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What’s Ahead For Mortgage Rates This Week – May 28th, 2024

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The Consumer Sentiment Report was the sole important report to take place the prior week, keeping with the trend of the cooling-off period that happens the weeks following the CPI and PPI data releases.

Consumer sentiment this time around has come to be slightly below expectations and falling to a 6-month low, marking a great change in overall sentiment towards the clear trend in rising costs in goods and services. It is largely expected that the Federal Reserve, even with the recent improvement in data, will maintain its stance at holding rates at the current position until a later date this year.

Consumer Price Index

A monthly gauge of U.S. consumer sentiment fell to its lowest level in six months in May on expectations of higher inflation, according to a survey released Friday. The second of two readings of the consumer-sentiment index was 69.1 in May, a sharp decline from 77.2 in April, the University of Michigan said. The final reading was slightly higher than the initial estimate of 67.4.

Primary Mortgage Market Survey Index

  • 15-Yr FRM rates are seeing a decrease by -0.04% with the current rate at 6.24%
  • 30-Yr FRM rates are seeing a decrease by -0.08% with the current rate at 6.94%

MND Rate Index

  • 30-Yr FHA rates are seeing an increase by 0.08% for this week. Current rates at 6.70%
  • 30-Yr VA rates are seeing an increase by 0.08% for this week. Current rates at 6.72%

Jobless Claims

Initial Claims were reported to be 215,000 compared to the expected claims of 220,000. The prior week landed at 223,000.

What’s Ahead

Next week is the Federal Reserve’s preferred inflation metric PCE Index Prices, but the more impactful metric has largely always been the CPI and PPI reports. There will also be the release of the Chicago PMI report which will headline manufacturing data and the current state of the manufacturing industry. Tailing up the two major reports is the Federal Reserve’s beige book.

Understanding the Differences Between Construction Loans and Mortgages

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Construction loans and mortgages are two important tools in the world of real estate financing. They each have specific purposes and come with their own set of rules and requirements. These differences cater to various needs when it comes to buying or building properties.

Construction Loan: A construction loan is specifically designed to finance the construction of a new property or significant renovations to an existing property. These loans typically have short terms and are used to cover the costs of labor, materials, and other expenses associated with building or renovating a property.

Mortgage: A mortgage, on the other hand, is a loan used to purchase a property that is already built. It is a long-term loan secured by the property itself.

Disbursement

Construction Loan: Construction loans are typically disbursed in phases or “draws” as the construction progresses. The lender may inspect the progress of the construction before releasing funds for each phase.

Mortgage: A mortgage is usually disbursed in a lump sum at the time of purchase or refinance of the property.

Interest Rates and Terms

Construction Loan: Construction loans often have higher interest rates than traditional mortgages because they are considered riskier by lenders. They also have shorter terms, typically ranging from six months to three years.

Mortgage: Mortgages generally have lower interest rates compared to construction loans, and they can have terms of 15, 20, or 30 years, depending on the agreement between the borrower and the lender.

Requirements

Construction Loan: Lenders typically require detailed plans and specifications for the construction project, as well as a budget outlining the costs involved. They may also require a larger down payment compared to a traditional mortgage.

Mortgage: Mortgage requirements vary depending on the lender and the type of mortgage being sought, but they generally include factors such as credit score, income, employment history, and debt-to-income ratio.

Application Process

Construction Loan: The application process for a construction loan may be more involved than that of a traditional mortgage because lenders want to ensure that the project is feasible and that the borrower has the means to complete it. Borrowers may need to provide detailed plans and specifications, as well as a budget for the project.

Mortgage: The application process for a mortgage typically involves providing documentation related to income, assets, debts, and credit history. Borrowers may also need to undergo a home appraisal and provide a down payment.

While both construction loans and mortgages are used to finance property, they have different purposes, terms, requirements, and application processes. Construction loans are for building or renovating properties, have shorter terms and higher interest rates, and require detailed plans and budgets. Mortgages are used to purchase existing properties, have longer terms and lower interest rates, and require documentation related to the borrower’s financial situation.

Making Mortgage Decisions: Online Lenders vs. Traditional Banks

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The options for securing a mortgage have expanded beyond the brick-and-mortar banks to include online lenders. With this diversity comes a crucial decision for homebuyers: should you opt for the convenience of online lenders or stick with the familiarity of traditional banks? Let’s explore the pros and cons of both options to help you make an informed decision.

Online Mortgage Lenders

Pros:

Convenience: One of the most significant advantages of online mortgage lenders is the convenience they offer. You can apply for a mortgage from the comfort of your home, without the need to visit a physical branch. This is especially beneficial for busy individuals who may not have the time to schedule meetings during traditional banking hours.

Competitive Rates: Online lenders often have lower overhead costs compared to traditional banks, allowing them to offer competitive interest rates and fees. By shopping around and comparing quotes from various online lenders, you may find a better deal than what traditional banks can offer.

Streamlined Application Process: Online mortgage applications typically involve less paperwork and can be completed faster than traditional methods. Many online lenders utilize digital platforms and automated systems, making the application process more efficient and straightforward.

Cons:

Limited Personal Interaction: While online lenders offer convenience, they may lack the personalized touch of traditional banks. Some homebuyers prefer face-to-face interactions with loan officers to address their questions and concerns. If you value personal relationships and guidance throughout the mortgage process, an online lender may not be the best fit for you.

Risk of Fraud: As with any online transaction, there is a risk of fraud when dealing with online mortgage lenders. It’s essential to research and verify the legitimacy of the lender before providing sensitive personal and financial information. Look for reputable lenders with strong security measures in place to protect your data.

Traditional Banks

Pros:

In-Person Support: One of the primary advantages of traditional banks is the availability of in-person support from loan officers and mortgage specialists. This can be reassuring for first-time homebuyers or individuals who prefer face-to-face interactions when navigating the mortgage process. Loan officers can provide personalized guidance and address any concerns you may have along the way.

Established Reputation: Traditional banks have a long history and established reputation in the financial industry. Many homebuyers feel more confident entrusting their mortgage to a well-known bank with a proven track record of stability and reliability.

Bundling Options: Some traditional banks offer incentives for customers who already have existing accounts, such as checking or savings accounts. These banks may offer discounts or preferential rates for mortgage applicants who bundle their services, providing potential cost savings in the long run.

Cons:

Potentially Higher Costs: Traditional banks often have higher overhead costs, which can translate to higher interest rates and fees for mortgage borrowers. While some borrowers may prioritize the familiarity and security of a traditional bank, others may be willing to sacrifice these benefits for a more affordable mortgage option.

Lengthy Application Process: Compared to online lenders, traditional banks may have a more time-consuming and paperwork-intensive application process. This can lead to delays in securing a mortgage, especially if you encounter any complications or need to provide additional documentation.

Limited Accessibility: Traditional banks typically operate within specific business hours and may have limited accessibility, especially for individuals who work during those hours. This can make it challenging to schedule appointments or speak with a loan officer if you have questions or concerns outside of traditional banking hours.

Both online mortgage lenders and traditional banks have their own set of pros and cons. The right choice for you will depend on your individual preferences, priorities, and financial situation. If you prioritize convenience, competitive rates, and a streamlined application process, an online lender may be the best option. On the other hand, if you value in-person support, an established reputation, and bundling options, a traditional bank may better suit your needs. Whichever option you choose, be sure to carefully research and compare multiple lenders to find the best mortgage deal for your homebuying journey.

Things You Should Understand About Private Mortgage Insurance

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Private Mortgage Insurance (PMI) is a sizable expense during the process of buying a home that many overlook until it impacts their financial decisions. Understanding PMI, its purpose, and strategies to manage or eliminate it can save you thousands of dollars over the life of your mortgage.

What is PMI?

PMI is a type of insurance that protects lenders in case the borrower defaults on their mortgage payments. It’s typically required when the borrower’s down payment is less than 20% of the home’s purchase price. This insurance doesn’t benefit the homeowner directly but allows lenders to offer mortgages with lower down payment requirements.

Why Does PMI Exist?

Lenders perceive higher risks with smaller down payments. PMI provides them with a safeguard against potential losses if borrowers default. By mitigating their risk, lenders can extend mortgage loans to individuals who might not otherwise qualify due to insufficient funds for a sizable down payment.

How to Avoid PMI:

Save for a Larger Down Payment: Aim to save at least 20% of the home’s purchase price to avoid PMI altogether. While it may take longer to accumulate this amount, it can significantly reduce your monthly mortgage payments.

Explore Loan Options: Some lenders offer loans that don’t require PMI, even with a down payment of less than 20%. Research different loan programs, such as VA loans for veterans and USDA loans for rural homebuyers.

Piggyback Loans: Another strategy involves taking out a second mortgage, often referred to as a piggyback loan, to cover part of the down payment. This can help you avoid PMI while still putting down less than 20%.

Eliminating PMI:

If you’re already paying PMI, there are several ways to eliminate it:

Reach 20% Equity: Once you’ve paid down your mortgage balance to 80% of the home’s original appraised value, you can request cancellation of PMI. This typically involves contacting your lender and providing documentation to prove your home’s value hasn’t decreased.

Refinance: If you can’t reach 20% equity through regular payments, consider refinancing your mortgage. With a new appraisal, if your home’s value has increased, you may qualify to refinance without PMI.

Renovate: Increasing your home’s value through renovations can expedite reaching the 20% equity threshold, allowing you to cancel PMI sooner.

Private Mortgage Insurance is an additional cost that can significantly impact your homeownership expenses. Understanding how PMI works and exploring strategies to avoid or eliminate it can help you save money and achieve financial security faster. Whether you’re in the process of buying a home or already paying PMI, implementing these strategies can put you on the path to a more affordable and financially stable future. If you have additional questions about PMI or other mortgage needs, give us a call.

Unlocking Lower Mortgage Rates By Boosting Your Credit Score

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The interest rate you qualify for when securing a mortgage can make a huge difference in your financial journey. The good news is, that by understanding how credit scores impact mortgage rates and implementing strategic steps to boost your score, you can potentially unlock lower rates and save thousands of dollars over the life of your loan.

Lenders use credit scores as one of the primary factors in determining the interest rate they offer you on a mortgage. Generally, the higher your credit score, the lower your interest rate will be. This is because a higher credit score indicates to lenders that you’re a lower-risk borrower, making you eligible for more favorable terms.

Here’s a rough breakdown of how credit scores typically correlate with mortgage rates:

Excellent Credit (781–850): Borrowers with excellent credit scores often qualify for the lowest mortgage rates available.

Good Credit (661–780): While not as advantageous as excellent credit, borrowers with good credit scores still usually receive competitive rates.

Fair Credit (601–660): With fair credit, you might still qualify for a mortgage, but you’re likely to face higher interest rates.

Poor Credit (Below 600): Borrowers with poor credit scores may struggle to qualify for a mortgage, and if they do, they’ll likely face significantly higher interest rates.
*Credit ratings from VantageScore 3.0® credit score ranges

Steps to Boost Your Credit Score

Now that you understand the importance of credit scores, let’s explore actionable steps to boost yours and qualify for those lower mortgage rates:

1. Check Your Credit Report

Start by obtaining a copy of your credit report from all three major credit bureaus—Equifax, Experian, and TransUnion. Review them carefully for any errors or inaccuracies that could be dragging down your score. Dispute any discrepancies you find to ensure your report is accurate.

2. Pay Your Bills on Time

Your payment history is a crucial factor in determining your credit score. Set up automatic payments or reminders to ensure you never miss a due date. Even one late payment can have a significant negative impact on your score.

3. Reduce Credit Card Balances

High credit card balances relative to your credit limits can harm your credit score. Aim to keep your credit utilization ratio—the amount of credit you’re using compared to your total available credit—below 30%. Paying down credit card debt can quickly improve your score.

4. Avoid Opening New Accounts

Opening new credit accounts can temporarily lower your credit score. Additionally, each new account adds a hard inquiry to your credit report, which can further ding your score. Hold off on applying for new credit until after you’ve secured your mortgage.

5. Keep Older Accounts Open

The length of your credit history also impacts your score. If you have older credit accounts in good standing, keep them open, even if you’re not actively using them. Closing old accounts can shorten your credit history and potentially lower your score.

6. Consider a Credit Builder Loan

If you’re struggling to establish credit or rebuild a poor credit history, a credit builder loan can be a valuable tool. These loans are designed specifically to help individuals improve their credit scores by making on-time payments.

Real-Life Example: The Impact of Improving Your Credit Score

Let’s illustrate the potential savings of boosting your credit score with an example:

Scenario 1: Sarah has a credit score of 650 and qualifies for a 30-year fixed-rate mortgage with an interest rate of 4.5%. On a $250,000 loan, her monthly payment would be approximately $1,266, and she would pay a total of $206,016 in interest over the life of the loan.

Scenario 2: After diligently working to improve her credit score, Sarah’s score increases to 750. Now, she qualifies for the same mortgage with an interest rate of 3.5%. With the lower rate, her monthly payment drops to around $1,122, and she pays only $154,197 in interest over the life of the loan—a savings of over $50,000!

Boosting your credit score takes time and effort, but the potential savings on your mortgage make it well worth it. By following these steps and monitoring your progress, you can position yourself for lower mortgage rates and significant long-term savings. Remember, every point increase in your credit score can make a difference, so stay focused on your financial goals and watch your credit score—and your opportunities—rise.