Locking vs. Floating Your Mortgage Rate

To mortgage folk across the country, it’s an age-old question: “Lock or float?” It’s a question loan officers and mortgage brokers get asked on a daily basis, often over and over again by panicked borrowers and first-time home buyers. And it might just be the most important answer a homeowner will come up with during [&hellip

The post Locking vs. Floating Your Mortgage Rate first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

18 Reasons to Refinance Your Mortgage

There are many reasons to refinance your mortgage, some obvious and some a bit more obscure and/or different. I figured I’d compile a list of the many reasons I can think of to refinance. Some of the situations are complete opposites of one another and will depend on your unique financial goals and/or risk appetite. [&hellip

The post 18 Reasons to Refinance Your Mortgage first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

When Are Mortgage Rates Lowest?

We’re all looking for an angle, especially if it’ll save us some money. Whether it’s a stock market trend, a home price trend, or a mortgage rate trend, someone always claims to have unlocked the code. Unfortunately, it’s usually all nonsense, or predicated on the belief that what happened in the past will occur again [&hellip

The post When Are Mortgage Rates Lowest? first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

11 Ways to Build Home Equity

These days, home equity is booming thanks to rapidly appreciating property values. At last glance, total equity on mortgaged properties exceeded $10 trillion, with more than $6.5 trillion of it tappable, per recent figures from Black Knight. Yes, that’s a “T” not a “B.” But you would of never guessed it less than a decade [&hellip

The post 11 Ways to Build Home Equity first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

Why Is the Housing Market So Hot?

Real estate Q&A: “Why Is the Housing Market So Expensive Right Now?” If you asked me this same question a few years ago, I would have had the same basic answer I’m about to explain. And since that time, home prices have surged much, much higher, which basically tells me the same fundamentals have been [&hellip

The post Why Is the Housing Market So Hot? first appeared on The Truth About Mortgage.

Source: thetruthaboutmortgage.com

Current Mortgage Rates Stay Lower on Monday

We saw mortgage rates dip a little lower on Friday after trouble in Turkey led financial market participants to seek out the perceived safety of long-term government bonds.

Mortgage rates are expected to stay close to current levels this week, but we could see some movement after a few key economic reports get released. Read on for more details.

Where are mortgage rates going?                                            

Rates hold lower to start the week

It’s a quiet start to the week as there are no significant economic reports scheduled for release. That’s keeping long-term government bond yields, which dropped due to an increased demand on Friday after trouble for Turkey’s lira, down near three week lows.

The yield on the 10-year Treasury note (the best market indicator of where mortgage rates are going) is currently at 2.88%. That’s basically flat on the day and about six basis points lower from where it was this time last week.

The expectation for this week is the same as it’s been for quite some time, and that’s for current mortgage rates to stay close to present levels. The fact that rates have remained in a tight range all summer (and most of spring) really isn’t the worst thing for borrowers, as many forecasters had expected rates to rise higher than they are now by this time.

The pressure isn’t off quite yet, though, as it is widely anticipated that the Federal Reserve will increase the nation’s benchmark interest rate, the federal funds rate, by at least a quarter-point by the time 2019 rolls around.

According to the CME Group’s Fed Funds futures, there is a 96.0% chance that the federal funds rate will go up a little over a month from now at the FOMC’s September meeting.

That would push the target range up a quarter-point to 2.00%-2.25%. There is still a lot of time between now and December, but at the moment the majority of analysts believe another rate hike will take place then, pushing the fed funds target range up to 2.50%-2.75%.

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Rate/Float Recommendation                                  

Lock now before move even higher     

With mortgage rates expected to rise in the coming months, we believe the prudent decision for most borrowers is to lock in a rate sooner rather than later. The longer you wait, the more likely it is that you’ll get a higher rate and pay more interest on your purchase or refinance.

Learn what you can do to get the best interest rate possible.  

Today’s economic data:           

  • Nothing out today.

Notable events this week:     


  • Nothing


  • NFIB Small Business Optimism Index
  • Import and Export Prices


  • Retail Sales
  • Empire State Mfg Survey
  • Productivity and Costs
  • Industrial Production


  • Housing Starts
  • Jobless Claims
  • Philly Fed Business Outlook Survey


  • Consumer Sentiment

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*Terms and conditions apply.

Source: totalmortgage.com

Should You Refinance Your FHA to a Conventional Loan?

Should You Refinance Your FHA to a Conventional Loan?

Like many American homeowners, your first mortgage may have been a loan with the Federal Housing Administration (FHA). Loans backed by the FHA are attractive to first-time homebuyers because FHA loans are easier to obtain financing for and require only minimal down payments and fair-to-good credit scores.

On the other hand, FHA loans require certain provisions which can sometimes be a burden on a homeowner’s budget, often in the form of premiums paid for mortgage insurance. In such cases, you may want to consider refinancing your FHA loan into a conventional mortgage.

However, before we dive into the pros and cons of refinancing from an FHA to conventional loan, it’s important to learn the basics of these mortgage insurance premiums and costs.*

Can You Refinance an FHA Loan?

You can refinance an FHA loan to a conventional loan, but you’ll need to meet minimum requirements. We can structure the PMI into your interest rate to lower your monthly payment. If you don’t meet the equity minimum for a conventional loan, you’ll need to account for continued private mortgage insurance (PMI) costs until you’ve reached at least an 80% loan-to-value ratio (or lower).

Understanding Mortgage Insurance Premiums

FHA loans stipulate that borrowers pay two kinds of mortgage insurance: a one-time, upfront mortgage insurance premium (UFMIP) and a monthly mortgage insurance payment (MIP). The monthly MIP payment is generally required for the life of any FHA loan.

Today, the UFMIP costs roughly 1.75% of a loan’s principal balance and is paid at closing. For example, borrowers applying for a $200,000 30-year fixed FHA loan today will have to pay a $3,500 upfront mortgage insurance premium. Additionally, these borrowers must also typically pay an annual premium of $1,700 for every $200,000 borrowed.

The MIP will be calculated at 0.45% to 1.25% of the loan balance throughout the term of an FHA loan. These premiums can add anywhere from $100 to $500 to the monthly payment. While FHA rates may be low, the added costs of mortgage insurance could make refinancing into a conventional loan, even one with a slightly higher interest rate, result in lower monthly payments for the borrower.

Now, let’s examine the advantages and disadvantages of an FHA to conventional refinance.

The Pros of Refinancing to a Conventional Mortgage

While mortgage rates continue to fluctuate, home values continue to rise, providing more equity to homeowners. This has given homeowners the leverage to successfully refinance into conventional mortgages.

In fact, one of the biggest advantages of switching to a conventional loan is that it can eliminate the mortgage insurance requirement altogether. While conventional loans have stricter credit requirements, and typically require borrowers to have at least 20% equity in their homes, any mortgage insurance provision is cancelled once a homeowner has reached a 78% loan-to-value ratio in their home. You can also refinance your loan into a conventional loan with cheaper PMI.

Additionally, refinancing to a conventional mortgage allows borrowers to take out a larger home loan.

The Cons of Refinancing an FHA Loan to a Conventional Loan

It’s important to keep in mind that refinancing comes with costs, such as closing fees, and may require you to present many of the same documents during the application process as you did with your original home purchase. (However some refinance options, such as a Streamline Refinance, can remove these document requirements. Learn more below.)

According to SmartAsset, refinancing closing costs can range anywhere from 2-5% of your total loan. For example, if you refinance into a $250,000 loan with 3% closing costs, you’ll need to pay $7,500 on your signing appointment day, roll the costs into the loan, or receive a lender rebate to offset the costs.

In addition, if you don’t currently meet the equity requirements you’ll also need to account for continued private mortgage insurance (PMI) costs — that is until you’ve reached that magic number of 78%, and in some cases, 80%, in loan-to-value ratio.

To apply for a conventional mortgage, you’ll need to present a few documents to prove your borrowing worthiness. These documents include:

  • Pay stubs
  • Tax returns and W-2’s and/or 1099’s
  • Your credit report
  • Asset statements

You may also need to pay for an appraisal of your home. In some cases you will not have to present income or asset documentation.

Too Many Requirements? An FHA Streamline Might Make More Sense

If you can’t afford the closing costs associated with refinancing from an FHA into a conventional mortgage, or if you can’t provide the needed documents, an alternative option is to apply for an FHA Streamline Refinance.

The FHA Streamline Refinancing program provides homeowners with a quicker, simpler way to refinance without the hassle of in-depth documentation, credit, or income verification.

Homeowners who are looking for ways to lower their monthly mortgage payments, or who are hoping to convert an adjustable rate mortgage into a fixed loan, often benefit from an FHA Streamline Refinance — even if their mortgage is underwater. In fact, the Streamline program was put in place specifically to reduce loan defaults.

To qualify for a Streamline Refinance, you must meet these requirements:

  • You must already have an FHA-backed mortgage.
  • All of your mortgage payments must be up to date.
  • You must wait 210 days or have six months of on-time payments before applying.
  • This refinance cannot be used to obtain cash in excess of $500

It’s also important to note that Streamline Refinancing continues the requirement for mortgage insurance, though UFMIPs are typically absorbed in the mortgage and are not paid in cash.

Understanding the Net Tangible Benefit

FHA Streamline Refinancing applicants must demonstrate a valid reason for refinancing, which is determined by something called the Net Tangible Benefit. According to the FHA, this can be either:

  • A 0.5% reduction of the principal and interest (P&I) of the mortgage payment, plus the annual mortgage insurance premium (MIP), or
  • A refinancing from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage

Checklist: Is it a Good Time to Refinance from an FHA to a Conventional Mortgage?

If you’re still not sure whether you should refinance from an FHA loan into a conventional mortgage, answer the following checklist questions to help you decide if it’s the right move.

1. What are my goals?

If you’re looking to lower your monthly payments, or switch from an ARM to a fixed-rate loan, going into a conventional mortgage might be right for you. You may also be eligible to take advantage of a cash-out refinancing option with a conventional loan.

2. Does refinancing make financial sense?

If current interest rates are higher than your existing rate, or if the difference is negligible, refinancing into a conventional loan may not be worth the cost. You can use a loan calculator to estimate your monthly payments — just don’t forget about those upfront insurance costs.

3. What is the current value of my home?

Most home values have risen over the years giving homeowners more equity and making refinancing into a conventional mortgage an attractive option for homeowners. If you owe more on your mortgage than your home is worth, you can still refinance with an FHA Streamline.

4. What is my existing home equity?

If you have more than 20% equity in your home, converting from an FHA into a conventional home loan makes a lot of sense. If you have less than 20% equity, an FHA Streamline refi may be better suited to your situation.

5. Can I afford refinancing closing costs and fees?

Refinancing can be pricey — oftentimes thousands of dollars. However, borrowers can typically use a rebate from the lender to offset some of the costs or finance the costs and fees. To understand how financing these fees will impact your monthly payment, be sure to use our handy calculator found here.

6. Can I provide all of the necessary documentation?

Refinancing into a conventional mortgage is a process very similar to purchasing your first home, so it’s important to gather all of the right documents. If you can’t produce all of the necessary documents, an FHA Streamline may provide a simpler path to refinancing.

Considering a Refi? Talk to a Mortgage Lender

Even if FHA rates are lower than conventional rates, it may not always be in your best interest to refinance into another FHA loan. A licensed loan officer can help you evaluate the nuances of FHA refinances and help you identify your best financial solution.

To see if a conventional loan refinance makes sense for you, speak with a PennyMac loan officer or apply online today.

*By refinancing your existing loan, your total finance charges may be higher over the life of the loan.

Source: pennymacusa.com