Flagstar Bancorp reported a fourth quarter net loss of $30.1 million, or 50 cents per share, compared to net earnings of $6.9 million, or 11 cents per share during the same period a year ago.
For all of 2007, the Michigan-based bank and mortgage lender lost $39.2 million, or 64 cents a share, compared to earnings of $75.2 million, or $1.17 per share in 2006.
The losses were attributed to weaker gains on sales of mortgage servicing rights (“MSRs”), rising credit costs, and an impairment in the value of its securities available for sale portfolio and its trading portfolio.
Fourth quarter loan production was $6.7 billion, up from $5.4 billion during the fourth quarter of 2006, pushing full year production to $26.7 billion, an increase of 32.2 percent from $20.2 billion in 2006.
Flagstar increased its allowance for loan losses to $104.0 million, or 1.28 percent of loans held for investment, up from $45.8 million, or 0.51 percent of loans held for investment, as of December 31, 2006.
Net charge-offs of loans increased to $12.2 million during the fourth quarter, up from $5.2 million during the same period a year ago, while non-performing loans increased to $197.1 million, up markedly from $57.1 million as of December 31, 2006.
As of the end of the year, subprime loans made up approximately one percent of total assets at the bank.
Single-family residential first mortgage loans held for investment had an average Fico score of 719 and an average original loan-to-value ratio of 73.4%.
During the conference call, the bank said it will only originate home loans that can be sold to the GSEs or the FHA, and warned that it may suspend its dividend in an effort to conserve cash until the mortgage mess eases.
Despite that, the bank said yesterday it was re-launching its jumbo loan program that was temporarily halted after Aurora shut down shop.
In related news, Moody’s Investors Service downgraded the long-term deposit rating for Flagstar Bank to the lowest investment grade of “Baa3” from “Baa2” because of ongoing deterioration in the residential and commercial mortgage markets.
Moody’s said it held a negative outlook on the bank, noting that further delinquencies and defaults are likely to increase credit costs for Flagstar and strain earnings.
Shares of Flagstar were down $1.07, or 12.88 percent, to $7.24 in early afternoon trading on Wall Street.
For a third day, average mortgage rates barely moved yesterday. But that’s good because it means last week’s big falls remain effectively uneroded.
First thing, it was again looking as if mortgage rates today might fall, perhaps modestly or moderately. However, that could change as the hours pass.
Current mortgage and refinance rates
Find your lowest rate. Start here
Program
Mortgage Rate
APR*
Change
Conventional 30-year fixed
7.125%
7.14%
-0.075
Conventional 15-year fixed
6.385%
6.415%
-0.1
Conventional 20-year fixed
6.975%
7%
-0.045
Conventional 10-year fixed
6.12%
6.145%
-0.065
30-year fixed FHA
5.98%
6.88%
-0.095
30-year fixed VA
6.165%
6.315%
-0.13
5/1 ARM Conventional
6.425%
7.675%
-0.035
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 your mortgage rate today?
Every day that passes makes a corrective bounce (when mortgage rates rise as markets think they’ve got carried away) less likely. And it reinforces my hope that those rates are in a downward trend that could last well into next year.
So, my personal rate lock recommendations are:
LOCK if closing in 7 days
FLOAT if closing in 15 days
FLOAT if closing in 30 days
FLOAT if closing in 45 days
FLOATif 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 are mostly compared with roughly the same time the business day before, so much of the movement will often have happened in the previous session. The numbers are:
The yield on 10-year Treasury notes edged lower to 3.90% from 3.92%. (Good for mortgage rates.) More than any other market, mortgage rates typically tend to follow these particular Treasury bond yields
Major stock indexes were mostly falling this morning. (Good 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 climbed to $75.14 from $73.12 a barrel. (Bad for mortgage rates*.) Energy prices play a prominent role in creating inflation and also point to future economic activity
Goldprices held steady at $2,049 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 — ticked down to 77 from 78. (Good 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, post-pandemic upheavals, and war in Ukraine, 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 look likely to decrease. However, be aware that “intraday swings” (when rates change speed or direction during the day) are a common feature right now.
Find your lowest rate. Start here
What’s driving mortgage rates today?
The Federal Reserve
This morning’s Wall Street Journal (paywall) observed: “After their policy meeting last week, Fed officials released projections of at least three rate cuts [in general interest rates] next year. They have since been flummoxed that investors expect even faster and deeper cuts. The result: Confusion over when and how quickly the Fed might cut as the central bank tries to bring inflation down without a painful recession.”
This could turn into a real issue that could push mortgage rates higher, probably in the new year. Wall Street has a long and inglorious record of hearing what it wants the Fed to say rather than what the Fed actually says. And we’ve seen quite recently examples of sharp rises in mortgage rates when markets’ wishful thinking collides with reality.
Still, last week’s Fed meeting did deliver genuinely good news. And, even if mortgage rates rise when investors face the cold light of dawning reality, I’m optimistic that we’ll keep at least most of the recent gains. Just be aware that the path to lower mortgage rates is unlikely to be smooth.
Today
This morning’s economic reports cover existing home sales in November and consumer confidence in December. They’re both published too late for me to assess their likely impact on markets and mortgage rates.
They could push mortgage rates a little higher or lower, but they rarely move them far or for long.
Tomorrow
Tomorrow brings gross domestic product (GDP) figures for the third quarter of this year. This will be the third and final estimate for this number.
The second estimate put GDP growth at 5.2%, up from 2.1% in the second quarter. MarketWatch says that market expectations for tomorrow’s figure have recently been slightly scaled down to 5.1%.
If the actual number tomorrow is lower than 5.1%, that could drag mortgage rates lower. But, if it’s higher, that could push those rates upward.
Friday
We’re due November’s personal consumption expenditures (PCE) price index on Friday. Markets might get nervous if that shows inflation rising more than expected because that could destroy the Fed’s new-found optimism.
More on what to expect from the PCE report tomorrow.
Don’t forget you can always learn more about what’s driving mortgage rates in the most recent weekend edition of this daily report. These provide a more detailed analysis of what’s happening. They are published each Saturday morning soon after 10 a.m. (ET) and include a preview of the following week.
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 Dec. 14 report put that same weekly average at 6.95%, down from the previous week’s 7.03%. Freddie’s data are almost always out of date by the time it announces its weekly figures.
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 (Q4/23) and the following three quarters (Q1/24, Q2/24 and Q3/24).
The numbers in the table below are for 30-year, fixed-rate mortgages. Fannie’s were updated on Dec. 19 and the MBA’s on Dec. 13.
Forecaster
Q4/23
Q1/24
Q2/24
Q3/24
Fannie Mae
7.4%
7.0%
6.8%
6.6%
MBA
7.4%
7.0%
6.6%
6.3%
Of course, given so many unknowables, both these forecasts might be even more speculative than usual. And their past record for accuracy hasn’t been wildly impressive.
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.
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?
Verify your new rate
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.
Verify your new rate. Start here
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.
Check your refinance rates today. Start here
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.
Verify your new rate. Start here
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.
Time to make a move? Let us find the right mortgage for you
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.
Obligo, the fintech company that fosters trust between renters and landlords and enables renters to forgo paying a security deposit, has revealed the honorees of its fourth annual Renter’s Trust Awards.
The following are property management services for various types of properties across different locations:
Advantage Property Management Services caters to single-family properties in California and uses Propertyware as its property management software.
AIR Communities offers property management for multifamily properties nationwide, with Entrata as its property management software.
Beam Living specializes in multifamily properties in New York and utilizes Yardi & MRI as its property management software.
Common provides property management for coliving spaces nationwide, using Entrata as its property management software.
Empire Management focuses on multifamily properties in New York, utilizing Yardi as its property management software.
Equity Team LLC manages single-family properties in Ohio, using Propertyware as its property management software.
Home Property Management serves single-family and multifamily properties in Florida, with Buildium as its property management software.
J&L Holding Corp specializes in multifamily properties in New York, using Yardi as its property management software.
Landmark Communities provides property management for multifamily properties in Pennsylvania, using Yardi as its property management software.
Northern Virginia Property Management Pros caters to single-family properties in Virginia, using Propertyware as its property management software.
Patoma manages multifamily properties in New York, using AppFolio as its property management software.
Rudin Management Company focuses on multifamily properties in New York, using Yardi as its property management software.
Touchpoint Property Management serves single-family and multifamily properties in North Carolina, with AppFolio as its property management software.
Time Equities manages multifamily properties nationwide, using MRI as its property management software.
Wolfnest Property Management specializes in multifamily and single-family properties in Utah, using Propertyware as its property management software.
Security deposit deductions are an inevitable aspect of the rental process, but these distinguished property management firms have distinguished themselves by providing exceptional rental experiences. They accomplish this by clearly establishing renter expectations at both move-in and move-out, transparently communicating any charges, and meticulously monitoring deduction rates across their portfolio over time. This approach effectively minimizes friction, mitigates the risk of negative online reviews and disputes, and ultimately leaves renters thoroughly satisfied.
Upon a renter’s departure, Obligo evaluates the property’s security deposit deductions, if any, as well as the renter’s sentiments regarding these deductions and the settlement of any outstanding charges. The awards honor property management companies that have earned a substantial level of trust from their renters based on these criteria.
Victoria Udrea, a talented author who specializes in real estate and technology, is a valued contributor to Realty Biz News. With her keen eye for detail and passion for keeping readers informed, she diligently covers the latest developments in the industry, focusing particularly on the exciting realm of smart home technology.
The defining characteristic of the 2023 housing market has been dramatically fewer home sellers than any recent year. That’s one reason total sales volume has been so low, but it looks now like that’s starting to change.
In this week’s Altos Research video, I look at how home sellers and sales are up, but that doesn’t mean prices will climb in 2024.
Watch the video or check out some key data takeaways from the data for the week ending Dec. 18.
[embedded content]
The inventory picture
There are now 539,000 single-family homes on the market unsold, which is up 3.2% than last year at this time. Housing inventory climbed late in the year as mortgage rates rose. Rates are falling now and if that continues, buyers will jump and inventory will fall well into the first quarter of 2024.
Could we see new inventory from distressed sellers if we see a deep recession? Yes, demand will slow if unemployment climbs, but it’s probably 2025 before we see the bulk of that.
More home sellers enter the market
There were 11% more new sellers this week than last year at this time. All year there have been 10-20-30% fewer sellers, so the tide is starting to turn. These sellers have been matched by an increase in buyers, too, so there were 10% more immediate sales than last year.
As of now, there are no signs of increased sellers growing out of balance with the number of buyers. There are still far fewer sellers each week than in the pre-pandemic era.
Contracts growing
We continue to see the new contracts grow each week: There were 7.7% more new contracts started this week than the same week a year ago. The market was contracting all the way until October, but is now reliably expanding. This is growth of very low numbers: This isn’t a boom market, of course, but it’s a turn.
Home prices will finish the year up 2-3%
Home prices will finish 2023 with 2%-3% gains over last year. The median price of single-family homes in the U.S. is now $420,000. The leading indicators here show another year of flat home-price change in 2024.
The price reductions data tells us that while demand is still weak, it’s better than last year at this time. We had 37.6% of the homes on the market get a price cut this week, which is still above normal, but should drop into the normal range in January.
What will the housing market look like in 2024? If mortgage rates were to plummet early in the year, buyers would jump in quickly, inventory would drop and competition would push prices higher. That’s a big if. On the other hand, price reductions show enough weakness that if supply were to surge, prices would correct down very quickly. Supply isn’t surging, but it’s worth watching.
Mike Simonsen is the president and founder of Altos Research.
Download the free Altos eBook: “How to Use Market Data to Build Your Real Estate Business”
The landscape of real estate is undergoing significant transformations in 2024, driven by a confluence of technological advancements, shifting market dynamics and evolving consumer behaviors.
1. Technology 2024: Proptech challenges and profitability pursuit
The proptech sector, a technological cornerstone of the real estate space heavily reliant on venture capital, has encountered formidable challenges in the past year. The Federal Reserve‘s rate hikes and a general slowdown in venture capital investment have created a challenging environment, leading to layoffs and financial struggles for prominent companies. The housing market’s conditions, characterized by soaring prices and limited availability, have compounded these challenges.
As we enter 2024, proptech companies are likely to place an unprecedented emphasis on monitoring their balance sheets, with a sharp focus on immediate-term profitability. The year will unfold with a strategic shift in business models, emphasizing the expansion of product offerings and investments in consumer education to adeptly navigate the housing market slowdown. Technology is set to emerge as a crucial tool in such sectors as the rental segment, with the advent of online rental screening software, enhancing efficiency, rent payment reporting and thwarting fraudulent activities.
Despite uncertainties, optimism is likely to pervade the industry, with companies leveraging partnerships and eyeing potentially lucrative IPOs in the future. The resilience and innovation demonstrated by the formation of new companies underscore the sector’s potential to thrive in both adversities and favorable conditions.
The technology likely to have the biggest impact in 2024
Data-driven property management: Real-time insights into property performance optimize rents, maintenance schedules and tenant satisfaction.
Remote work: Technology enablement creates more flexibility and freedom.
Cybersecurity in real estate: Increasing investments protect sensitive property and financial data in the digital realm.
Artificial intelligence (AI) and predictive analytics: Revolutionizing decision-making with data-driven insights, predictive property values and investment opportunities, expediting the process by removing manual tasks.
Augmented reality (AR) and virtual reality (VR): Transforming property viewing experiences with virtual tours and enhanced property visualization.
2. The emergence of secondary markets will challenge the traditionally popular locales in 2024
In a notable departure from its traditionally local focus, more than ever real estate agents in local markets are needing to think more nationally as opposed to regionally. This shift is propelled by the increased migration of people, as evidenced by a variety of data points. RentSpree user statistics have showcased a significant spread of rental applicants across the nation. Between 2021 and 2023, approximately 17% of rental applicants sought housing in other states, reflecting an upward trend from 14% in 2020 and 12% in 2019. This trend is likely to intensify this coming year.
This nationalization is underpinned by two fundamental factors. First, housing affordability has plummeted to its lowest level in over 30 years. The combination of escalating home prices and rapid increases in borrowing costs has prompted individuals to explore housing options beyond their current locations. Secondly, remote and hybrid work options, increasingly prevalent since the pandemic, are becoming a permanent fixture of the professional landscape.
As we prepare for 2024, the challenges of affordability and the evolving nature of work will foster increased migration to secondary markets nationwide. This shift not only holds promise for relative affordability but also aligns with lifestyle preferences. The more nationalized approach to real estate will impact organizations supporting industry professionals and the individuals actively servicing the sector.
3. Multiple listing services need to become the source of truth for rentals
Multiple listing services (MLSs), traditionally recognized as the source of truth in the for-sale segment, will more so than ever face the imperative to extend this role to the rental market in 2024. The current absence of rental listings on most MLSs has significant repercussions, resulting in financial losses for both agents and tenants. More than 60% of rental properties are absent from MLSs, curtailing exposure and profitability for agents and landlords alike.
Advocating for standardized data for rental listings, diverse compensation models for agents and the provision of reliable and timely information for renters will be key, especially this coming year. Rentals will continue to play an increasingly important role in the real estate market and people’s lives given the severe affordability issues permeating the for-sale sector. The inclusion of rentals in MLSs stands to streamline the rental process, minimize delays and instill efficiency. The benefits extend to increased agent commissions, strengthened sales pipelines and a reduction in fraudulent activities.
Bright MLS, one of the largest MLSs nationwide, is leading the way and has integrated rental listings with commendable success. This proactive move serves as a testament to the positive outcomes achievable through aligning MLSs with the evolving dynamics of the real estate landscape.
4. Flourishing during challenging times: A tale of two (interconnected) markets
The prospects of homeownership in 2024 remain elusive for many. With rates hovering between 7% and 8% and single-family home prices still at record highs, the financial barriers to purchasing a house are and will continue to be formidable. The cost differential between buying and renting, with the former averaging 52% higher, underscores the financial challenges associated with homeownership.
In contrast, the rental market is emerging as a pivotal player, presenting increased choices and decreased competition for renters. Construction of new units, as highlighted by a recent Zumper National Rent Report, contributes to a market dynamic where prices will continue to decrease in numerous regions. As a result, the focus in 2024 further pivots towards the rental market, offering a lifeline to those seeking shelter as well as those servicing the housing market.
This paradigm shift in the real estate landscape presents a unique opportunity for real estate professionals. With the for-sale market navigating a precarious juncture marked by compensation lawsuits and affordability concerns, the emphasis in 2024 will be on generating leads and income through other avenues, such as the rental market. Rentals, therefore, will not just help to bridge the gap for agents during challenging times but also serve as an investment into the future for both new and seasoned real estate professionals.
5. Building a fairer financial future toward homeownership
With affordability as the primary concern heading into 2024, tools intended to support greater financial empowerment will continue to gain prominence this coming year. Rent payment reporting is one of the initiatives that will play a more prominent role in fostering a fairer financial future for all participants in the real estate ecosystem.
Major players in the mortgage industry, such as Fannie Mae and Freddie Mac, have initiated programs to incorporate rent payments into credit histories. Fannie Mae’s pilot program, extended until December 2024, signifies a commitment to exploring the far-reaching implications of including rent payment history in credit reporting.
This inclusion carries profound empowering potential, influencing loan approvals and addressing racial disparities prevalent in the housing market. As we chart the trajectory towards a more equitable financial future, additional private sector solutions are likely to emerge in 2024 and become instrumental in facilitating this transformative change.
In summary, the real estate landscape of 2024 is marked by a dynamic interaction of technological advancements, market dynamics and socioeconomic influences. The various trends mentioned above collectively shape a narrative of an industry undergoing constant change. Success in 2024 will hinge on the capacity to embrace change and capitalize on emerging opportunities.
Michael Lucarelli is the CEO and co-founder of RentSpree.
A shift in demographics. Affordable apartments transformed into luxury condos. A coffee shop called something like “Brew Slut.”
The signs of gentrification take many forms. A newly opened art gallery can serve both as a communal space and a harbinger of the displacement to come. Remodeled homes might boost a street’s curb appeal but then drive up rents in the ensuing months and years.
There are plenty of ways to tell when gentrification is coming to a community; rising home prices and an influx of trendy shops are classic omens. But in the modern market, developers are flipping houses at the highest rate since 2000, and the houses they churn out are often homogeneous: boxy, black and white, minimalist. They’re adorned with trendy house number fonts and chic drought-tolerant gardens, and they can be an obvious sign of gentrification on the way.
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Take a stroll through your neighborhood and keep an eye out for these trends. If you spot a few, gentrification may be on the way. If you spot a bunch, it might be well underway.
The gentrification font
If Neutraface starts speckling the homes and fences around your neighborhood, your rent might soar soon.
The sleek typeface and its many knock-offs have become so commonplace that they’ve become a meme, and the Guardian even declared it “the gentrification font.” It crowns countless brand-new builds across L.A., and like certain wines and cheeses, it pairs well with cheaply done fixer-uppers or the aforementioned box houses.
“The Shake Shack font has invaded,” said Steven Sanders, a Highland Park resident who has lived in the rapidly changing neighborhood since 2015. When Sanders moved there, the median single-family home value was around $463,000, according to Zillow. Today, it’s $1.002 million.
There’s nothing specifically wrong with the font; it’s clean, modern and easy to read. Ironically, it’s named after Richard Neutra, an iconic architect who often stressed affordability in his work.
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If a for-sale house has a Neutraface house number, the listing price will probably be anything but affordable.
Gentrification bonus point: if the font is also brass or gold.
Black-and-white paint jobs
Gentrification, in terms of housing, has become a monochromatic movement. Gone are the green-colored Craftsmans or the pink-hued bungalows of old; today, newly built homes are overwhelmingly white, black or a brutal combination of the two.
“Taste aside, a black house in an era of climate change is ridiculous,” said Adam Greenfield, a transportation and land-use advocate.
Gentrification bonus point: if a black-and-white exterior comes with an accent door — a splash of bright blue, yellow or turquoise to showcase that the property isn’t completely devoid of character. Just mostly devoid of character.
Excess security cameras
If you’re taking a stroll down your street and feel watched — not by anyone specific, but by a small army of Ring doorbells, Nest cameras and other electronic eyes making sure you don’t pick a Meyer lemon or your dog doesn’t defecate on the decomposed granite — brace for a new brand of neighbor.
Surveillance systems and the context behind them, in which owners view their neighbors and passersby as potential package-stealers, are all too common in gentrifying communities. For if it were truly a high-crime place, there would still be chain link and barred windows.
There’s plenty of evidence that smart doorbells lead to racial profiling, and while there’s nothing inherently wrong with security systems, they generally detract from the community feel instead of adding to it.
“It’s the degradation of the social fabric that for so long we all took for granted,” Greenfield said. “It’s legitimate to walk up to a neighbor’s door to ask for or offer something, and security cameras and warning systems discourage that. We can’t let fear win in our society.”
Gentrification bonus point: if they come with a speaker with a disembodied voice that barks at passersby in a condescending tone: “Hi! You are currently being recorded.”
Privacy fences
Sometimes, surveillance systems aren’t enough. Many modern homeowners moving into new neighborhoods don’t even want to be seen by neighbors, so they install privacy fences or towering hedges to shield themselves from anyone walking by.
Greenfield calls them “f— you fences.”
“Many people were raised in the suburban sprawl, where they don’t have as much access to other people. Then they move to denser areas and import those suburban norms of separation and privacy,” Greenfield said.
Lola Rodriguez, a Lincoln Heights resident who grew up in the area, said if a home in the neighborhood is ever hidden from view, it’s usually someone who just moved in.
Gentrification bonus point: if the privacy fence is chic and stylish, like the horizontal trend that has taken over in some areas.
Box houses
One of the more uninspired architectural trends of the last century, modern box houses forgo attempts at character or ornamentation, instead serving as shrines to simplicity. They worship at the altar of minimalism, squeezing out as much square footage as zoning laws will allow.
They’re clean, they’re simple, and they’re a likely sign that a new demographic is moving into a neighborhood.
“It’s jarring seeing a bright white box house jammed between older houses with more character,” Rodriguez said. She prefers the neighborhood’s stock of century-old bungalows over the new homes being built.
The polarizing style isn’t for everyone, but it’s a hit for deep-pocketed buyers eyeing extra space. And box houses are quicker and cheaper to build for profit-minded developers, who will keep cranking out supply as long as there’s demand.
Gentrification bonus point: if the box house includes a glass garage door.
Drought-tolerant gardens
To be clear, the ecological benefits of drought-tolerant landscaping make it a net positive for Southern California. Limited water usage is absolutely a good thing.
But such gardens aren’t always cheap, and if they start popping up in neighborhoods where most residents can’t afford to spend thousands of dollars, sometimes tens of thousands, on their yard, it could be a sign of gentrification.
Most carry the same look: a handful of shrubs, succulents and cacti surrounded by gravel or decomposed granite, giving it a sandy, desert-like quality.
Kerry Kimble and Steven Galindo, two real estate agents with the Agency, said they’ve noticed an increase in drought-tolerant gardens in neighborhoods such as Echo Park, Highland Park and Silver Lake, where displacement has already been happening for years.
The majority of Kimble’s listings are in northeast L.A., and she said she’s noticed a surplus of succulents.
Galindo said some developers add drought-tolerant gardens to attract potential buyers.
“Developers remodel homes for the taste of the gentrifier,” he said.
The pair are currently listing a 106-year-old duplex in Angelino Heights, a neighborhood protected by a Historic Preservation Overlay Zone, which preserves a community’s architectural feel by limiting new building designs and renovations. But not every neighborhood enjoys such protection.
Gentrification bonus point: if the garden is riddled with Firestick plants — the trendy, orange-tipped succulents that seem to anchor every lawn in those “up-and-coming” neighborhoods.
Little Free Libraries
Listen, these are lovely. Unlike surveillance systems and privacy fences, little libraries actually evoke a sense of community, bringing neighbors together over a shared love of literature (even though most generally seem to be stocked exclusively with James Patterson novels and unreadable how-to books).
The charming, birdhouse-like structures certainly don’t cause gentrification, despite what a handful of critics have claimed over the years. But they definitely seem to be a product of gentrification, usually popping up in areas where home prices are rising and well-to-do residents are moving in.
Gentrification bonus point: if a smart doorbell camera watches over the library, making sure nobody takes more than their fair share of books.
Pointed listing language
Sometimes, the clearest sign of gentrification is hearing how people are talking about a neighborhood and the homes within it. There’s a wealth of such examples posted daily on Zillow, Redfin and other listing sites as real estate agents take on certain tones to market properties to potential buyers.
For example, if a listing brags about the home being some kind of port in a storm, a refuge from the area around it, a ship of gentrifiers might be sailing in. One listing in Boyle Heights is touted as an “urban oasis.” Another in South L.A. promises to add “a touch of serenity to urban living.”
Also pay attention to whether a listing is marketed as an actual place to live or simply an investment opportunity. This listing near Leimert Park asks potential buyers to “come see your future investment today.” An Elysian Heights listing touts its use as an Airbnb.
Gentrification bonus point: if the language sounds like an extra flowery wellness ad, such as this listing in East L.A.: “Imagine stepping into a world where every corner whispers tales of renewal.”
From high prices to low inventory, potential home buyers know it’s gnarly out there. But if you’re ready for homeownership, the long-term benefit of buying often outweighs the pain of toughing out the search — even these days.
Think of it like your 5 a.m. spin class: You know it’s good for you, even if it takes grit (and leaves you feeling sore).
With some market savvy, you can make the most of today’s challenging conditions. Here’s your game plan for buying a house in 2024.
The challenge: Stubbornly high mortgage rates squeeze shoppers’ buying power
Buyers have been at the mercy of mortgage rates’ meteoric rise, holding on as the average 30-year fixed rate climbed from 3% to nearly 7% in 2022. In October 2023, rates topped 8% for the first time since 2000 — a surprise even many top economists didn’t predict. But throughout November, they dropped slightly, landing at an average of 7.03% for the week ending Dec. 7.
Higher interest rates make it more expensive to get a mortgage. To put that in perspective: Let’s say you can afford $1,800 per month in principal and interest. At a 3% interest rate, you could afford to borrow $426,900. But at a 7% interest rate, you could afford to borrow only $270,600. Why? Because you’d pay a full $156,300 more in mortgage interest with the higher rate.
For now, economic signals suggest more positive news for buyers in 2024. Dan Moralez, regional vice president at Dart Bank in Holland, Michigan, points to a cooling economy and the pause on Fed interest rate hikes. “All of that stuff really lends itself to mortgage rates getting better and the cost to borrow getting cheaper,” Moralez says.
Let’s set realistic expectations, though: No experts are forecasting a return to 3% rates anytime soon. More likely, we’ll see the 30-year mortgage rate decline modestly below 7% in the second half of 2024, according to forecasts from the Mortgage Bankers Association and the National Association of Realtors.
Your strategy: Do your research to find the best deal
Don’t let high rates keep you on the sidelines for too long. When rates go down, competition goes up — another reason there’s no time like the present to start house hunting.
And whichever way rates move in 2024, you’ll save money if you shop around. Aim to get an estimate from at least three mortgage lenders. The Consumer Financial Protection Bureau estimates borrowers can save $100 per month (or more) this way. And look at the annual percentage rate, or APR, to understand the total cost of the loan, which includes fees and other charges.
With buyers wincing at high rates, some lenders are advertising “buy now, refinance later” offers. Others are offering temporary buydowns, where the buyer’s effective monthly payment is reduced for a year (or a few). Before signing up for a discount, ask questions to understand how it works. Each option could potentially save money, but Moralez says it could also be “smoke and mirrors” if the flashy deal is offset by higher fees.
“It’s one of those things where I tell folks, ‘There’s no free lunch, OK?’” he says. “You know, somebody is paying for it somewhere.”
The challenge: Low inventory means slim pickings for buyers
The rate of existing home sales is the lowest it’s been in 13 years, according to October 2023 data from the National Association of Realtors (NAR). The current market has a 3.6-month supply of unsold home inventory, meaning it would take listed homes 3.6 months to sell at the current sales pace. A balanced market has a supply of five to six months.
So why aren’t sellers selling? Octavius Smiley-Humphries, a real estate agent with The Smiley Group in Apex, North Carolina, points to higher prices and the “rate lock-in effect.”
“At this point, you’d be paying either double your mortgage for the same price house that you have, or a similar mortgage if you’re trying to even downsize,” he says. “So I think the more intelligent buyer is kind of thinking, ‘What’s the benefit?’ unless you absolutely have to move.”
Some hope: Single-family construction permits are on the rise, with more issued in October 2023 than at any other time in the past year, according to the Federal Reserve Bank of St. Louis, so we’ll see more new houses boosting supply soon. And despite larger shortages, 92% of markets have seen modest inventory growth over the last three months, according to a November 2023 report from ICE Mortgage Technology.
Your strategy: Cast a wider net
You can’t control who puts their house on the market. So focus on what you can change: your expectations.
Let go of the fantasy of finding the perfect home when a “good enough” home can get your foot in the door sooner. That’s especially true for first-time home buyers who are eager to build equity.
“Real estate has always been a really solid investment,” Smiley-Humphries says. “So what you essentially lose by waiting six months or a year could mean tens of thousands of dollars.”
For now, maybe you expand your search to include condos or townhouses. Maybe you settle for fewer bathrooms or a dated interior. Keep your chin up — even if you have to tolerate less square footage or weird linoleum floors for a while, you’ll have equity to remodel or sell in a few years.
The challenge: High prices push affordability to the worst it’s been in almost 40 years
Housing is the least affordable it’s been since 1984, according to a November 2023 report from ICE Mortgage Technology. Why? Home prices are growing faster than income, and on top of that, higher mortgage rates increase the cost of borrowing.
In October 2023, the median existing home sales price climbed to a record high of $391,800, according to the NAR. To buy a median-priced home at that time, buyers would need to shell out $2,567 per month just in principal in interest, ICE estimates. That’s another all-time high since ICE has been keeping track — and nearly double the median monthly payment of $1,327 just two years ago.
Until supply catches up to demand, prices are unlikely to fall. Realtor.com estimates prices will fall less than 2% next year. That’s another reason to jump in now: A big drop in prices could trigger more competition.
Your strategy: Make a budget and stick to it
If you’re Zillow-stalking houses you can’t afford, stop. Instead, channel that energy toward your plan to shop for a house in real life — starting with setting a realistic budget.
First, talk to a financial advisor or use an online calculator to see how much house you can afford. Understand how mortgage lenders will determine your eligibility, including analyzing your credit score, cash savings and monthly debt payments.
Next, find a buyer’s agent who knows how far your budget can go in your local market. An experienced agent can advocate for you and help you snag a good deal.
One bargain-hunting tip: Start searching in the winter, suggests Ellie Kowalchik, a real estate agent who leads the Move2Team with Keller Williams Pinnacle Group in Cincinnati, Ohio.
“There are good houses on the market now that aren’t getting the attention they may get in the spring with more buyer activity,” she says. “Less competition is good for buyers.”
The challenge: Multiple offers are common, and first-time buyers have less cash
More than one in four homes are still selling for above list price, according to October 2023 data from the NAR: 28% of homes sold for above list price that month. Homes for sale spent a median of 23 days on the market and saw an average of 2.5 offers, a sign that competition remains tough.
“Limited housing inventory is significantly preventing housing demand from fully being satisfied,” Lawrence Yun, NAR chief economist, said in a press release. “Multiple offers, of course, yield only one winner, with the rest left to continue their search.”
In general, first-time buyers come to the negotiating table with less cash than repeat buyers, reports the NAR. First-time buyers make a median down payment of 8%, while repeat buyers put down a median 19%.
And nearly one in three (29%) of sales were made in cash, reports the NAR, up slightly from 26% in 2022.
Your strategy: Use leverage where you have it
A good real estate agent can help you craft a strong offer, even if other buyers flash more cash.
Aziz Alhees, a real estate agent with Compass in Pasadena, California, has seen his share of wealthy investors making cash offers. He notes that they tend to bid below asking price since cash sales close faster. The promise of a quick closing is enough to get some sellers to turn down higher offers that ask for more time.
So Alhees competes on speed: With a mortgage preapproval and all other paperwork in hand, he prepares his buyers to close in 14 days.
“We’re not afraid of cash offers anymore,” he says.
On the flip side, if the sellers need more time to move out, a flexible closing timeline can sweeten some deals, too. But don’t waive the home inspection when you’re negotiating. It can be tempting, but you’re only hurting yourself if you later discover expensive problems.
The bottom line: Set realistic expectations
It’s fair to feel bummed out about high costs and low inventory. That’s especially true for first-time buyers who have been putting off their search, only to see the market remaining rough.
The solution: Think long term. Holding out for lower rates likely means you’ll face steeper prices and more competition. So if you’re determined to buy, find a place that suits your needs and budget as-is. Expecting perfection often means setting yourself up for disappointment.
“Sometimes I have clients that think they’re going to hit a home run the very first house they buy,” Moralez says. “And a lot of times I tell clients, well, sometimes it’s OK to be happy just getting on base.”
FHA loans and conventional loans are both issued by private lenders, but FHA loans are insured by the federal government, and conventional loans are not.
Due to their federal backing, FHA loans have more lenient criteria, making them better suited for borrowers with lower credit scores or who don’t have much money for a down payment.
Conventional loans require a higher credit score and stronger financials, but also come with lower costs, less-stringent home appraisals and cancellable mortgage insurance.
If you’re getting ready to buy a house, you have a lot of decisions to make. The same way that you can explore types of properties, you can (and should) explore different types of mortgages. The two most popular kinds of mortgages are conventional loans and FHA loans. Here, we’ll help you decide which might be better for your needs and situation.
Comparing FHA and conventional loans
Both FHA loans and conventional loans are mortgages originated by and issued through private lenders that allow you to finance the purchase of a home.
Conventional loans are what most people think of when they envision a mortgage. They are available through the majority of mortgage lenders in the U.S. — including banks, credit unions, savings and loan institutions and online mortgage companies — and can come in a range of terms, commonly 15 or 30 years, with a fixed or adjustable interest rate. They are not backed or guaranteed in any way by the government: The lender bears all the risk of the debt.
In contrast, FHA loans are insured by the Federal Housing Administration (FHA) and are geared toward homebuyers who might have difficulty obtaining conventional loan financing, primarily by requiring a lower minimum credit score, a smaller down payment, and other flexible qualification standards.
There are also substantial differences in loan limits, mortgage insurance terms and conditions, and debt-to-income maximum ratios. More on all that below.
Understanding FHA loans
FHA loans are insured by the FHA, a division of the U.S. Department of Housing and Urban Development — meaning, it will compensate the lender in case the borrower defaults. In return, the lender follows FHA’s more lenient underwriting criteria, allowing borrowers with lower credit scores to obtain approval, and requiring smaller down payments (usually between 3.5 and 10 percent of a home’s purchase price.)
Other than that, FHA loans work like most other mortgages, with either a fixed or adjustable interest rate and a loan term for a set number of years. FHA loans come with two term options: 15 years or 30 years. They do require you to pay mortgage insurance premiums (MIP) regardless of your down payment amount.
Understanding conventional loans
Conventional loans don’t have government backing. This means the underwriting criteria for approval are stricter, and you must have a higher credit score (at least 620) to qualify. Also, a 20 percent down payment tends to be the standard, though some lenders will allow smaller amounts. If you do put less than 20 percent down, the lender is likely to charge you private mortgage insurance until you are halfway through your loan term.
Depending on the characteristics of the loan, a conventional mortgage is either conforming or nonconforming. Often, conventional lenders sell these types of mortgages to Fannie Mae or Freddie Mac, the secondary mortgage market-makers, after they’re funded. In order to do this, the loan has to conform to, or meet, Fannie and Freddie standards around loan size, borrower financials, and other factors. If it doesn’t, the mortgage is considered nonconforming.
FHA vs. conventional loan requirements
FHA loans
Conventional loans
Credit score minimum
580 (with 3.5% down) or 500 (with 10% down)
620
Debt-to-income (DTI) maximum
50%
43%
Down payment minimum
3.5% (with a 580 credit score) or 10% (with a 500 credit score)
3% for fixed-rate loans or 5% for adjustable-rate loans
Loan limits
$498,257 in most areas
$766,550 in most areas
Mortgage insurance
Mortgage insurance premiums (MIP) required on loans with less than 20% down; unremovable
Private mortgage insurance (PMI) required on loans with less than 20% down; removable
Interest rates
FHA loan rates
Conventional loan rates
FHA vs. conventional credit score requirements
FHA loan borrowers can qualify with a credit score as low as 500 or 580 depending on their down payment amount: as low as 500 with 10 percent down, or as low as 580 with 3.5 percent down. Conventional loans require a credit score of at least 620. If you have excellent or good credit, a conventional loan is often the better choice.
FHA vs. conventional DTI ratio requirements
Another FHA vs. conventional loan differentiator: the debt-to-income (DTI) ratio maximum. This ratio is the measure of all your debt (the mortgage included) relative to your monthly income. For a conforming conventional loan, the maximum DTI ratio is 43 percent. For an FHA loan, the DTI ratio can go up to 50 percent.
FHA vs. conventional down payment requirements
Depending on the lender and program, some conventional loans require as little as 3 percent or 5 percent for a down payment. However, 20 percent is usually the standard amount; many lenders won’t finance more than 80 percent of the home’s price.
In contrast, small down payments are more the norm with FHA loans. If your credit score is at least 580, you can put down just 3.5 percent for an FHA loan; if your score is below 580 (but not lower than 500), you’ll be required to put down 10 percent. Here’s more on minimum down payment requirements.
FHA vs. conventional loan limits
Depending on your location, choosing between an FHA versus conventional loan might come down to the price of the house you want to buy.
Both types of loans have limits on the amount you can borrow. The conventional conforming loan limit, set by the Federal Housing Finance Agency each year, starts at $766,550 in 2024 and goes up to $1,149,825 in more costly housing markets. A conventional loan can exceed these limits, but at that point, it’d be considered a nonconforming jumbo loan.
The FHA loan limit is also adjusted each year, and there are different limits based on location and property type. In 2024, the FHA loan limit for a single-family home is $498,257 in most markets and goes up to $1,149,825 in higher-cost areas.
FHA vs. conventional mortgage insurance
If you don’t have 20 percent of the home’s purchase price for a down payment, you’ll be required to pay for mortgage insurance whether you’re getting a conventional or FHA loan. Both premiums are typically paid via your monthly mortgage payment.
FHA mortgage insurance includes an upfront premium equal to 1.75 percent of the amount you’re borrowing. Then, you’ll pay an annual premium, which is determined by the size of your down payment, how much you borrowed and the length of the loan (15 years versus 30 years).
Aside from differences in premium structure, conventional loan borrowers don’t have to pay for mortgage insurance forever — it can be canceled halfway through a loan term, or once the borrower achieves 20 percent equity (outright ownership) in the home. You can achieve this simply by following your repayment schedule to pay down the loan balance, making extra payments, or refinancing or getting a new appraisal if your home’s value has risen substantially.
In contrast, FHA mortgage insurance can’t be canceled unless you put at least 10 percent down (if so, it’ll end after 11 years), or you refinance to a different type of loan.
FHA vs. conventional appraisal process
When financing your home through a conventional mortgage, your lender requires a home appraisal. They mandate this estimation of the home’s value to ensure it is worth the amount of money they’re extending to you.
Meanwhile, FHA lenders require a more thorough process relating to appraisals, including assessing value and the condition of the property to ensure it’s HUD- compliant. This can hurt your chances of buying a home, since listing agents might suggest their sellers look elsewhere given the time it takes to do an FHA appraisal. Also, sellers must disclose any significant inspection findings to other prospective buyers.
FHA vs. conventional interest rates
With both types of loans, the lender sets the interest rate, determined primarily by your credit score. FHA loans sometimes have more favorable interest rates than conventional loans — but the difference is often offset by the greater number of fees, including the MIP charges, that they have. In fact, the FHA loan’s annual percentage rate (APR), which includes both the cost of the interest rate and all the fees, might actually be higher than that of a comparable conventional loan.
Should you get an FHA loan or conventional loan?
Which loan is better: FHA or conventional? To a large extent, that depends on you. If your credit score is below 620, a loan backed by the FHA might be your only option. It might also be a better deal if you can’t manage a 20 percent down payment, which — given the current $431,000 median price tag on homes — can be over $85,000.
Generally, a conventional loan is best for those with strong credit and a bigger home buying budget. Ultimately, the decision comes down to the type of home you want, your finances and how much of your funds you want to tie up in real estate.
Single-family rents also declined last month, falling $8 to $2,115, marking a 0.7% year-over-year increase. This growth was solely sustained by the Renter-by-Necessity (RBN) segment, which saw a 3.2% increase year-over-year, while lifestyle rents saw a 0.1% decrease over the same period. “One could say the multifamily market is metaphorically hunkering down for the winter … [Read more…]
According to a report released today by real estate portal Zillow, nearly a third of U.S. homebuyers who purchased a property in the last two years are now underwater.
A troubling 39 percent of those who bought in 2006 and 30 percent who purchased a home in 2007 have negative equity, largely because home values continue to slide.
During 2007, single-family home values posted a year-over-year decline of 5.5 percent, while condos slid a record 7.4 percent.
To highlight the severity of the problem, only three percent of those who purchased a home in 2003 currently owe more than their homes are worth.
Homeowners were hit hardest in areas like California, Florida, Arizona, and Nevada, where home prices saw the worst declines and borrowers put little to nothing down.
In Las Vegas, home values dropped 13.8 percent year-over-year and 57.6 percent of those who bought in 2007, when the median down payment for the area was 5 percent, and 72.5 percent who bought in 2006 with a median down payment of zero, have negative equity.
“It’s important to remember that value declines and negative equity situations are largely unrealized effects for most homeowners unless they are in a situation where they must sell or withdraw equity immediately,” said said Dr. Stan Humphries, Zillow vice president of data and analytics.
“The decline in values, combined with the recent rate cuts by the Fed should make entering the market more attractive to would-be buyers, but we may not see any effects until the spring when the home shopping season usually kicks off.”
Humphries also noted that despite the recent record declines, the housing market has more room to fall.
“With consecutive declines over the past five quarters, we haven’t seen the housing market bottom yet, and it may very well get worse before things get better,” he said.
“Even many markets that have been largely insulated from recent declines, like some in the Pacific Northwest, reported notable value declines in the fourth quarter.”