All Texas Counties Get Higher Conforming Loan Limits for 2019

The conforming loan limit for Texas has been increased for 2019. Next year, all 254 counties across the state of Texas will have a conforming loan limit of $484,350. That’s for a single-family home purchase. Multifamily properties such as duplexes and triplexes have higher limits.

Higher Loan Limits for Texas in 2019

Last month, the Federal Housing Finance Agency (FHFA) announced that it was going to increase conforming loan limits for nearly all counties across the country. The new “baseline” limit will go up to $484,350 in 2019. Higher-cost real estate markets like San Francisco and New York City will have loan limits of up to $726,525.

According to their November 27 press release:

“The Federal Housing Finance Agency (FHFA) today announced the maximum conforming loan limits for mortgages to be acquired by Fannie Mae and Freddie Mac in 2019. In most of the U.S., the 2019 maximum conforming loan limit for one-unit properties will be $484,350, an increase from $453,100 in 2018.”

In Texas, all counties will have the baseline loan limit of $484,350 in 2019. While there are plenty of expensive homes in real estate markets across Texas, there are no “high-cost” areas in terms of median house values. So it’s the same limit for all 254 counties.

Conforming vs. Jumbo Mortgages

So what is a conforming loan exactly?

When a mortgage loan meets the size restrictions used by Freddie Mac and Fannie Mae, it is referred to as a conforming loan. It can therefore be sold to those two government-sponsored enterprises via the secondary mortgage market.

When a person borrows more than the conforming loan limit for their county, they are using a “jumbo” loan. The qualification requirements can be stricter for jumbo mortgage products, because there is a larger amount of money being borrowed and therefore a higher level of risk. For example, lenders often require larger down payments, higher credit scores, and higher income levels for borrowers who are seeking a jumbo mortgage loan.

A conforming loan, on the other hand, might have a lower bar for approval since it can be sold to Freddie Mac or Fannie Mae.

Median Home Price Is Well Below the New Limit

Conforming loan limits are based on median home values. They can vary from one county to the next because of their connection to house prices.

But in Texas, every county will have the same conforming loan limit in 2019. That’s because median home prices for most counties across the state fall below the new baseline loan limit of $484,350.

As of December 2018, the median home value for Texas was around $190,400. That’s obviously well below the 2019 conforming loan limit mentioned above. Even in the state’s more expensive real estate markets, like Austin, the median house price still falls below the new loan limits for 2019.

This means that a typical borrower in most cities across Texas should be able to finance a home purchase within the conforming loan limit range. But jumbo mortgages are still available for those borrowers who need a higher level of financing (and can meet the stricter qualification criteria).

VA and FHA Loan Programs in Texas

The conforming loan limits above apply to conventional mortgage products. “Conventional” means they are not insured or guaranteed by the government. The two main government-backed loan programs (VA and FHA) should also get higher limits for 2019.

The VA loan limits for Texas will be aligned with the conforming figures mentioned above. That’s because the Department of Veterans Affairs typically uses the limits established by the FHFA.

As for the FHA loan program, we are still awaiting an announcement from the Federal Housing Administration. They typically announce their new loan limits in December, for the year following. We expect to see that announcement within the next two or three weeks.

Coming attractions 2019

Outlook: Three Mortgage-Industry Trends That We Might See in 2019

Coming attractions 2019

A new round of mortgage industry forecasts and projections suggest that higher interest rates could lead to a purchase-dominated mortgage market in 2019. Meanwhile, mortgage qualification standards have eased, and this could bring more borrowers into the market next year.

Three Mortgage Trends We Could See in 2019

As we move into the holiday season, many home buyers are looking ahead to 2019. And many of them share the same questions: What will mortgage rates do in 2019? Will it be a good time to buy or refinance a home? Here are some recent trends that could carry over into next year.

Prediction #1: Thirty-year mortgage rates could hover around 5% in 2019.

At the start of 2018, the average rate for a 30-year fixed mortgage was 3.95%. That’s based on the long-running survey conducted by Freddie Mac. As of November 8, that average had risen to 4.94%. So today’s mortgage rates are about one full percent higher than they were at the beginning of this year.

As for forecasts and projections, some analysts expect 30-year loan rates to hover around 5% for much of 2019. The Mortgage Bankers Association (MBA) recently predicted that the average rate for a 30-year fixed home loan would start 2019 at 5.0%, and then hover around 5.1% for the rest of next year.

The economic research team at Freddie Mac offered a similar prediction for mortgage rates in 2019. In an October 2018 report, the group stated:

“We anticipate that the 30-year fixed-rate mortgage will average 4.5 percent in 2018, rising to 5.1 percent in 2019 and 5.6 percent in 2020.”

So their long-range outlook mirrors the forecast issued by the MBA. Analysts from both organizations expect long-term home loan rates to hover in the low 5% range for much of next year.

Did you know? While there are different types of home loans, the 30-year fixed-rate mortgage is by far the most popular financing among borrowers today. That’s why you see it mentioned so frequently within news reports, forecasts, etc.

The key takeaway here is that there appears to be some consensus among experts that mortgage rates will remain fairly stable throughout 2019.

Prediction #2: Purchase loans will dominate the market, as refinancing activity declines.

When mortgage rates trend upward, refinancing activity tends to decline. And we’ve already talked about the steady rise in rates that has occurred during 2018.

As a result of that trend, the mortgage market in 2019 will likely be dominated by purchase loans (i.e., those used by home buyers). Mortgage refinancing activity, on the other hand, will likely decline through the end of 2018 and into 2019.

According to a November 2018 press release from the analytics firm Black Knight, almost 1.9 million homeowners across the country still “have an interest rate incentive to refinance” their homes. But the window has closed for many more. The company’s data revealed that roughly 6.5 million homeowners “have now missed their opportunity to refinance their mortgages due to rising rates.”

Bottom line: Some homeowners in the U.S. could still benefit from refinancing. But if rates continue to rise, that number will shrink. In 2019, the mortgage market will probably consist primarily of purchase loans, with a smaller percentage of refinance loans.

Related: 4 things the housing market might do

Prediction #3: Mortgage lending standards will be more relaxed, compared to previous years.

Mortgage lending criteria have eased over the past year, and this could have an impact on the 2019 mortgage market as well. The short version is that it’s generally easier to qualify for a home loan today, compared to previous years.

There are several reasons for this. For one thing, Freddie Mac and Fannie Mae have eased the criteria they use when purchasing mortgage loans from lenders. They’re allowing higher debt-to-income ratios, and higher loan-to-value ratios. This means borrowers today can qualify for a mortgage loan with a higher level of household debt, and with less money down. Generally speaking.

An October 2018 report by the property analytics company CoreLogic stated:

“Mortgage credit underwriting eased for both conventional and Federal Housing Administration (FHA) home-purchase loans during the Q2 2018 compared with a year earlier … In the last few years, GSEs have expanded their credit box to creditworthy borrowers by increasing the maximum debt-to-income (DTI) and loan-to-value (LTV) ratios.”

Note: The GSEs in the above quote are the two government-sponsored enterprises, Freddie Mac and Fannie Mae. Their purchasing criteria tend to “trickle down” to the primary mortgage market, where they affect borrowers.

We recently reported that mortgage loan denial rates have declined steadily over the last seven years or so. This is partly due to an ongoing “easing” trend within the industry.

To be honest, it’s fairly easy to “forecast” this particular trend because it’s already happening. And it’s something that will probably carry over into 2019. That’s good news for borrowers.

Disclaimer: This article includes predictions and forecasts provided by third parties outside of our company. We have presented them here as an educational service to our readers. The Home Buying Institute (HBI) makes no claims or assertions about future economic conditions.

application rejected

Too Much Debt: the #1 Reason for Mortgage Rejection Last Year

Editor’s note: This is the second article in a two-part series. In part one, we explained how the overall rate of mortgage loan rejection has declined steadily over the last few years. This report focuses on the leading cause of application denial.

According to a recent housing report, the “debt-to-income ratio” was the most common cause of mortgage rejection in the United States during 2017. It led to more home loan denials than any other single factor. That’s partly because Americans are carrying more debt these days, on average.

Debt-to-Income: Leading Cause of Mortgage Rejection

In October 2018, the real estate analytics company CoreLogic put out a detailed report relating to mortgage denial in the U.S. The good news was that the rate of loan denials dropped steadily from 2010 to 2017. This means that a higher percentage of borrowers have been reaching the “finish line” and successfully closing on their loans, compared to previous years.

This report also listed the most common reasons for mortgage loan rejection. Excessive debt topped the list.

This kind of data is publicly available, thanks to the Home Mortgage Disclosure Act (HMDA). This federal law requires lenders to report a variety of details about the individual loans they make. The information goes into a database, where it can be mined for insight. Among other things, the HMDA asks lenders to provide the reason for denial, in cases where they turn down or reject a mortgage loan application.

CoreLogic analyzed HMDA data to produce its recent report. To quote that report:

“According to the 2017 HMDA data, 30.3% of denied applications attributed ‘debt-to-income ratio’ as the primary reason for mortgage loan denial, up from 28.8% in 2016 and 28.2% in 2015. In fact, since 2015 it has become the number one reason that lenders have turned down purchase-mortgage applications.”

In earlier years, a poor credit history was the number-one reason for mortgage rejections nationwide. But the debt-to-income ratio has surpassed credit history over the past few years, making it the top reason why loan applications get turned down.

Definition: The debt-to-income ratio, or DTI, is a numerical comparison between (A) the borrower’s gross monthly income and (B) the amount of money he or she spends on recurring monthly debts. The combined or “back-end” DTI, which lenders are most concerned with, includes all types of recurring debt such as auto loans, credit cards, and the mortgage loan itself.

While mortgage lenders consider a variety of factors when reviewing loan applications. They examine bank balances, employment history, credit scores and more. They also use the DTI to ensure that a person isn’t taking on too much debt relative to their income. And based on this report, it’s the debt-to-income comparison that leads to the most mortgage rejections.

Related: How much debt is too much?

DTI Standards Are More Relaxed Today, as of 2018

Here’s some good news to counter the doom and gloom above. The standards for debt-to-income ratios have actually eased over the last couple of years. These days, mortgage lenders are allowing borrowers to have a higher level of debt.

This is largely due to policy changes made by Freddie Mac and Fannie Mae. Those are the two “government-sponsored enterprises,” or GSEs, that buy loans from lenders and sell them to investors. Fannie and Freddie are now regulated by the government, and they have strict criteria for the kinds of loans they can purchase. One of those criteria has to do with the debt-to-income ratio.

Over the last couple of years, Fannie and Freddie have increased their maximum allowable DTI for the loans they purchase. The limit rose from 45% to 50%, allowing borrowers to qualify with higher debt levels than before.

Meanwhile, however, the average level of household debt in America continues to rise. According to an August 2018 Reuters report:

“Americans’ borrowing reached $13.29 trillion in the second quarter, up $454 billion from a year ago, marking a 16th consecutive quarter of increases, a New York Federal Reserve report released on Tuesday showed.”

So while the DTI limits are higher now than in previous years, so too is the average level of debt among borrowers. This is likely the leading cause in the rise of DTI-related mortgage loan rejections.

application rejected

Mortgage Denial Rates Have Declined Over the Past Seven Years

Editor’s note: This is the first in a two-part series. This article explains how the overall rate of mortgage loan denial in the U.S. has declined steadily in recent years. Part two examines the leading cause of rejection, which is the debt-to-income ratio.

There’s some good news on the mortgage front. A recent industry report showed that the rate of mortgage loan denials has dropped steadily over the last seven years or so.

That means a higher percentage of mortgage applicants are being approved for financing these days. It’s the latest sign of a general easing trend within the lending industry.

Mortgage Loan Denials Have Declined Steadily

Earlier this month, the property information company CoreLogic published a detailed report on mortgage denial rates in the U.S. The overall percentage or rate of mortgage denials nationwide dropped steadily from 2010 to 2017.

The rejection rate peaked at nearly 19% during 2007. That was back when the housing market and mortgage industry was starting its meltdown, and lenders were drawing back. The denial rate would eventually drop to 10% ten years later, in 2017.

According to the report: “[Mortgage] denial rates have steadily declined through the housing recovery and a growing economy – and were lower in 2017 than in 2004. In 2017, only about 1-in-10 applications were turned down.”

Terminology: In this context, a loan “denial” occurs when a person applying for a mortgage gets turned down by the lender for whatever reason. The denial rate shows the percentage of applicants who were turned down, based on total loan application volume for that period.

To produce their report, CoreLogic used data obtained through the Home Mortgage Disclosure Act (HMDA). Among other things, the HMDA requires lenders to report a variety of loan-level information, including the reasons for loan denials in many cases. This act is primarily designed to prevent discrimintation by lenders. But it also yields valuable insights into various mortgage-industry trends, including denial rates.

It’s worth noting that in 2017, the loan rejection rate was the lowest it had been in over a decade. To put it differently, the application success rate for 2017 was the highest it has been in over ten years. That means a higher percentage of borrowers are getting approved for home loans these days.

An Easing Trend in the Lending Industry

The report mentioned above did not speculate as to why the rate or mortgage denials has declined in recent years. But it probably has to do with the overall “easing” trend within the lending industry. This is something we’ve reported on in the past. Over the past few years, it has become easier for borrowers to qualify for home loans.

For instance, Freddie Mac and Fannie Mae are now allowing higher debt levels among borrowers, for the loans they purchase from lenders. This has made it easier to qualify for financing, particularly for those borrowers with relatively high levels of debt. Standards have become more relaxed in other areas as well.

It’s logical that a general easing of borrower qualification requirements would lead to a higher closing rate, and a lower rate of denials. That’s likely the case here.

There are many reasons why a mortgage application might get turned down. They range from debt-related problems to credit issues. Having insufficient income for the desired loan amount is another factor that often leads to rejection. Borrowers must be able to demonstrate that they have enough income to make their monthly payments.

As it turns out, having too much debt is one of the most common reasons for home loan denial in the U.S. And that’s not surprising, when you consider that Americans are carrying more debt these days.

Median Down Payment for Home Buyers Hits All-Time High in 2018

According to a report published in September by ATTOM Data Solutions, the median down payment among home buyers in the U.S. hit an all-time high during the second quarter of 2018.

The nationwide median was $19,900 during the second quarter. San Jose, California topped the charts with a (mind-blowing) median down payment of $306,000. Three other California metro areas rounded out the top four, followed by Boulder, Colorado.

Home Buyer Down Payments Reach All-Time High in 2018

According to the report published last month, the median down payment for single-family home and condo purchases was $19,900 during the second quarter of 2018. That was an increase of 19% over the previous quarter, when the median was $16,750. It also marked “a new record high going back as far data is available,” said the report.

This analysis included 103 metropolitan areas across the United States. Out of those 103, the metro areas with the highest median down payments in Q2 2018 were:

  • San Jose, California ($306,000)
  • San Francisco, California ($220,000)
  • Los Angeles, California ($130,000)
  • Oxnard-Thousand Oaks-Ventura, California ($115,400)
  • Boulder, Colorado ($107,750)

The numbers in parentheses might look like home values, at first glance. But they’re actually the median down payments among home buyers during the second quarter, for each of those metros. (So yes, a typical down payment on a house in San Jose is higher than the average home value for the U.S. The word “anomaly” comes to mind.)

This report also identified another group of metro areas with median down payments of $60,000 or higher, during the second quarter. They included:

  • San Diego, California ($90,400)
  • Boston, Massachusetts ($79,925)
  • Seattle, Washington ($70,100)
  • Fort Collins, Colorado ($68,050)
  • Among others

But home buyers in these metro areas who can’t afford such a large down payment shouldn’t fret too much. In fact, depending on the kind of loan program you use, your minimum required investment could be significantly lower than the figures mentioned above.

Median and Minimum Are Two Different Things

To be clear: the numbers shown above do not represent the minimum down payment required for different mortgage programs. These are just the median figures.

By definition, the median is the midpoint for a data set. So in this case, half of all home buyers in each metro area made down payments above the median figure, while the other half put down less money than that amount.

Minimum down payments are a totally different story. For instance, borrowers who use a conventional home loan to buy a house could qualify for a down payment as low as 3% of the purchase price. Similarly, the Federal Housing Administration (FHA) loan program allows eligible borrowers to make an upfront investment as low as 3.5% of the purchase price.

So why are the median figures so much higher than these minimums? Some borrowers choose to make larger down payments, and for a couple of reasons:

  • Some do it because they want to minimize the loan amount and the size of their monthly payments.
  • They also do it to avoid paying mortgage insurance, which is usually required when the loan-to-value ratio rises above 80%.

Borrowers who make these larger upfront investments push the median and average down-payment figures higher than the minimum requirements mentioned earlier.

Conclusion: Rising home values have forced home buyers to make larger investments on their purchases, in terms of the actual dollar amount. Nationwide, the median down payment for single-family home purchases (where a mortgage loan was used) rose to $19,900 during the second quarter. That was an increase of 19% over the previous quarter. But it’s possible to make a smaller investment, as little as 3% for a conventional loan and 3.5% for FHA.

New Document Rules Could Help Self-Employed Mortgage Shoppers Get Approved

A bipartisan Senate bill introduced in August 2018 could make it easier for self-employed and “gig economy” workers to qualify for mortgage loans, by allowing lenders to use more documents during the underwriting process.

Self-employed home buyers tend to encounter more hoops and hurdles when shopping for a mortgage loan, and much of it has to do with documentation. Self-employed workers sometimes lack the income-related documents of a person with traditional employment. And this can make it harder for them to prove their income.

A new piece of legislation working its way through the Senate could change that. If passed, it would allow mortgage lenders to use additional documents (like the IRS form 1040) when reviewing mortgage loan applications from self-employed borrowers.

More Documents Allowed for Self-Employed Mortgage Shoppers

In August 2018, U.S. Senators Mark R. Warner (D-VA) and Mike Rounds (R-SD) introduced a bill that is officially known as the Self-Employed Mortgage Access Act of 2018. And its name signals its intent. The proposed legislation is designed to boost mortgage access among self-employed workers and “other creditworthy individuals with non-traditional forms of income.”

It would do this, in theory, by allowing lenders to use a broader range of documents when considering loan applications.

The Self-Employed Mortgage Access Act would allow mortgage lenders to use the following documents:

  • IRS Form 1040 Schedule C for sole proprietorships
  • IRS Form 1040 Schedule F for farming industry workers
  • IRS Form 1065 Schedule K-1 for partnerships
  • IRS Form 1120-S for S Corporation workers

We should clarify at this point that self-employed mortgage shoppers can qualify for financing — even under today’s guidelines. It happens all the time. But they often have to jump through additional paperwork hoops along the way.

Banks and lenders frequently request profit-and-loss (P&L) statements from self-employed mortgage applicants, as well as other documents that traditionally employed borrowers do not have to provide. The changes being proposed in this bill could simplify the path to mortgage approval.

According to Senator Warner, one of the bill’s proponents:

“An increasing number of Americans make their living through alternative work arrangements, like gig work or self-employment. Too many of these otherwise creditworthy individuals are being shut out of the mortgage market because they don’t have the same documentation of their income — paystubs or a W-2 — as someone who works 9-to-5.”

This bill is designed to alleviate some of those document-related issues, thereby increasing mortgage access for self-employed borrowers.

Supported by Key Industry and Consumer Groups

Most legislation proposed at the federal level has to be approved by members of both the Senate and House, and then be signed into law by the president. To date, this bill has only been introduced within the Senate. So it has a ways to go.

But it also has some momentum behind it, which could lead to an eventual passage. For one thing, it is being supported by key industry groups (i.e., lobbyists) such as the Mortgage Bankers Association. Even a few consumer advocacy groups have voiced their support.

Barry Zigas, Director of Housing at the Consumer Federation of America, said the Self-Employed Mortgage Access Act “would provide common sense direction to the [Consumer Financial Protection Bureau] in its application of the statutory requirements and give lenders and consumers alike an easier, less burdensome way to meet these tests.”

Typically, when a piece of legislation has broad support and few detractors, it eventually becomes law. But only time will tell. We are monitoring this bill and will report on any new developments as they arise.

The key takeaway here is that, if passed, this bill could ease the requirements for self-employed borrowers seeking a mortgage loan. It would allow them to provide alternative documents to verify their income. And that seems like a positive change.

Two Best Ways to Improve Your Credit Score Before a Mortgage Application

A new report from the credit score developer FICO reveals two of the best ways home buyers can improve their credit scores before applying for a mortgage loan. Pay your bills on time, and reduce your “amounts owed.”

We’ve known for some time that “payment history” and “amounts owed” are the two biggest factors that can influence a person’s credit score. But now we have some in-depth analysis to support that claim.

Why Credit Scores Matter to Mortgage Applicants

Your credit score is a three-digit number that’s computed from the information contained within your credit reports. Those reports are a record of your borrowing history dating back several years, and they include things like credit cards, auto loans, mortgages, etc.

FICO scores are produced by the company of the same name. They are commonly used by banks and lenders when reviewing loan applicants, such as home buyers applying for a mortgage loan.

The FICO scoring range goes from 300 to 850. A higher number is better. Home buyers with higher credit scores tend to qualify for lower mortgage rates. They also have an easier time getting approved for loans in the first place.

On the other hand, borrowers with lower scores tend to pay more in interest and might have a harder time qualifying for financing.

The bottom line: if you’re planning to use a mortgage loan in the near future, you should know (and care about) your credit score. It will affect everything from your ability to quality for financing, to the interest rate that’s assigned to your loan.

Improving Your FICO Score

But what if you’re one of the folks with a relatively low score? How can you improve your credit score before applying for a mortgage loan? Two of the best strategies are to (A) pay your bills on time going forward, and (B) consider reducing your debt load or “amounts owed.” These factors weigh more than any other when it comes to the automated credit-scoring formulas.

FICO scoring factors

Which brings us back to the FICO report mentioned earlier. They company analyzed FICO score distribution data among home buyers who used a mortgage loan to buy a house. The resulting report offered a wealth of insight into how these score are generated, and how they affect consumers who are shopping for a home loan.

They also highlighted two ways a person could improve a credit score before applying for a mortgage loan. One strategy is for consumers with higher recurring debt balances to reduce those debt loads. High credit card balances were singled out, in particular, because those can have a negative impact on a person’s credit score.

As the report stated:

“Our analysis found that consumers with a FICO® Score increase were more likely to have reduced their amounts owed. ‘Amounts owed’ makes up about 30% of the FICO® Score calculation; not having high revolving balances and paying down installment debt are two indicators of a healthy credit profile.”

That company explained that those consumers with an increase in their credit scores reduced their credit card balances by an average of 49%.

Here’s the part that relates to payment history:

“We also found that as of April 2018, consumers with a decrease in [their scores] were much more likely to have had a missed payment in the past year. ‘Payment history’ is the most important category within the FICO® Score, comprising ~35% of the total score calculation.”

It bears repeating: How you pay your bills counts more than any other factor, when it comes to calculating that three-digit number. Consumers who regularly miss payments on things like credit cards and car loans tend to have lower scores, while those who stay on top of their bills usually have higher numbers.

One Piece of a Bigger Picture

Credit scores are one of the most important qualification criteria for home buyers seeking a mortgage loan. But they’re also part of a bigger picture. Banks and mortgage lenders look at a variety of factors when considering applicants for a loan.

In addition to credit scores, they also look at the amount of money a person earns relative to the amount they spend on their recurring debts. The debt-to-income ratio, as it’s known, is another important factor that can determine whether or not you qualify for a mortgage loan. Income stability is another key factor when it comes to getting a home loan.

That three-digit number is important for mortgage applicants. But it’s not the only consideration.

Disclaimer: This article offers tips on how to improve a credit score before shopping for a mortgage loan. That information was adapted from a report provided by the FICO credit-scoring company. Their information and findings are deemed reliable but not guaranteed. The publishers of this website make no claims about the efficacy of the above-mentioned strategies and advise consumers to conduct additional research.

Mortgage Rate Forecasts for 2019 Predict Only a Slight Increase

A new round of mortgage rate forecasts for 2019 suggest that the average rate for a 30-year fixed home loan could hover within the 4.6% to 4.7% range next year. That’s only slightly higher than where we are right now, as of late summer 2018.

New Mortgage Rate Forecasts for 2019

Over the last month or so, three prominent housing organizations issued mortgage rate forecasts that look ahead into 2019. The groups included Freddie Mac and Fannie Mae — the two government-sponsored enterprises that buy loans from lenders — as well as the National Association of Home Builders (NAHB).

While their mortgage rate forecasts for 2019 varied slightly, it appears that all three groups expect to see some stability in terms of rate movements. Analysts with Fannie Mae and the NAHB don’t expect average rates to rise very much at all over the coming months. Freddie Mac’s team sees them rising gradually over the next year or so.

Did you know: There are many different types of home loans. But long-range forecasts are usually issued for the conventional 30-year fixed-rate mortgage, in particular. That’s because it is the most popular loan type among borrowers, by far.

Here’s a look at those three mortgage rate forecasts for 2019:

  • Fannie Mae’s latest forecast was published in July 2018. They predict that the average rate for a 30-year fixed mortgage will start 2019 at around 4.6% and stay within that range for much of the year.
  • The National Association of Home Builders also issued an updated forecast in July 2018. In it, they predicted that 30-year mortgage loan rates would average 4.71% in 2019. That’s basically in line with Fannie’s long-range outlook.
  • Freddie Mac’s new forecast, also published in July, calls for gradually rising rates over the next year or so. Their quarterly outlook predicted that 30-year loan rates would average 5.0% during the first quarter of 2019 and rise slightly throughout that year.

In July, Freddie Mac’s Economic and Housing Research Group issued the following statement:

“The 30-year fixed mortgage rate has been slightly declining since mid-June and was 4.53 percent in the second week of July. Rates have stepped back because of declining long-term Treasury yields, which continue to be pushed down by anxieties from a potential trade war. Our forecast has the 30-year fixed-rate mortgage averaging 4.6 percent this year, and rising to 5.1 percent next year.”

General Consensus: Big Jump in Rates Appears Unlikely

Granted, these are just forecasts. They are an educated guess based on current trends within the housing market, Wall Street, and the broader economy. So there’s a chance they could become inaccurate over time.

In fact, we’ve seen some inaccurate predictions in the past. At the end of 2016, some of these same groups were predicting that rates would rise steadily throughout 2017. But they actually dropped during the first half of that year and then hovered within a narrow range.

It’s the general consensus here that’s more noteworthy. And the consensus outlook seems to be that mortgage rates will remain relatively stable through the latter part of 2018 and into 2019. These analysts don’t expect to see a big jump in rates, or at least not a sustained hike.

Home Prices Still Rising in Most Cities

Based on these mortgage forecasts, home buyers might not need to worry about a big jump in mortgage rates any time soon. But rising home values are a very real concern.

House values in most U.S. cities are expected to rise gradually throughout 2019. This could reduce affordability and buying power for many people. So postponing a home purchase could mean that you’ll end up paying more.

In mid-August 2018, the real estate information company Zillow wrote the following:

“The median home value in the United States is $217,300. United States home values have gone up 8.3% over the past year and Zillow predicts they will rise 6.6% within the next year.”

Disclaimers: This article includes mortgage rate forecasts and housing predictions issued by third parties not associated with our company. We have presented them here as a service to our readers. As a general policy, the Home Buying Institute does not make projections or assertions about future housing trends.

Average Credit Score for Home Buyer Mortgage Loans: 2017 Update

The average credit score among home buyers using mortgage loans was 722 in April 2017, according to the latest data. But you don’t necessarily need a FICO score of 722 to qualify for a home loan. Read on to learn why.

In April 2017, home buyers who successfully closed on their mortgage loans had an average FICO credit score of 722. This is based on the latest “Origination Insight Report” published by Ellie Mae, a company that creates mortgage loan origination software.

Ellie Mae’s reports are based on data from a “robust sampling of closed loan applications.” This means they’re a pretty good indicator of what is happening across the mortgage industry.

In addition to identifying the average credit score for home buyer mortgage loans, the company’s reports show which types of loans are used most, average interest rates, loan-to-value ratios and more.

Average Credit Score Among Home Buyers: 722

In April, the average credit score among home buyers using mortgage loans was 722. The majority of purchase loans (70%) had scores over 700.

These numbers are based on the FICO scoring scale, in particular, which ranges from 300 to 850. Higher is better, when it comes to qualifying for a mortgage loan. Generally speaking, home buyers with higher scores have an easier time getting approved for financing, and tend to qualify for lower interest rates as well.

The 722 average credit score applied to all loans that were processed and closed using the company’s software solutions and network. Here are some additional breakouts for the three most popular loan types:

  • Conventional: The average FICO score for a conventional purchase loan was 753, during April 2017.
  • FHA: The average score for an FHA-insured purchase loan was 684.
  • VA: The average FICO number for a VA-guaranteed mortgage was 708.

You’ll notice a significant difference between FHA and conventional mortgage loans. The Federal Housing Administration program requires borrowers to have a minimum score of 580, in order to take advantage of the low 3.5% down payment option. Conventional loans (which are not insured by the government) often require higher scores.

FHA loans are generally easier to obtain, when compared to conventional mortgages. This may account for the wide gap between the average FICO credit scores shown above.

You Could Get By With Less

It bears repeating: The numbers shown above are just average credit scores for home buyer mortgage loans, based on the loan origination data collected by Ellie Mae. They do not represent the minimum scores required for the different mortgage programs.

Based on our conversations with lenders, it appears that most prefer to see a score of 600 or higher for loan approval. But that number is not set in stone. Mortgage underwriting and approval is a highly individualized process. It can vary from one borrower to the next.

Additionally, mortgage lenders tend to look at the big picture regarding applicant qualifications. Down payment size, credit history, income, and financial assets all play a role as well. So a relatively low credit score, by itself, might not be a deal-breaker.

Why Do Credit Scores Matter?

Why do mortgage lenders care so much about credit scores? In a word, risk.

Banks and lenders use these three-digit numbers to get a feel for how a person has borrowed and repaid money in the past. They also look at the credit reports that are used to produce those numbers.

Credit scores are just one part of a broader risk-assessment process. In general, a borrower with a higher number will be viewed as a lower risk (a “safer bet,” if you will) compared to someone with a lower score. Having a high number can make it easier to land a home loan in the first place, and could also affect the mortgage rate you receive from the lender.

As mentioned earlier, there is no single cutoff point used across the mortgage industry. Different lenders have different business models and appetites for risk. So the minimum credit score needed to buy a house can vary from one company to the next. It can also vary based on the type of loan you choose. This is why it’s important to shop around and compare your options.

Disclaimer: This article shows the average FICO credit scores for home buyers using FHA, VA and conventional mortgage loans, as of April 2017. These figures were reported by Ellie Mae. We encourage borrowers to understand the difference between average and minimum credit scores, and to get offers from more than one lender.

Mortgage Rate Forecast for April 2017 – 2018: A Slow Climb Ahead?

Home buyers got some good news last week, regarding mortgage rates. According to the weekly survey conducted by Freddie Mac, the average rate for a 30-year fixed mortgage loan dropped by 11 basis points (0.11%) last week, landing at 3.97%. That marked its lowest point of 2017, and the lowest level since November of last year.

But that’s just a short-term trend. The latest long-term forecast for mortgage rates suggests that they could inch upward between now and the end of 2017, bringing higher borrowing costs for home buyers who delay their purchases.

Revised Mortgage Rate Forecast for April 2017

On April 18, the Mortgage Bankers Association (MBA) published its latest mortgage rate forecast extending through the end of 2017 and into 2018. By their estimation, the average rate for a 30-year fixed mortgage (the most poplar type of home loan) will rise to 4.6% by the fourth quarter of 2017. Furthermore, they expect the benchmark 30-year rate to climb above the 5% threshold sometime around the middle of 2018.

As a result of this mortgage rate forecast, the industry group expects home refinancing activity to decline through the rest of 2017. Home purchases, meanwhile, will continue to dominate the mortgage market with more than twice as many loan originations, when compared to refinances.

Federal Reserve Tweaks Its Monetary Policy

The Federal Reserve has a part in all of this. After years of keeping the short-term federal funds rate near 0%, Fed officials are now raising it in small increments. This is the result of their improved outlook regarding the economy. After its last major policy meeting, which took place in March 2017, the Federal Open Market Committee stated:

“The Committee expects that … economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term … In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent.”

Additional rate hikes are possible, according to at least one source close to the matter.

The Federal Reserve does not control mortgage rates directly. The interest rates assigned to home loans are primarily driven by market forces. But the Fed’s policies can have an indirect effect on mortgage pricing, by shifting demand among investors. In short, when the Federal Reserve raises the short-term federal funds rate (which applies to inter-bank transfers), mortgage rates tend to go up as well.

This is partly what accounts for the MBA mortgage rate forecast, which calls for a gradual rise through 2017 and into 2018.

Bucking Predictions, Rates Have Dropped in Recent Weeks

Despite a previous increase for the federal funds rate, and additional hikes looming on the horizon, home mortgage rates have actually dropped in recent weeks. According to the nationwide industry survey conducted by Freddie Mac, mortgage rates have fallen steadily for the last five weeks are are currently 23 basis points (0.23%) lower than they were at the beginning of 2017.

The average for a 30-year fixed mortgage fell to 3.95% last week, down from 4.20% during the first week of this year. So they’ve defied predictions that were made at the end of last year.

This is something to keep in mind going forward. The MBA’s latest forecast for mortgage rates predicts a gradual increase through the rest of 2017 and into 2018. But they’ve been wrong with these predictions in the past.