Matt Goeglein

"I’ll Just Take Care of It."

What’s Ahead For Mortgage Rates This Week – October 7th, 2024

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Last week was a fairly light week, with the non-farm payroll data being the most significant release. The data showed that payrolls are growing at a faster rate than historical trends suggest, which could indicate that inflation is still above the Federal Reserve’s target. In contrast, the upcoming week has a busy schedule, with many important economic releases lined up back to back.

Non-Farm Payrolls

Hourly pay for American workers rose a sharp 0.4% in September – above expectations – to put the increase over the past 12 months at 4.0%. That’s up from 3.9% in the prior month. Wages are rising faster compared to the last few years before the pandemic. Wage gains rose just slightly over 3% on average in 2018 and 2019 before the coronavirus exploded.

If wages keep growing at a 4% rate, it could call into question the Fed’s view that labor costs will remain non-inflationary.

Primary Mortgage Market Survey Index

  • 15-Yr FRM rates saw an increase of 0.09% with the current rate at 5.25%
  • 30-Yr FRM rates saw a decrease of 0.04% with the current rate at 6.12%

MND Rate Index

  • 30-Yr FHA rates saw a 0.25% increase for this week. Current rates at 6.04%
  • 30-Yr VA rates saw a 0.26% increase for this week. Current rates at 6.06%

Jobless Claims

Initial Claims were reported to be 225,000 compared to the expected claims of 220,000. The prior week landed at 219,000.

What’s Ahead

Next week will be a heavy week, starting with key inflation reports like the CPI and PPI. These will be followed by the FOMC Minutes, Consumer Credit data, and the University of Michigan Consumer Sentiment report.

20% Down Payment vs. Mortgage Insurance

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When it comes to buying a home, one of the biggest decisions is whether to save up for a 20% down payment or opt for mortgage insurance. While a 20% down payment has traditionally been the gold standard, mortgage insurance is becoming an increasingly viable option for many buyers. Here’s a closer look at both paths to help you determine which is right for you.

The 20% Down Payment: Stability and Long-Term Savings

A 20% down payment has long been viewed as a smart financial move, and for good reason. Here’s why it continues to be a popular option:

  • Instant Equity: By putting down 20%, you immediately build equity in your home and may qualify for lower interest rates, saving you money over the life of the loan.
  • No Mortgage Insurance: Avoiding private mortgage insurance (PMI) can keep your monthly payments lower, as PMI typically adds an extra fee to your mortgage payment.
  • Financial Security: A larger down payment often means more stable monthly payments, which can provide peace of mind for homeowners.

However, the main drawback is the large upfront cost. Saving up 20% of a home’s value can be challenging, particularly in today’s housing market.

Mortgage Insurance: Lower Upfront Costs, Greater Accessibility

Mortgage insurance offers an alternative for buyers who can’t afford a 20% down payment, helping more people achieve homeownership with as little as 3.5% down for an FHA loan or 5% for a conventional loan. Here’s why it appeals to many buyers:

  • Lower Upfront Barrier: Mortgage insurance allows you to buy a home with a much smaller down payment, making it easier to enter the market without waiting years to save 20%.
  • Broader Access to Loans: With mortgage insurance, more first-time buyers and families can afford a home, especially those with limited savings.
  • Temporary Expense: PMI can be removed once you’ve built enough equity in your home, either through paying down your mortgage or as your home appreciates in value.

However, the extra monthly cost of mortgage insurance can strain your budget, and it could take years before you’re able to drop PMI altogether.

Choosing the Right Path: Key Considerations

To decide between a 20% down payment and mortgage insurance, consider these factors:

  • Assess Your Financial Situation: Review your savings, credit score, and monthly budget to see how much you can comfortably afford for a down payment.
  • Explore Loan Options: Compare FHA, conventional, and VA loans, as each has different requirements and costs that could influence your decision.
  • Compare Costs: Use online calculators or talk to a mortgage advisor to see how the monthly costs of both options stack up based on your financial picture.
  • Think Long-Term: Consider how long you plan to stay in your home. If you expect to live there for many years, it might make sense to pay PMI now and remove it later as home values rise.

For many buyers, paying mortgage insurance and getting into a home sooner can be a smarter move. Home appreciation can outpace savings rates, meaning that buying now, even with PMI, could help you build equity faster than waiting to save for a 20% down payment.

How to Buy a Home After Bankruptcy

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Filing for bankruptcy can make your dream of homeownership feel distant, but it doesn’t have to be the end of the journey. While there are challenges, understanding how bankruptcy impacts your finances and planning strategically can set you on the right path. Here’s a step-by-step guide to buying a home after bankruptcy.

The Long-Term Impact of Bankruptcy

Bankruptcy creates immediate financial relief but also leaves a lasting mark on your credit report. This can affect your ability to qualify for a mortgage, but it’s important to remember that bankruptcy doesn’t close the door to homeownership forever.

The Role of Credit Scores

One of the biggest hurdles after bankruptcy is the impact on your credit score. Your score plays a central role in mortgage approval. After bankruptcy, it’s crucial to focus on rebuilding your credit. Responsible management of your debts—paying bills on time, keeping credit card balances low, and avoiding new credit applications—can help improve your credit score over time.

The Waiting Period

Most mortgage lenders require a waiting period after bankruptcy before you can apply for a mortgage. The waiting period varies depending on the type of bankruptcy filed and the loan program you’re pursuing:

  • Chapter 7 bankruptcy: You’ll need to wait at least 2 years before applying for an FHA or VA loan, and up to 4 years for conventional loans.
  • Chapter 13 bankruptcy: The waiting period may be as short as 1 year after filing if you’ve made on-time payments under your repayment plan, but 2 years after discharge is generally the norm for FHA and VA loans.

Exploring Government-Backed Loans

Government-backed loans like FHA and VA loans are often more forgiving for individuals with a bankruptcy on their record. These loans offer the chance to become a homeowner with lower credit score requirements and down payments, although you may face slightly higher interest rates compared to other loan options.

Interest Rates After Bankruptcy

While bankruptcy can lead to higher interest rates initially, you’re not stuck with those rates forever. By improving your credit score and demonstrating financial responsibility post-bankruptcy, you can negotiate better terms or refinance your mortgage later to secure a lower rate.

Financial Counseling and Expert Advice

Seeking professional advice from mortgage consultants and financial advisors can be a game-changer in your journey to homeownership. They can help you navigate loan options, improve your financial standing, and guide you through the mortgage process after bankruptcy.

Rebuilding and Moving Forward

Bankruptcy may feel like a setback, but it doesn’t define your future. By focusing on rebuilding your credit, understanding your loan options, and following a structured financial plan, you can achieve your goal of homeownership despite past financial challenges.

Buying a home after bankruptcy requires patience, planning, and financial discipline. With the right approach, you can move past the setbacks of bankruptcy and make homeownership a reality.

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