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Fed holds Steady on Interest Rates in May Meeting

5222018Steady as she goes. That's the headline out of the most recent meeting of the Federal Reserve's Open Market Committee, which ended earlier this month with little surprise or fanfare. The FOMC, the chief policymaking body of the Fed that holds sway over much of the global economy, elected not to raise its key interest rate, the federal funds rate. The committee also reaffirmed its expectation to continue on its previously planned course toward more incremental rate hikes for the rest of the year.


Rising interest rates still low by historical standards

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It's already been clear that 2017 was a banner year for residential real estate sales. But when it comes to projections for 2018 and a spring home sales season that's already underway, certain factors could cause the year to turn out quite differently.

The primary concern for 2018 is not necessarily home prices, although they continue to increase throughout much of the U.S. Instead, mortgage interest rates may well determine the outcome of the year for buyers, sellers and investors.


Field Guide to Mortgage Calculators

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Sorting through the math involved in buying a home requires more than a device or app that adds and subtracts. That's why mortgage calculators have proliferated online. They come in many different forms and offer a surprising variety of functions to help us understand the financial implications of buying and owning a home.

Just the Facts: Busting Several Mortgage Myths

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Going into the mortgage process, it is common for many first-time or even seasoned homebuyers to have a few misconceptions. With reasonable and clear expectations, the entire process of obtaining home financing can be simple and painless. Here are few myths about the homebuying process, combined with the truths behind them.

The Difference between Loan Officers at Banks and Private Lenders

Homebuyers on the hunt for a mortgage in 2017 have more options at their disposal than ever before. As always, name-brand banks continue to dominate the conversation regarding home loans. But increasingly, new homeowners are finding it easier and more cost effective to finance their home purchases with the help of a private mortgage lender.

While they each share the same goal, private mortgage lenders differ from their big bank counterparts in a few key ways. Homeowners should familiarize themselves with the best private mortgage lenders before signing onto a loan. After all, closing that loan could very well mark the beginning of a years-long relationship.

How private lenders differ

At any financial institution, the person who reviews and approves mortgage applications is called a loan officer. But despite similar titles, there are some significant differences between a loan officer working at a typical bank and one at a private lender.

What does a loan officer do, and how do those duties differ depending on their institution? One of the biggest differentiators between the two can be seen in legally mandated licensing and registration requirements:

  • A loan officer working at a depository institution, like a bank or credit union, must be registered under the National Mortgaging Licensing System. Once approved under this federal system, the loan officer is authorized to conduct business in all 50 states.
  • Private lenders, however, are held to a different, arguably higher standard. Since they are considered "non-depository institutions," loan officers at a private lending firm must not only be registered under the NMLS, but also must obtain a license in the state where they will operate.

This additional license requirement means private lenders must undergo at least 20 hours of state-mandated coursework, as well as at least eight hours of continuing education per year. The course requirements vary by state but usually include extensive coverage of federal and state lending laws, ethics courses and other technical training.

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Despite Fed rate hike, US real estate in prime condition

The big news out of the business world this week largely concerned the Federal Reserve, which voted March 15 to raise its key interest rate for the third time since 2008. While the rate increase was a relatively minor one (only another quarter of one percent), and the Fed's actions generally go unnoticed by the average American, the move does offer the latest pulse​ check on the economy at large. This information is useful to anyone buying, selling or owning a home in 2017, and here's why:

Rates rise, but stay historically low

When the Fed decides to increase its key interest rate, it essentially raises the cost of doing business for banks in the U.S. and around the world. As a result, the interest rate on products like mortgages will usually tick up. However, this difference is often miniscule, and will still keep the cost of a home loan near its lowest point in history. As Marketwatch explained, if the interest rate on a standard 30-year mortgage rises by just 0.5 percent, that will translate into no more than an extra $80 per month paid by the borrower. While this certainly adds up over the life of the loan, it's a cost that can be reduced or recouped later on through refinancing, purchasing points at closing and several other methods.

Speaking of refinancing, financial professionals often advise against doing so when the Fed begins to raise rates. However, that's not to say a refinanced mortgage isn't an option for anyone right now. Marketwatch offered several suggestions for homeowners looking to retool their mortgages in light of this year's economic developments:

  • Cash-out refinancing is an option that can reduce the amount homeowners pay on non-mortgage debt, like debt from credit cards and other loans. In a cash-out refinance, homeowners convert some of the equity in their home into cash they can use for any purpose. Ideally, this money can be used to pay off higher-interest debt, leaving monthly mortgage payments unchanged but reducing other expenses.
  • Switching to a shorter-term loan might behoove borrowers who have 30-year fixed-rate mortgages right now. By converting to a 10- or 15-year loan, borrowers will need to make additional payments now, but can pay off the total balance faster and usually save money in the long run.
  • Opting out of mortgage insurance, or PMI, is a good move that can be achieved either before a loan is closed or with a refinance. PMI can be avoided by paying a larger down payment upfront, or with a refinance arrangement that focuses solely on eliminating the fee.

Why it's still a good time to buy

Current homeowners and mortgage borrowers have options when it comes to reducing their monthly payments. However, with this latest financial news, should prospective first-time buyers keep waiting on the sidelines, rather than purchasing a home in 2017?

For most, it's still a great time to buy. According to mortgage interest rate data from Freddie Mac, the current average 30-year loan rate of 4.17 percent is neck-and-neck with the average logged in 2014. In addition, since 2008, average mortgage rates have never gone above 5 percent. That means since Freddie Mac started tracking mortgage rate data in 1972, it's never been a better time to be a borrower than in the last decade.

With a wide variety of tools at their disposal, along with unbeatable interest rates, the real estate market appears primed to remain in everyone's favor for the foreseeable future.

Why a 15 Year Mortgage Makes Sense

Most homebuyers opt to pursue a 30-year mortgage, and while that's an appealing option, buyers should also consider a 15-year loan. 

Buyers should first contemplate a 15-year mortgage if they know they can afford the higher monthly payments. When taking out this type of mortgage, homeowners need to budget appropriately because they'll need to pay off the principal balance in half the time of a standard mortgage. By paying off the balance sooner, homeowners will be able to prioritize other financial matters, such as retirement planning or paying for a child's college tuition.

Homeowners can save money

One major benefit of a 15-year loan is the opportunity to save money due to lower interest rates. According to The Mortgage Reports, a shorter mortgage can make sense if homebuyers don't have a large amount of debt to their name and housing represents their largest monthly expense - they'll likely be able to comfortably pay off the mortgage in a shorter amount of time. Even so, homebuyers should still make sure their income is steady, recommended The Motley Fool. Tackling a bigger mortgage payment can be difficult to overcome if buyers don't have a stable career and income they know will pay the bills.

And after 15 years, homeowners don't have a mortgage to worry about anymore.

Finally, a 15-year mortgage helps homeowners build equity faster because they pay less in interest, Money Crashers explained. With a 30-year loan, interest is higher and more time is needed to pay off the principal, so equity doesn't build as quickly. Homeowners can then use that equity to help buy a new home or fund repairs.

If homeowners have a steady income source and can handle the larger payments, they should consider a 15-year mortgage. By opting for the shorter loan, homeowners can pay off their house faster while saving more money.

3 Mortgage Myths that are Wrong

As the spring and summer buying seasons quickly approach, prospective homebuyers have to remain careful about falling for mortgage myths.

Let's dispel the following three mortgage myths:

No. 1: Buyers must have a high credit score

Having a high credit score won't hurt, but subpar scores won't bar buyers from purchasing a house. Buyers can still take out a mortgage if they have scores below 700, sometimes even in the 620-630 range, according to SmartAsset. The catch, however, is that buyers with lower scores typically pay more in interest.

Buyers shouldn't let low credit scores stop them. They should work to increase that number and look into taking out a Federal Housing Authority-backed mortgage.

No. 2: Pre-qualification and pre-approval are the same

Achieving pre-qualification isn't the same as being pre-approved for a mortgage, Realtor.com explained. Pre-qualification only gives buyers an idea of a mortgage amount they qualify for. Realistically, pre-qualification is not a concrete document and won't help in the buying process.

Instead, buyers should seek pre-approval because it indicates a lender has already collected the necessary documents and pre-approved a buyer for a certain mortgage amount. Sellers know pre-approved buyers are serious about making an offer, so it's best to go to through the pre-approval process.

No. 3: 30-year fixed rate mortgages are the best

While 30-year mortgages are the most common, they aren't necessarily the best option.

Buyers who can afford higher monthly payments may want to opt for a 15-year mortgage so they can pay off a house in half the time.

In other instances, buyers may want to consider an adjustable-rate mortgage if they want lower interest rates and monthly payments early in the loan's life and can handle future variable rates, Bankrate stated.

Taking out a mortgage is a life-changing decision, which is why it's important buyers bust common mortgage myths.

When Should You Buy and When Should You Rent?

In 2015, only 32 percent of homebuyers were first-time purchasers, according to NPR. 

After the housing crisis in 2008, many people became skeptical of buying homes, but now that the mortgage industry appears to be making a comeback, prospective owners are beginning to wonder whether purchasing a home is an option again. But before consumers make a decision they need to know whether they're better off renting or if they would benefit more from purchasing real estate.

Here are some things to consider before taking out a loan or signing a lease on a new residence:

Mortgage Delinquency Down 26 Consecutive Quarters/What to do When Delinquent

For homeowners who are behind on mortgage payments, foreclosure is not the only option.

Overall, the outlook for the delinquent mortgage rate in the U.S. is quite promising. The percentage of people behind on their real estate loan payments was 2.69 percent in the third quarter of 2016, which is the 26th-consecutive quarter where that number has declined, according to the Federal Reserve. That number is nearly 1 percentage point lower than the third quarter of 2015, according to the data.

The definition of what is considered a delinquent mortgage will vary from lender to lender, but the most common definition is that any mortgage payment more than 30 days overdue is considered delinquent, and homes are not eligible for foreclosure until a mortgage is 120 days delinquent, in accordance with Consumer Financial Protection Bureau guidelines.

Several pundits are optimistic about the mortgage industry going into the new year.

"The mortgage market has seen steady improvements over the last several years, and we believe lower unemployment rates, growth in median household income, and rising home values will be the primary drivers for continued strong performance in this sector," Joe Mellman, vice president and mortgage business leader for TransUnion, told DS News.

Some experts attribute the low delinquency rates to a decline in the number of people who have subprime mortgages, which are some of the riskier mortgages lenders can approve. According to the TransUnion 2017 Consumer Credit Market Forecast, of the 66.9 million borrowers with a mortgage balance, only 8.5 percent of them were subprime loan holders. This indicates a two-tenths of a percent drop from 2015, the report noted.

For those falling behind on their mortgage, there is hope of refinancing. Although there are several options and individual cases will vary, the most important thing is for borrowers to talk to their lenders about why they are having trouble with their payments. From there, homeowners and lenders can work together to design a plan that will get individuals back on track with their payments.