Control the Controllables If You’re Worried About Mortgage Rates
Chances are you’re hearing a lot about mortgage rates right now, and all you really want to hear is that they’re coming back down. And if you’ve seen headlines about the early November Federal Funds Rate cut by the Federal Reserve (The Fed), maybe you got hopeful mortgage rates would start to decline right away. Although some media sources may lead you to believe that the Fed’s actions determine mortgage rates, in reality, they don’t. The truth is, the Fed, the job market, inflation, geopolitical changes, and a whole list of other economic factors influence mortgage rates, too. So, while recent actions from the Fed set the stage for mortgage rates to come down over time — it's going to be a gradual and, likely bumpy, process.Here’s the best advice anyone can give you right now. While you may be tempted to wait for rates to fall, it’s really hard to try and time the market — there’s just too much that can have an impact. Instead, set yourself up for homebuying success by focusing on the factors you can control. Here’s what to prioritize if you’re looking to put your best foot forward.Your Credit ScoreCredit scores can play a big role in your mortgage rate. And the difference of just a few points can make a significant impact on your monthly payment. As an article from Bankrate explains:“Your credit score is one of the most important factors lenders consider when you apply for a mortgage. Not just to qualify for the loan itself, but for the conditions: Typically, the higher your score, the lower the interest rates and better terms you’ll qualify for.”With rates where they are today, maintaining a good credit score is one of the keys to getting the best rate possible. To find out where your credit score stands and what you can do to give it a boost, reach out to a trusted loan officer.Your Loan TypeThere are many types of loans, and each one offers different terms for qualified buyers. The Consumer Financial Protection Bureau (CFPB) says:“There are several broad categories of mortgage loans, such as conventional, FHA, USDA, and VA loans. Lenders decide which products to offer, and loan types have different eligibility requirements. Rates can be significantly different depending on what loan type you choose. Talking to multiple lenders can help you better understand all of the options available to you.”Work with your team of real estate professionals to see which loan types you may qualify for and figure out what will work best for you financially.Your Loan TermJust like with loan types, you have options when it comes to terms, or the length of your loan. As Freddie Mac says:“When choosing the right home loan for you, it’s important to consider the loan term, which is the length of time it will take you to repay your loan before you fully own your home. Your loan term will affect your interest rate, monthly payment, and the total amount of interest you will pay over the life of the loan.”Lenders typically offer mortgages in 15, 20, and 30-year terms. And which term you go with has a direct impact on your rate. Talk to your lender about which one is right for your situation. Bottom LineRemember, you can’t control what happens in the broader economy or when mortgage rates will come down. But there are actions you can take that could help you set yourself up for success.Connect with a local real estate agent and lender to go over what you can do now that’ll make a difference when you’re ready to move.
How Co-Buying a Home Helps with Affordability Today
Buying a home in today’s market can feel like an uphill battle – especially with home prices and mortgage rates putting pressure on your budget. If you’re feeling stuck, co-buying could be one way to help you get your foot in the door. Freddie Mac says:“If you are an aspiring homeowner, buying a home with your family or friends could be an option.”But there are some things you'll want to consider first. Let’s explore why co-buying is gaining popularity right now among some buyers and see if it may make sense for you too.What Is Co-Buying?Co-buying means buying a home with someone like a friend, sibling, or even a group of people. And, with today’s high home prices and mortgage rates, it’s an option more people are turning to. According to a survey done by JW Surety Bonds, nearly 15% of Americans have already co-purchased a home with someone, and another 48% would consider doing it.Why Consider Co-Buying?The same survey also asked people about the perks of co-buying a home. Here are some of the top responses (see graph below):Sharing Costs (67%): From saving for a down payment to managing monthly payments, buying a home is a big financial step. When you co-buy, you split these costs, making it easier to afford a home.Affording a Better Home (56%): By pooling your financial resources, you may also be able to afford a larger or higher-quality home than you could have on your own. This may mean getting that extra bedroom, a bigger backyard, or living in a more desirable neighborhood.Investment Opportunity (54%): Co-buying a home can also be an investment. You could buy a house with someone so you can rent out, which could help generate passive income.Sharing Responsibilities (48%): Owning a home comes with a lot of responsibilities, including maintenance and upkeep and more. When you co-buy, you share these commitments, which can lighten the load for everyone involved.Other Co-Buying ConsiderationsWhile co-buying has its benefits, there’s something else you need to consider before deciding if this approach is right for you. As Rocket Mortgage says:“Buying a house with a friend or multiple friends might be a great way for you to achieve homeownership, but it’s not a decision you should make lightly. Before diving in, make sure you understand the financial and logistical hurdles you’ll face, as well as the human and emotional elements that might affect the purchase or, more importantly, your relationship.”Basically, make sure you and your co-buyer are on the same page about things like how costs will be split, who will handle what responsibilities, and what will happen if one of you wants to sell your share of the home in the future. Leaning on an expert can help you weigh the pros and cons to make that conversation easier.Bottom LineIf you're looking to get your foot in the door but are having a tough time at today's rates and prices, co-buying could be an option to make your move happen. But, it’s important to plan carefully and make sure that all parties are clear on the details. To figure out if co-buying makes sense for you, connect with a local real estate agent.
Why Today’s Mortgage Debt Isn’t a Sign of a Housing Market Crash
One major reason why we’re not heading toward a foreclosure crisis is the high level of equity homeowners have today. Unlike in the last housing bubble, where many homeowners owed more than their homes were worth, today’s homeowners have far more equity than debt.That’s a big part of the reason why even though mortgage debt is at an all-time high, this isn’t 2008 all over again. As Bill McBride, Housing Analyst for Calculated Risk, explains:“With the recent house price increases, some people are worried about a new housing bubble – but mortgage debt isn’t a concern . . .”Today’s homeowners are in a much stronger position than ever before. So, let’s break it down and see why today’s mortgage debt isn’t anything to fear.More Equity, Less Risk of ForeclosuresAccording to the St. Louis Fed, total homeowner equity is nearly triple the total mortgage debt today (see graph below):High equity makes it less likely for homeowners to face foreclosure because they have more options. If someone struggles to make their mortgage payments, they could potentially sell their house and still come out ahead thanks to their built-up equity.Even if home values were to dip, most homeowners would still have a comfortable cushion of equity. That’s a big contrast to the 2008 crisis, where many homeowners were underwater on their mortgages and had few options to avoid foreclosure.Delinquency Rates Are Still Near Historic LowsAnother reassuring sign is that, according to the NY Fed, the number of mortgage payments that are more than 90 days late is still near historic lows (see graph below):This is partly due to a variety of programs designed to help homeowners through temporary hardships. As Marina Walsh, VP of Industry Analysis at the Mortgage Bankers Association (MBA), says:“. . . servicers are helping at-risk homeowners avoid foreclosures through loan workout options that can mitigate temporary distress.”So, even if someone falls behind on their payments, there are support systems in place to help them avoid foreclosure.Low Unemployment Helps Keep the Market StableOne other important factor is today’s low unemployment rate. More people have stable jobs, which means they’re better able to afford their mortgage payments. As Archana Pradhan, Principal Economist at CoreLogic, explains:“Low unemployment numbers have helped reduce the overall delinquency rate . . .”During the last housing crisis, unemployment was much higher, which led to a wave of foreclosures. Today’s unemployment rate is very different (see graph below):That stability in how many people are employed is one of the reasons the market doesn’t have the same risks as it did the last time.There’s no need to worry about a wave of distressed sales like the one we saw in 2008. Most homeowners today are employed and have low-interest mortgages they can afford, so they’re able to make their payments. As McBride states:“The bottom line is there will not be a huge wave of distressed sales as happened following the housing bubble.” Bottom LineWhile mortgage debt is high, rest assured the market isn’t on the brink of another crash. Instead, most homeowners are in a strong position. If you have questions or concerns, connect with a local real estate agent.
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