2 of the Factors That Impact Mortgage Rates

2 of the Factors That Impact Mortgage Rates

Feb 6, 2024 | Buyers, Financing

2 of the Factors That Impact Mortgage Rates

If you’re looking to buy a home, you’ve probably been paying close attention to mortgage rates. Over the last couple of years, they hit record lows, rose dramatically, and are now dropping back down a bit. Ever wonder why?

The answer is complicated because there’s a lot that can influence mortgage rates. Here are just a few of the most impactful factors at play.

Inflation and the Federal Reserve

The Federal Reserve (Fed) doesn’t directly determine mortgage rates. But the Fed does move the Federal Funds Rate up or down in response to what’s happening with inflation, the economy, employment rates, and more. As that happens, mortgage rates tend to respond. Business Insider explains:

“The Federal Reserve slows inflation by raising the federal funds rate, which can indirectly impact mortgages. High inflation and investor expectations of more Fed rate hikes can push mortgage rates up. If investors believe the Fed may cut rates and inflation is decelerating, mortgage rates will typically trend down.”

Over the last couple of years, the Fed raised the Federal Fund Rate to try to fight inflation and, as that happened, mortgage rates jumped up, too. Fortunately, the expert outlook for inflation and mortgage rates is that both should become more favorable over the course of the year. As Danielle Hale, Chief Economist at Realtor.com, says:

“[M]ortgage rates will continue to ease in 2024 as inflation improves . . .”

There’s even talk the Fed may actually cut the Fed Funds Rate this year because inflation is cooling, even though it’s not yet back to their ideal target.

The 10-Year Treasury Yield

Additionally, mortgage companies look at the 10-Year Treasury Yield to decide how much interest to charge on home loans. If the yield goes up, mortgage rates usually go up, too. The opposite is also true. According to Investopedia:

“One frequently used government bond benchmark to which mortgage lenders often peg their interest rates is the 10-year Treasury bond yield.”

Historically, the spread between the 10-Year Treasury Yield and the 30-year fixed mortgage rate has been fairly consistent, but that’s not the case recently. That means, there’s room for mortgage rates to come down. So, keeping an eye on which way the treasury yield is trending can give experts an idea of where mortgage rates may head next.

Bottom Line

With the Fed meeting later this week, experts in the industry will be keeping a close watch to see what they decide and what impact it’ll have on the economy. To navigate any mortgage rate changes and their impact on your moving plans, it’s best to have a team of professionals on your side.

The Mortgage Pre-Approval Process

The Mortgage Pre-Approval Process

Jun 25, 2023 | Buyers

Most buyers decide to finance their home purchase – – a consultation with a reputable and preferably – local – mortgage lender is a crucial step in the process. Viewing homes without a pre-approval usually leads to disappointment. Buyers who are wise discuss their financial situation with a reputable lender and acquire a pre-approval. A pre-approval creates an opportunity for you to not just understand what you qualify for, but ultimately to decide what you can afford. Having a pre-approval greatly enhances your negotiating position – especially in a competitive market. Find out how much you want to carry in a monthly mortgage before we begin your home search. We will need this letter to attach to any offer you make on a home.

  • Start the process early!!!
  • A mortgage professional will check your credit report to determine whether you qualify for a loan.
  • The mortgage pre-approval process will:
    • help determine how much you will be able to afford
    • what kind of loans are available
    • what your closing costs will be
    • if you are eligible for any closing cost assistance
  • The typical down payment is 3-5%
  • Gifts are allowed with some loans.
  • Ask about first time home buyer programs.

Types of Loans

  • Conventional
    • Fixed rates and ARMs
    • 5% minimum down payment
    • 10% minimum down payment for condominiums
  • VA – 100% financing for veterans with no mortgage insurance
  • FHA – Government loan with 3.5% down payment. Gifts allowed
  • ARM – Adjustable Rate Mortgage. Lower fixed rate for short period (3 ½ or 7 years)
  • VHDA – Virginia Housing Development Authority has a variety of first time buyer loans with minimum down payment. Usually have income restrictions.

Closing Costs

Settlement costs will vary, depending on the financing arrangement and on selling price of the home. First-time homebuyers could receive help with closing costs. Typical closing costs paid by the buyer include:

  • Lender Costs – Appraisal, administrative fee, Origination fee
  • Attorney Fees – Includes fee to close and title insurance ($4 per $1000 of purchase price)
  • Government Recording – Includes tax stamps for the deed and county and state charge$3.33 per $1000 for both deed and note
  • Escrows – Usually 3 months of homeowners insurance and real estate taxes are put into an escrow account by the lender

 

LOAN ORIGINATION FEE 1 % of the loan amount.
DISCOUNT POINTS Optional. May be paid to lower the mortgage interest rate. Rarely charged, only if the borrower pays points.
APPRAISAL FEE $575.00 – $750.00
CREDIT REPORT FEE $50
PREPAID MORTGAGE INTEREST The interest prepaid by the purchaser for the period between the closing date and the end of the current month.
HAZARD (Homeowners) INSURANCE PREMIUM Lenders require that the hazard insurance will be prepaid for one year that two additional months’ premium be held in escrow to cover the first two months of the following year. The first year’s premium is approximately .4% of the selling price.
CITY/COUNTY PROPERTY TAXES A reimbursement to the seller for prepaid property taxes covering the period between the closing and the end of the tax period. Also need to collect 2-6 months for Escrow.
TITLE EXAM/CLOSING FEE The attorney’s fee is generally $500.00 to $600.00.
TITLE INSURANCE A one-time premium, approximately .4% of the

selling price.
PRIVATE MORTGAGE INSURANCE Insurance required by lenders, paid for by purchasers, for loans with loan to value ratio greater than 80%.

Lender paid PMI is available with some programs. Ask your lender.
RECORDING FEES AND TAXES These fees cover recording of the deed and the mortgage with the City or County and the State. They are approximately .4% of the selling price.
SURVEY The fee for the survey, if required, will be in the range of $250.00 $350.00. The figure will be higher if acreage is involved.