields and mortgage rates. The opposite may happen when indexes are lower. But this is an imperfect relationship
Oil prices decreased to $75.65 from $75.94 a barrel. (Neutral for mortgage rates*.) Energy prices play a prominent role in creating inflation and also point to future economic activity
Goldprices rose to $1,964 from $1,959 an ounce. (Neutral for mortgage rates*.) It is generally better for rates when gold prices rise and worse when they fall. Gold tends to rise when investors worry about the economy.
CNN Business Fear & Greed index — held steady at 81 out of 100. (Neutral for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So lower readings are often better than higher ones
*A movement of less than $20 on gold prices or 40 cents on oil ones is a change of 1% or less. So we only count meaningful differences as good or bad for mortgage rates.
Caveats about markets and rates
Before the pandemic and the Federal Reserve’s interventions in the mortgage market, you could look at the above figures and make a pretty good guess about what would happen to mortgage rates that day. But that’s no longer the case. We still make daily calls. And are usually right. But our record for accuracy won’t achieve its former high levels until things settle down.
So, use markets only as a rough guide. Because they have to be exceptionally strong or weak to rely on them. But, with that caveat, mortgage rates today might fall. However, be aware that “intraday swings” (when rates change speed or direction during the day) are a common feature right now.
Important notes on today’s mortgage rates
Here are some things you need to know:
Typically, mortgage rates go up when the economy’s doing well and down when it’s in trouble. But there are exceptions. Read ‘How mortgage rates are determined and why you should care’
Only “top-tier” borrowers (with stellar credit scores, big down payments, and very healthy finances) get the ultralow mortgage rates you’ll see advertised
Lenders vary. Yours may or may not follow the crowd when it comes to daily rate movements — though they all usually follow the broader trend over time
When daily rate changes are small, some lenders will adjust closing costs and leave their rate cards the same
Refinance rates are typically close to those for purchases.
A lot is going on at the moment. And nobody can claim to know with certainty what will happen to mortgage rates in the coming hours, days, weeks or months.
What’s driving mortgage rates today?
Yesterday
Yesterday’s consumer price index (CPI) was a real tonic for mortgage rates. Comerica Bank’s chief economist said that “the fever is breaking“ for inflation.
And The Wall Street Journal (paywall) suggested: “Inflation cooled last month to its slowest pace in more than two years, giving Americans relief from a painful period of rising prices and boosting the chances that the Federal Reserve will stop raising interest rates after an expected increase this month.“
Note that the Journal’s writers (and many others) still expect a rise in general interest rates on Jul. 26. And that might limit how far mortgage rates can fall in the short term.
But other things could also limit the extent and duration of further decreases in mortgage rates. More and more people are talking up the possibility of a “soft landing.“ That refers to the Fed successfully driving down inflation without throwing the country into a recession.
But those of us wanting lower mortgage rates were kind of hoping for a recession. Of course, we didn’t want the bad stuff for the wider population. But mortgage rates tend to fall when the economy is in trouble and rise when it’s doing well.
So, while some falls in mortgage rates might be on the cards later in the year or in 2024, they might not be as big as we’d once been able to hope.
The rest of this week
This morning’s producer price index (PPI) for June was nothing like as important to mortgage rates as yesterday’s CPI. It and tomorrow’s import price index (IPI) are generally seen as secondary inflation measures. But, with markets hyper-sensitive to inflation news right now, they’re worth observing.
Today’s PPI was probably good for mortgage rates. The headline figure (PPI for final demand) came in at 0.1% in June, compared with the expected 0.2%. Just don’t expect it to have as positive an effect as yesterday’s news.
Please read the weekend edition of this daily report for more background on what’s happening to mortgage rates.
Recent trends
According to Freddie Mac’s archives, the weekly all-time low for mortgage rates was set on Jan. 7, 2021, when it stood at 2.65% for conventional, 30-year, fixed-rate mortgages.
Freddie’s Jul. 6 report put that same weekly average at 6.81%, up from the previous week’s 6.71%. But Freddie is almost always out of date by the time it announces its weekly figures.
In November, Freddie stopped including discount points in its forecasts. It has also delayed until later in the day the time at which it publishes its Thursday reports. Andwe now update this section on Fridays.
Expert forecasts for mortgage rates
Looking further ahead, Fannie Mae and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.
And here are their rate forecasts for the current quarter (Q2/23) and the following three quarters (Q3/23, Q4/23 and Q1/24).
The numbers in the table below are for 30-year, fixed-rate mortgages. They were both updated in June.
In the past, we included Freddie Mac’s forecasts. But it seems to have given up on publishing those.
Forecaster
Q2/23
Q3/23
Q4/23
Q1/24
Fannie Mae
6.5%
6.6%
6.3%
6.1%
MBA
6.5%
6.2%
5.8%
5.6%
Of course, given so many unknowables, the whole current crop of forecasts might be even more speculative than usual. And their past record for accuracy hasn’t been wildly impressive.
Find your lowest mortgage rate today
You should comparison shop widely, no matter what sort of mortgage you want. Federal regulator the Consumer Financial Protection Bureau found in May 2023:
“Mortgage borrowers are paying around $100 a month more depending on which lender they choose, for the same type of loan and the same consumer characteristics (such as credit score and down payment).”
In other words, over the lifetime of a 30-year loan, homebuyers who don’t bother to get quotes from multiple lenders risk losing an average of $36,000. What could you do with that sort of money?
Mortgage rate methodology
The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.
How your mortgage interest rate is determined
Mortgage and refinance rates vary a lot depending on each borrower’s unique situation.
Factors that determine your mortgage interest rate include:
Overall strength of the economy — A strong economy usually means higher rates, while a weaker one can push current mortgage rates down to promote borrowing
Lender capacity — When a lender is very busy, it will increase rates to deter new business and give its loan officers some breathing room
Property type (condo, single-family, town house, etc.) — A primary residence, meaning a home you plan to live in full time, will have a lower interest rate. Investment properties, second homes, and vacation homes have higher mortgage rates
Loan-to-value ratio (determined by your down payment) — Your loan-to-value ratio (LTV) compares your loan amount to the value of the home. A lower LTV, meaning a bigger down payment, gets you a lower mortgage rate
Debt-To-Income ratio — This number compares your total monthly debts to your pretax income. The more debt you currently have, the less room you’ll have in your budget for a mortgage payment
Loan term — Loans with a shorter term (like a 15-year mortgage) typically have lower rates than a 30-year loan term
Borrower’s credit score — Typically the higher your credit score is, the lower your mortgage rate, and vice versa
Mortgage discount points — Borrowers have the option to buy discount points or ‘mortgage points’ at closing. These let you pay money upfront to lower your interest rate
Remember, every mortgage lender weighs these factors a little differently.
To find the best rate for your situation, you’ll want to get personalized estimates from a few different lenders.
Are refinance rates the same as mortgage rates?
Rates for a home purchase and mortgage refinance are often similar.
However, some lenders will charge more for a refinance under certain circumstances.
Typically when rates fall, homeowners rush to refinance. They see an opportunity to lock in a lower rate and payment for the rest of their loan.
This creates a tidal wave of new work for mortgage lenders.
Unfortunately, some lenders don’t have the capacity or crew to process a large number of refinance loan applications.
In this case, a lender might raise its rates to deter new business and give loan officers time to process loans currently in the pipeline.
Also, cashing out equity can result in a higher rate when refinancing.
Cash-out refinances pose a greater risk for mortgage lenders, so they’re often priced higher than new home purchases and rate-term refinances.
How to get the lowest mortgage or refinance rate
Since rates can vary, always shop around when buying a house or refinancing a mortgage.
Comparison shopping can potentially save thousands, even tens of thousands of dollars over the life of your loan.
Here are a few tips to keep in mind:
1. Get multiple quotes
Many borrowers make the mistake of accepting the first mortgage or refinance offer they receive.
Some simply go with the bank they use for checking and savings since that can seem easiest.
However, your bank might not offer the best mortgage deal for you. And if you’re refinancing, your financial situation may have changed enough that your current lender is no longer your best bet.
So get multiple quotes from at least three different lenders to find the right one for you.
2. Compare Loan Estimates
When shopping for a mortgage or refinance, lenders will provide a Loan Estimate that breaks down important costs associated with the loan.
You’ll want to read these Loan Estimates carefully and compare costs and fees line-by-line, including:
Interest rate
Annual percentage rate (APR)
Monthly mortgage payment
Loan origination fees
Rate lock fees
Closing costs
Remember, the lowest interest rate isn’t always the best deal.
Annual percentage rate (APR) can help you compare the ‘real’ cost of two loans. It estimates your total yearly cost including interest and fees.
Also pay close attention to your closing costs.
Some lenders may bring their rates down by charging more upfront via discount points. These can add thousands to your out-of-pocket costs.
3. Negotiate your mortgage rate
You can also negotiate your mortgage rate to get a better deal.
Let’s say you get loan estimates from two lenders. Lender A offers the better rate, but you prefer your loan terms from Lender B. Talk to Lender B and see if they can beat the former’s pricing.
You might be surprised to find that a lender is willing to give you a lower interest rate in order to keep your business.
And if they’re not, keep shopping — there’s a good chance someone will.
Fixed-rate mortgage vs. adjustable-rate mortgage: Which is right for you?
Mortgage borrowers can choose between a fixed-rate mortgage and an adjustable-rate mortgage (ARM).
Fixed-rate mortgages (FRMs) have interest rates that never change, unless you decide to refinance. This results in predictable monthly payments and stability over the life of your loan.
Adjustable-rate loans have a low interest rate that’s fixed for a set number of years (typically five or seven). After the initial fixed-rate period, the interest rate adjusts every year based on market conditions.
With each rate adjustment, a borrower’s mortgage rate can either increase, decrease, or stay the same. These loans are unpredictable since monthly payments can change each year.
Adjustable-rate mortgages are fitting for borrowers who expect to move before their first rate adjustment, or who can afford a higher future payment.
In most other cases, a fixed-rate mortgage is typically the safer and better choice.
Remember, if rates drop sharply, you are free to refinance and lock in a lower rate and payment later on.
How your credit score affects your mortgage rate
You don’t need a high credit score to qualify for a home purchase or refinance, but your credit score will affect your rate.
This is because credit history determines risk level.
Historically speaking, borrowers with higher credit scores are less likely to default on their mortgages, so they qualify for lower rates.
For the best rate, aim for a credit score of 720 or higher.
Mortgage programs that don’t require a high score include:
Conventional home loans — minimum 620 credit score
FHA loans — minimum 500 credit score (with a 10% down payment) or 580 (with a 3.5% down payment)
VA loans — no minimum credit score, but 620 is common
USDA loans — minimum 640 credit score
Ideally, you want to check your credit report and score at least 6 months before applying for a mortgage. This gives you time to sort out any errors and make sure your score is as high as possible.
If you’re ready to apply now, it’s still worth checking so you have a good idea of what loan programs you might qualify for and how your score will affect your rate.
You can get your credit report from AnnualCreditReport.com and your score from MyFico.com.
How big of a down payment do I need?
Nowadays, mortgage programs don’t require the conventional 20 percent down.
In fact, first-time home buyers put only 6 percent down on average.
Down payment minimums vary depending on the loan program. For example:
Conventional home loans require a down payment between 3% and 5%
FHA loans require 3.5% down
VA and USDA loans allow zero down payment
Jumbo loans typically require at least 5% to 10% down
Keep in mind, a higher down payment reduces your risk as a borrower and helps you negotiate a better mortgage rate.
If you are able to make a 20 percent down payment, you can avoid paying for mortgage insurance.
This is an added cost paid by the borrower, which protects their lender in case of default or foreclosure.
But a big down payment is not required.
For many people, it makes sense to make a smaller down payment in order to buy a house sooner and start building home equity.
Choosing the right type of home loan
No two mortgage loans are alike, so it’s important to know your options and choose the right type of mortgage.
The five main types of mortgages include:
Fixed-rate mortgage (FRM)
Your interest rate remains the same over the life of the loan. This is a good option for borrowers who expect to live in their homes long-term.
The most popular loan option is the 30-year mortgage, but 15- and 20-year terms are also commonly available.
Adjustable-rate mortgage (ARM)
Adjustable-rate loans have a fixed interest rate for the first few years. Then, your mortgage rate resets every year.
Your rate and payment can rise or fall annually depending on how the broader interest rate trends.
ARMs are ideal for borrowers who expect to move prior to their first rate adjustment (usually in 5 or 7 years).
For those who plan to stay in their home long-term, a fixed-rate mortgage is typically recommended.
Jumbo mortgage
A jumbo loan is a mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.
In 2023, the conforming loan limit is $726,200 in most areas.
Jumbo loans are perfect for borrowers who need a larger loan to purchase a high-priced property, especially in big cities with high real estate values.
FHA mortgage
A government loan backed by the Federal Housing Administration for low- to moderate-income borrowers. FHA loans feature low credit score and down payment requirements.
VA mortgage
A government loan backed by the Department of Veterans Affairs. To be eligible, you must be active-duty military, a veteran, a Reservist or National Guard service member, or an eligible spouse.
VA loans allow no down payment and have exceptionally low mortgage rates.
USDA mortgage
USDA loans are a government program backed by the U.S. Department of Agriculture. They offer a no-down-payment solution for borrowers who purchase real estate in an eligible rural area. To qualify, your income must be at or below the local median.
Bank statement loan
Borrowers can qualify for a mortgage without tax returns, using their personal or business bank account. This is an option for self-employed or seasonally-employed borrowers.
Portfolio/Non-QM loan
These are mortgages that lenders don’t sell on the secondary mortgage market. This gives lenders the flexibility to set their own guidelines.
Non-QM loans may have lower credit score requirements, or offer low-down-payment options without mortgage insurance.
Choosing the right mortgage lender
The lender or loan program that’s right for one person might not be right for another.
Explore your options and then pick a loan based on your credit score, down payment, and financial goals, as well as local home prices.
Whether you’re getting a mortgage for a home purchase or a refinance, always shop around and compare rates and terms.
Typically, it only takes a few hours to get quotes from multiple lenders — and it could save you thousands in the long run.
Current mortgage rates methodology
We receive current mortgage rates each day from a network of mortgage lenders that offer home purchase and refinance loans. Mortgage rates shown here are based on sample borrower profiles that vary by loan type. See our full loan assumptions here.
