Latest Mortgage Rate Forecast Suggests Possible Increase in Fall 2015

What will mortgage rates do through the spring and summer of 2015, and into the fall? That’s what many home buyers and homeowners want to know. After all, rates have been hovering near historic lows for months now. But how long will the party last?

To get some insight into the matter, we turned to one of the most well-informed mortgage rate forecasts available anywhere, the “U.S. Economic and Housing Market Outlook” provided by Freddie Mac.

Mortgage Rate Forecast: Is September 2015 a Key Date?

Each month, Freddie Mac publishes a housing and mortgage market forecast. The company’s economists look at current conditions and offer some well-educated guesses as to where the market is headed. They make predictions for 30-year mortgage rates, among other things.

According to their latest forecast, issued earlier this month, the folks at Freddie Mac feel that mortgage rates will inch upward between now and the end of 2015. They mentioned September 2015, in particular, as a possible milestone for rate movement.

Why September? Because that’s when the Federal Reserve is expected to raise the federal funds rate, which they’ve kept near 0% for the last few years. If the Fed does indeed take this action, it could lead to a rise in long-term interest rates, including those applied to 30-year mortgage loans.

According to the Office of the Chief Economist at Freddie Mac:

“Mortgage rates will likely stay low over the next few months as market participants await the Federal Reserve’s decisions on whether and when to raise its short-term policy rate … our forecast calls for mortgage rates to drift slightly higher over the next six months, increasing more around September when we anticipate the Fed will begin raising rates.”

Of course, no one can predict the future with complete accuracy. This is especially true when dealing with the Federal Reserve, a famously tight-lipped group. The bottom line on this is that there’s a good chance mortgage rates will climb between now and the end of 2015, especially if the Fed lifts the funds rate in the fall. If this occurs, home buyers and refinancing homeowners could face higher mortgage costs.

Where We Are, And Where We Are (Possibly) Going

Yesterday, Freddie Mac reported the average rate for a 30-year home loan fell to 3.65%, down slightly from the week before. Thirty-year loan rates have been hovering in this range for weeks, and they’ve been below 4% all year. But the company’s mortgage rate forecast issued in May 2015 hints at higher borrowing costs down the road.

Economic and mortgage forecast
Freddie Mac’s long-range economic outlook (enlarge)

If the outlook chart shown above is any indication, the average rate for a 30-year mortgage loan could climb above 4% by fall 2015. That’s still relatively low, compared to historical averages, but it’s an increase nonetheless. And that’s enough to put it on the radar of future home buyers and mortgage borrowers.

In many parts of the country, rising home prices are a bigger concern for home buyers than rising mortgage rates. Home prices rose significantly over the last two years, especially in California, the Southwest, and in major metro areas across the country. While home-price appreciation has slowed, economists are still predicting additional gains through the end of 2015 and into 2016. This is something buyers should keep an eye on.

Disclaimers: This story contains mortgage-rate forecasts and predictions through fall 2015. Forward-looking statements such as these should not be viewed as facts. They are the equivalent of an educated guess. This story contains third-party data that is deemed reliable but not guaranteed.

New Mortgage Documents for 2015: Loan Estimate and Closing Disclosure

Two new mortgage documents are coming on August 1, 2015. The Loan Estimate form and the Closing Disclosure forms are designed to give consumers a clearer picture of their borrowing costs.

Mortgage shoppers should see the full cost of a loan at the time they apply, and have a more detailed breakdown a few days before closing. These have long been the marching orders given by federal financial regulators. And for the most part, they’re followed. Lenders typically provide a Good Faith Estimate (GFE) form when a person first applies for a home loan, followed by a “HUD-1” Settlement Statement shortly before closing day.

But starting in August 2015, these all-important mortgage documents are being replaced. The Consumer Financial Protection Bureau (CFPB), one of several government agencies that regulate the mortgage lending industry, has set a date for the implementation of two new mortgage documents. These forms are very important to borrowers, and for two different reasons:

  • The new Loan Estimate form helps borrowers understand the full cost of the mortgage, including fees and interest. It can be used during the shopping process to compare “apples to apples.”
  • The new Closing Disclosure form helps borrowers know what to expect on closing day, and how much cash they’ll have to bring to the table.

Here’s what you should know about these new mortgage documents coming in August 2015:

The ‘Loan Estimate’ Form Helps You Comparison Shop

As its name implies, the new Loan Estimate form is designed to give borrowers an approximated view of the full cost of the mortgage loan.
2015 Loan Estimate Form
In this context, “full cost” means that the form shows the various fees and charges that can inflate the amount of money due at closing.

View a sample Loan Estimate form (PDF)

Many home buyers are surprised by the different lending fees that can pile up along the way. There’s a fee for everything, from the initial application to the final document preparation. The Loan Estimate form offers an estimated breakdown of these various charges that will be due at closing.

More importantly, it shows the amount being borrowed, the interest rate being assigned to the loan, and whether or not there are prepayment penalties.

This form standardizes the loan estimating process, which makes it easier for consumers to comparison shop when getting quotes from different lenders. Lenders must provide this document within three days of the application.

The new Loan Estimate form replaces the early Truth in Lending Statement and the Good Faith Estimate, two documents that often contained duplicate information. By rolling two documents into one, and by presenting the information in a more consumer-friendly manner, CFPB hopes to reduce confusion and better prepare borrowers for the closing process.

The ‘Closing Disclosure’ Form Prepares You for Closing

The new Closing Disclosure form helps borrowers prepare for the actual costs that will be due at closing. Think of it as a finalized, and therefore more accurate, version of the Loan Estimate.
2015 Closing Disclosure Form
Borrowers must receive the Closing Disclosure at least three business days before the scheduled closing date. This gives them time to review the document and prepare a check for the total amount needed to close the loan.

Here again there are two documents being replaced by one, in an attempt to simplify and streamline the communication process. The new Closing Disclosure coming in summer 2015 will replace both the final Truth in Lending statement and the HUD-1 settlement statement.

View a sample Closing Disclosure form (PDF)

As with the previous document, the goal here is to reduce confusion and provide clearer information to consumers. The revised 5-page form provides a detailed breakdown of the money due at closing, and it shows where that money is going.

Educating Consumers and Avoiding Surprises

The creation of these new mortgage documents was driven by three overriding goals. The CFPB wanted to (1) improve consumer understanding of the mortgage process, (2) simply comparison shopping, and (3) help people avoid “costly surprises at the closing table.”

I have carefully reviewed these documents, and they do seem like they will help in these three areas. If borrowers read these forms carefully (and ask questions when needed), they will have a much better understanding of their closing costs and overall loan structure.

The Product of Much Research and Planning

These new mortgage documents were not designed on a whim. They are the result of extensive planning and research. The CFPB actually conducted what amounts to usability testing, to see how consumers would react to the revised forms. Their research showed that consumers understood the new Loan Estimate and Closing Disclosure forms better than their predecessors. This was true even for people who had never been through the mortgage process before.

During the overhaul process, CFPB solicited feedback from mortgage professionals and the general public. They also held review and discussion panels to gather additional feedback. It seems their efforts have paid off. According to their research, “participants who used the CFPB’s new forms were better able to answer questions about a sample loan – a statistically significant improvement of 29 percent.”

While some in the mortgage industry malign the new documents as overzealous bureaucracy and micromanagement, the Home Buying Institute applauds CFPB’s efforts to simplify the mortgage disclosure process for consumers. It’s a step in the right direction.

2015 Loan Limits for San Jose and Santa Clara County

Loan limits affect all mortgage borrowers, even those who use government-insured lending programs like FHA and VA. These caps vary by county, and they get updated (or at least reviewed) every year. Here’s an update on the 2015 loan limits for San Jose and the rest of Santa Clara County, California.

What Is a Loan Limit Anyway?

A loan limit is exactly what it sounds like. It limits the size of a mortgage loan that can be borrowed. There are different limits or “caps” for different types of mortgage products. For example, there’s a cap on how much you can borrow when using a Federal Housing Administration (FHA) loan, and a different cap if you plan to use a conventional mortgage product that’s not insured by the government.

Additionally, loan limits vary by county and get updated annually. So you have to make sure you’re looking at the current, local numbers for the county in which you reside — in this case Santa Clara County.

You can borrow above these limits if you need to, but you’ll be entering “jumbo” loan territory. Lenders typically charge higher interest rates and require larger down payments for borrowers seeking a jumbo loan product. So it’s helpful to know where the line is drawn.

2015 Conforming Loan Limits for San Jose

Conforming loan limits apply to “conventional” or regular mortgage products that are not insured by the federal government. This puts them in a different class from FHA and VA loans, which are backed by the government. Conforming limits are established by the Federal Housing Finance Agency (FHFA). They are reviewed, and sometimes adjusted, every year.

Here are the 2015 conforming loan limits for Santa Clara County:

  • One unit: $626,500
  • Two unit: $800,775
  • Three unit: $967,950
  • Four unit: $1,202,925

In this context, a “one unit” property is a regular single-family home. “Two unit” refers to a duplex-style house, and so on.

Anything above these limits would be considered a jumbo loan. Jumbo products cannot be sold into the secondary market via Fannie Mae and Freddie Mac. So the eligibility requires are generally more strict for jumbo mortgages. Lenders typically require higher down payments for these larger, non-conforming loans as well.

Again, these limits are set at the county level. That means the lending caps shown above apply to all cities within Santa Clara County, including San Jose, Cupertino, Los Altos, Los Gatos, Mountain View and Palo Alto.

VA: Same as Above

There are size limits for Veterans Administration (VA) home loans as well. Historically, there has been a separate list of limits for VA products. But for 2015, they were actually aligned with the conforming figures shown above. Translation: The VA loan limits for San Jose and Santa Clara County are the same as conforming in 2015.

FHA Loan Limits for 2015 (Santa Clara County)

The Department of Housing and Urban Development (HUD) establishes maximum size limits for FHA-insured home loans. These also vary by county and are updated annually. Santa Clara County is considered to be a “high-cost area” by HUD, because median home prices are well above the national average. This means the FHA loan limit for San Jose and surrounding area is higher than the national norm.

This year, the FHA limits for Santa Clara are actually the same as conforming. So we have a rare occurrence where all three mortgage categories (conforming, FHA and VA) have the exact same loan limits. This makes things a bit less confusing for borrowers, at least in 2015.

Here are the 2015 FHA loan limits for San Jose and the rest of Santa Clara County:

  • One unit: $626,500
  • Two unit: $800,775
  • Three unit: $967,950
  • Four unit: $1,202,925

If you need to borrow an amount higher than these caps, FHA is probably not the program for you. You’ll want to look into getting a jumbo loan.

View FHA limits for all 58 California Counties

Jumbo Mortgages Required for Many Borrowers

Santa Clara County is an expensive real estate market. This is especially true for Los Altos, Palo Alto and Mountain View. For example, the median price for homes sold in Palo Alto in February 2015 was $2,600,000. That’s more than four times the loan limit for single-family homes in Santa Clara County.

That explains why so many borrowers in this area have to rely on jumbo mortgages to finance their home purchases. A jumbo mortgage exceeds the conforming loan limits imposed by Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy mortgages from lenders.

Where to learn more: To learn more about conforming loan limits for San Jose and the rest of Santa Clara County, visit or To learn more about the FHA limits for this county, visit the Department of Housing and Urban Development (HUD) website at

Getting the Best Mortgage Rate in 2015 Requires Points, Excellent Credit

Earlier this morning, Freddie Mac reported that the average mortgage rate for a 30-year fixed-rate home loan had fallen to 3.59%. That’s close to a record low, and nearly a full percentage point lower than where we were at the start of last year.

But not everyone will qualify for this average. In 2015, getting the best mortgage rate requires excellent credit and, in most cases, the payment of discount points at closing.

As I write these lines, some borrowers in the U.S. are qualifying for home loan rates as low as 3.50%. That’s because they have higher credit scores than the average borrower, and/or they are paying more money up front in the form of discount points. While many factors can affect the amount of interest charged by lenders, these two factors tend to weigh the most.

Want to qualify for the best mortgage rates in 2015? You’ll probably need to check both of these boxes.

A Quick Recap of Current Interest Rates

As mentioned earlier, the average rate for a 30-year fixed mortgage loan recently fell to 3.59%. That’s a decline of 7 basis points (0.07%) from last week’s average, and a drop of 64 basis points (0.64%) from this time last year.


This is exactly the opposite of what many economists were predicting a year ago. The general consensus this time last year was that mortgage rates would gradually rise during 2014, ending the year higher than they were at the beginning. As you can see from the chart above, just the opposite occurred. In fact, the average rate for a 30-year fixed mortgage fell by 0.66% during the 2014 calendar year (according to Freddie Mac’s industry-wide survey).

Currently, the average rates in the 15-year fixed and 5/1 ARM loan categories are both below 3%. These are historically low interest rates by any measure, and they offer a powerful enticement for home buyers and refinancing homeowners alike.

But remember — we are talking about averages here. Loan qualification and rate assignment are heavily influenced by individual factors as well. This means that some borrowers will land better-than-average mortgage rates, while others will pay more than these averages.

In 2015, as in the past, the best mortgage rates are reserved for borrowers with excellent credit and the willingness to pay more money up front in the form of discount points. So let’s talk about those two factors.

What it Takes to Get the Best Mortgage Rate in 2015

Getting the best possible rate on a mortgage loan could save you thousands of dollars over the life of the loan. Obviously, everybody wants that. But how do you achieve this lofty goal? What does it take to qualify for the lender’s lowest interest rates? Two of the most important factors are your credit score and the amount of points you pay at closing.

Let’s refer back to the Freddie Mac survey mentioned earlier. At present, the average mortgage rate for a 30-year home loan is around 3.59%. This is based on a nationwide survey of around 125 lenders. But the borrowers who secured these rates had to pay a certain amount of prepaid interest at closing. According to Freddie Mac, borrowers paid an average of 0.7 points at closing to secure these average rates.

This is a common strategy used by borrowers to get the best mortgage rates available. Essentially, you are paying more money up front to secure a lower rate over the long term. These “discount points,” as they are known, can be a money-saving strategy for borrowers who are planning a long stay. They allow you to “buy down” your interest rate in order to save money over the life of the loan.

One point equals one percent of the base amount being borrowed. So one point on a $200,000 home loan would come to $2,000. In exchange for this extra amount paid on the front end, lenders will offer lower interest rates over the term of the loan. There are other ways to negotiate for a lower rate, but this is the most common strategy in use today.

Does it makes sense in your situation? That will largely depend on how long you plan to stay in the house. If you only plan to keep the loan for a few years, this strategy probably won’t work out to your advantage. That’s because you could end up paying more in points than the amount saved during such a short stay. So time and savings are the primary considerations.

Learn more about mortgage points

Getting the best mortgage rate also requires an excellent credit score. There’s no magic number here, because lenders have their own standards and procedures for “risk-based pricing.” Generally speaking, borrowers need a score of 750 or higher to qualify for a lender’s lowest rates. But this is often factored in with any points that are paid, as explained above. So it’s a combination of these two factors that helps you get the best rates.

Note the distinction here. You don’t necessarily need an excellent credit score to qualify for a home loan (lenders are currently qualifying borrowers with scores in the low to mid-600 range, according to a recent industry survey). But you’ll need a strong score if you want to get the best mortgage rates in 2015. So we are talking about two different levels of qualification — one just to get your foot in the door, and another level for securing the lowest rate. There is a broad spectrum in between.

Los Angeles Mortgage Rate Trends in 2015: Below 4%, but for How Long?

Summary: Los Angeles mortgage rates are currently averaging 3.63% in the 30-year loan category. Many analysts expect long-term interest rates to rise later in 2015, due to economic gains and actions taken by the Federal Reserve.

Conventional wisdom says the best time to buy a house is when mortgage rates are low and home prices are stable and/or rising. If that’s true, now might be a good time to buy a home in the Los Angeles metro area.

Mortgage rates in Los Angeles have been hovering near historic lows for some time now. Some housing analysts expect them to remain low for the foreseeable future, while others are predicting a gradual rise throughout 2015. In the words of one analyst, it will be a “volatile year.”

Here are the latest mortgage rate trends for the Los Angeles area, as well as a broader market outlook and forecast.

Los Angeles Mortgage Rates Drop at the Start of 2015

Let’s start with a look at current home loan rates for Los Angeles, California. According to Freddie Mac, the average rate for a 30-year fixed mortgage dropped to 3.63% for the week ending on January 23, 2015. That’s a decline of 20 basis points (0.20%) from the previous month’s average, and a decline of 90 basis points (0.90%) from January of last year.

It bears repeating: Los Angeles mortgage rates are nearly a full percentage point lower today, at the start of 2015, than the same time last year. This flies in the face of previous predictions, most of which called for gradually rising loan rates in 2014. So much for the crystal ball.

It’s worth noting that most experts, including Freddie Mac’s chief economist, have predicted gradually rising rates for 2015 as well. But they missed it last year, and they could be wrong again this year. Long-term mortgage rates are notoriously difficult to predict. So you shouldn’t “bank” on any of these forecasts.

If rates do start rising steadily in the near future, it will probably happen when the Federal Reserve raises the federal funds rate (used for inter-bank lending). They’ve kept it near 0% for several years now, as an economic stimulus measure. But in their most recent policy meeting, Fed officials stated they could raise the federal funds benchmark sometime this year, possibly during the second quarter.

Los Angeles mortgage rates will likely begin to rise when that occurs. But how quickly they rise, and by how much, is something we cannot predict.

Here’s what Los Angeles home buyers and homeowners should take away from all of this. Home loan rates are currently very low, as of January 2015. In fact, they are very close to the all-time historic low that occurred in November 2012 (when the 30-year average fell to 3.31%). So it’s a pretty good time to shop for a mortgage loan. Most economists expect these conditions to continue for at least the next couple of months. But again, you can’t bank out the forecasts.

Note: Los Angeles mortgage rate trends and averages are useful when comparison shopping. But you also have to realize that interest charges vary based on a variety of factors. For instance, borrowers with excellent credit scores typically secure lower mortgage rates. Borrowers with bad credit are typically charged higher interest. The type of loan you choose will also play a role, as well as the size of your down payment.

Home Prices Have Cooled Across the L.A. Area

Home prices are the other piece of this puzzle. Mortgage rates are obviously important to most Los Angeles home buyers, but house prices are also a big concern. So what should buyers expect in 2015? Additional gains, most likely, but nothing like what we saw over the last few years.

Home prices in Los Angeles rose rapidly between 2012 and 2014, at a time when mortgage rates were much more stable. In July 2013, for example, the L.A. metro area had the largest annual price gain out of the 100 largest metro areas in the U.S. (according to real estate data firm CoreLogic). From July 2012 to July 2013, home prices in the L.A. metro area rose by a staggering 22.62%.

But the market has cooled considerably since then, and this cooling trend will likely continue in 2015.

According to Zillow’s “Zestimate” pricing formula, home prices in the Los Angeles area rose by nearly 8% in 2014. But they are only forecasting a more modest gain of 2.6% through the end of 2015.

But this is a story about Los Angeles mortgage rate trends for 2015. So let’s end on an appropriate note.

Home loan rates have declined in recent weeks, and we could certainly see additional drops in the near future. But the general consensus is that the downward trend won’t last much longer — at least not through the end of 2015. Analysts are predicting quite the opposite.

Greg McBride, chief financial analyst for, expects a series of rate hikes in the year ahead. “This is going to be a very volatile year,” he said.

But home buyers don’t necessarily need to rush. If Los Angeles mortgage rates do begin to rise later this year, as expected, it probably won’t happen with great velocity. The most “dramatic” projections I’ve seen are only predicting a year-over-year rise of around 1 percentage point. And now for the big fat disclaimer…

Disclaimer: This story contains forward-looking statements (forecasts, predictions) regarding mortgage rates for the Los Angeles area and related housing trends. Such statements should be viewed as an educated guess, not as fact. We make no claims or guarantees about future economic conditions.

Mortgage Standards in 2015: They’re Not So Tough After All

We’ve been hearing for years how mortgage lenders have tightened their credit standards for borrowers. We’ve heard about new government lending rules that were supposed to increase mortgage standards even more, “squeezing out” many well-qualified borrowers as one analyst put it. We’ve heard that it would become increasingly difficult to qualify for a home loan in 2015.

As it turns out, things aren’t so bad after all.

In fact, 2015 mortgage standards are more relaxed in several key areas, compared to what we saw in the wake of the housing crisis. Industry-wide data support this notion. Lenders are now offering mortgage loans with lower down payments. They’re also lending to borrowers with lower-than-average credit scores (borrowers who may have been shut out in the past).

So the sky is not falling after all.

Much-Feared ‘QM’ Rule Has Had Minimal Impact

In January 2014, the Consumer Financial Protection Bureau (CFPB) finalized and enacted a new lending standard known as the Qualified Mortgage, or QM. On paper, this rule is designed to encourage “safer” lending practices by prohibiting certain “risky” loan features. Interest-only payments, balloon loans, and negative amortization are all discouraged under this new mortgage standard.

Qualified Mortgage QM Rule

When QM was still being formed, mortgage lenders and their lobby groups griped up a storm. They practically threatened to choke off lending to all but the most well-qualified borrowers, in response to what they viewed as government overreach.

But the melodrama was pointless, because QM didn’t really change much. On top of that, lenders can still make “non-QM” loans — they just won’t reap the rewards of QM compliance, such as legal protection.

Bottom line: This lending “rule” isn’t really a rule at all. Not in the legal sense of the word. It doesn’t force lenders to do anything. It’s a recommendation tied to an incentive. And it hasn’t significantly altered mortgage standards in 2015.

According to a detailed analysis of the Federal Reserve’s Senior Loan Officer Survey, conducted by the Urban Institute, QM has had “almost no impact in the government sponsored enterprise (GSE – Fannie Mae and Freddie Mac) or government agency (Ginnie Mae) market…”

Counterpoint: Mortgage Standards in 2015 May Be More Relaxed

Over the last year or so, there were several signs of easing within the mortgage lending industry. We’ve covered them before. They range from government policy changes to new programs offered by lenders, both of which lead to broader access to credit.

Granted, 2015 mortgage standards will not be as lax as they were during the housing boom — nor should we hope for that. But conditions will likely be more “borrower-friendly” than what we saw in the wake of the housing collapse.

Call it the Goldilocks syndrome. Lending standards used to be too lax. Then they became too strict. Now they’re just right — government rules and all.

Lower Down Payments, Credit Scores in 2015

Down payments are one area where 2015 mortgage standards could be more relaxed, when compared to previous years.

Last month, the Federal Housing Finance Agency (FHFA) announced that Freddie Mac and Fannie Mae, the government-controlled mortgage buyers, would begin accepting loans with a loan-to-value ratio of 97%. Conversely, this means borrowers could put down as little as 3% and still qualify for a conventional home loan.

Fannie Mae has already started accepting such mortgage products. Freddie Mac’s program, which is known as “Home Possible Advantage,” will be available for home loans with settlement dates on or after March 23, 2015.

This trend could increase homeownership in 2015, by bringing borrowers with limited funds into the mix.

Credit scores are another mortgage standard that appears to be easing in 2015. According to Ellie Mae, a company that provides software to the lending industry, the average credit score for closed (successful) home loans has dropped slightly over the last couple of years.

This is true for both conventional and FHA loan. For instance, the average credit score for a successful FHA purchase loan dropped from around 700 in early 2013, to 683 at the end of 2014.

One area where we haven’t seen much easing is the debt-to-income ratio, or DTI. This will remain an important mortgage standard in 2015, and lenders may even be more strict with DTI ratios due to government rules. These days, most lenders want to see a total debt-to-income ratio no higher than 43%, though that number is not set in stone. Learn more about income standards for mortgages.

Message to Borrowers: Don’t Make Assumptions

It’s a common pattern. People are in the market to buy a home, so they start researching mortgage lending standards. They read an article about how lenders are tightening their standards in 2015 — higher credit scores, larger down payments, [fill in the blank].

So the mortgage shoppers get discouraged and don’t even bother applying for a loan. Maybe they have low credit scores or a large debt load. Maybe they can’t afford a 5% down payment. Whatever the reason, they stop in their tracks and never even bother to submit an application.

Our advice: Borrowers should not assume they are unqualified for a home loan. Current mortgage standards in 2015 are actually more reasonable than they’ve been for several years. So a reasonably qualified borrower should be able to find a willing lender.

VA Loan Limits for 2015 Announced This Week: Same as Conforming

The Department of Veterans Affairs recently published a circular (policy letter) announcing the official VA loan limits for 2015.

According to Circular 26-14-39, which can be found on the department’s website, the maximum guaranty amounts for VA loan limits in 2015 will be the same as those defined by the Federal Housing Finance Agency (FHFA). In other words, they will match the conforming loan limits set for next year. These caps range from $417,000 to $625,500, depending on the borrower’s location.

VA Loan Limits to Follow ‘Conforming’ Amounts in 2015

In the past, the Department of Veterans Affairs established its own guidelines for loan limits. This authority was granted to the department in 2008, under Public Law 110-389, the Veterans’ Benefits Improvement Act. This act gave the VA authority to increase the maximum guaranty amount “for certain loans guaranteed by the Secretary of Veterans Affairs.”

The authority granted by this law expires on December 31, 2014. This is what prompted the recent policy letter regarding VA loan limits. In 2015, VA’s effective loan limits will reset to match the conforming amounts established by FHFA.

View the full list here:

The maximum size limits set by FHFA apply to loans purchased by Freddie Mac and Fannie Mae. They are established at the county level and are based on median house prices. Currently, FHFA’s conforming loan limits range from $417,000 – $625,500. The latter number applies to high-cost areas with a higher median home price. VA loans will follow these standards as well, at least in 2015.

Down Payments on Larger Loans

Contrary to popular belief, the VA does not have a maximum loan amount. They do have limits as to the amount they will guarantee, and those are outlined above. But mortgage lenders have the ability to offer financing above the VA loan limits.

In such cases, the veteran may be required to make a down payment to cover the difference between (A) the amount being borrowed and (B) the cap for the county in which the property is located. But even in these situations, the veteran would likely enjoy significant cost savings in comparison to other mortgage products.

Example: The 2015 VA loan limit for Moore County, North Carolina is set at $417,000, as in most modestly-price markets. So if a home buyer in this market has full VA entitlement, the Department of Veterans Affairs will provide a 25% guaranty on a home loan up to $417,000. If the home buyer makes an offer to buy a house for $480,000, the mortgage lender could require a down payment of 25% of the $63,000 difference. This would mean a down payment of $15,750, providing the lender a full 25% guaranty.

Note: In the same example, a borrower using a conventional (non-VA) home loan product would have to pay a down payment up to $111,000. So there is a clear advantage to using the government-guaranteed option.

Heads Up: Lower Limits in Some Counties

In some counties, the 2015 VA loan limit will decrease compared to the previous year. This is due to the alignment with FHFA conforming amounts, which are lower than current VA caps in some counties.

In such cases, the Department of Veterans Affairs will “honor the previous higher limit on a purchase loan provided the sales contract has been ratified” and the standard mortgage application has been signed prior to January 1, 2015.

The information above was adapted from Department of Veterans Affairs Circular 26-14-39, which will be rescinded in January 1, 2016.

Where to Learn More

This article provides an update on VA loan limits for 2015 and is meant to serve as a basic overview of the subject. To learn more about this subject, we encourage you to visit the official program website located here: The department’s website provides information on minimum eligibility requirements, the application process, and more.

To find the caps for your particular county, visit the conforming loan limits section of the Federal Housing Finance Agency’s website.

97% Mortgage Loans Coming in 2015: Two New Programs

Home buyers with limited down-payment funds could have an easier time finding 97% mortgage financing in 2015. Two new programs announced recently would fund up to 97% of the purchase price, allowing borrowers to make a down payment of only 3%.

Fannie Mae and Freddie Mac, the two mortgage-backing giants that operate in the secondary market, recently announced they would start accepting mortgage products with loan-to-value (LTV) ratios up to 97%. This means qualified borrowers could buy a home with as little as 3% down at the time of purchase.

Dates: Fannie Mae’s program will commence in December and extend through 2015. Freddie Mac’s program, which is known as “Home Possible Advantage,” will be available for home loans with settlement dates on or after March 23, 2015.

The Return of 97% Mortgage Financing

During the “anything-goes” days of the U.S. housing boom, 97% mortgage loans were widely available to home buyers. In fact, many lenders were offering 100% financing in order to attract more borrowers and boost their loan volumes.

But then came the mortgage foreclosure crisis, followed by a full-scale housing market crash. In the wake of that mess, lenders began to require larger down payments and higher credit scores to reduce risk. The 97% financing programs became increasingly rare. Suddenly, lenders wanted home buyers to have more skin in the game.

Over the last couple of years, however, we have seen more lenders offering 3% down payments (for an LTV ratio of 97%). The first signs of easing came in the fall of 2013 when MGIC Investment Corp., one of the largest mortgage insurance companies in the U.S., said it would start backing loans with LTV ratios up to 97%.

Fannie and Freddie Are Now on Board

Now we have Fannie Mae and Freddie Mac, the two corporations that form the backbone of the secondary mortgage market, announcing they will accept 97% mortgage loans in 2015. This is a significant change that could affect many thousands of home buyers going forward.

If these trends seem eerily familiar to you, it’s with good reason. This is the kind of gradual relaxing of credit standards that took place during the boom years. Let’s hope it ends better this time around.

According to Bon Salle, an executive vice president at Fannie Mae: “Our new 97 percent LTV offering is simply one way we are working to remove barriers for creditworthy borrowers to get a mortgage.”

Creditworthy is the key part of that quote. A higher LTV brings more risk for lenders. So you can bet they will be scrutinizing borrowers’ credit profiles to see how they have borrowed and repaid money in the past. Borrowers with sub-par credit probably won’t qualify for a 97% home loan in 2015 — they might not qualify for financing at all.

With the higher LTV product, Fannie Mae requires at least one of the people named on the mortgage application to be a first-time home buyer. They define a “first-time” purchaser as someone who has not owned a home within the last three years.

Freddie Mac’s 97% financing product is open to repeat buyers, as long as the borrower does not have “any individual or joint ownership interest in any other residential properties” at the time of purchase.

For both programs, the loan must have a fixed rate of interest. Adjustable-rate mortgages (ARMs) are not permitted by the new 97% financing programs. The term can be up to 30 years in length, but no longer.

Lenders offering the Fannie and Freddie products must perform full income documentation to reduce risk. This means requesting any and all documents necessary to verify the borrower’s income situation — tax returns, pay stubs, bank statements, etc.

FHA: Another Low-Down-Payment Option

Home buyers with limited down-payment funds should also consider the Federal Housing Administration (FHA) loan program. Under this program, borrowers can buy a house with as little as 3.5% down.

However, as with the 97% home loan options above, borrowers who go the FHA route will have to pay extra for mortgage insurance. Any time the LTV ratio rises above 80%, some form of mortgage insurance will be required. This is true for both government-backed and conventional loans.

Where to learn more about the new programs:

Freddie Mac’s program

Fannie Mae’s program

Mortgage Income Requirements in 2015 Will Be Driven by New Rules

New government rules have mortgage lenders checking, and double-checking, the income status of borrowers. Now more than ever, lenders want to ensure that home buyers have the ability to repay their loan obligations. It’s a sign of the times. So, how much do you need to earn to buy a house these days? Here’s an updated look at mortgage requirements for 2015, and the government rules that are influencing them.

Several new lending rules have taken effect over the last couple of years. The most notable were the Qualified Mortgage (QM), the Ability-to-Repay (ATR) rule, and the recently finalized Qualified Residential Mortgage (QRM) rule.

In October, the Federal Deposit Insurance Corporation (FDIC) and five other agencies finalized the definition of the QRM rule. In short, they aligned it with the previously announced QM rule.

That sounds confusing, and it is. Government bureaucracy in action. Here’s what you need to know about these rules, in terms of mortgage income requirements in 2015: QM and QRM share certain lending criteria in common. They are basically one rule with two different applications:

  • The QM rule gives lenders and incentive to make “safer” mortgage loans. It does this by offering legal protection from consumer lawsuits.
  • The QRM rule gives a lenders a way to circumvent risk-retention rules that would otherwise require them to retain 5% of their loans on the books.
  • The Ability-to-Repay (ATR) provision requires lenders to fully document and verify a borrower’s ability to repay a home loan.

It’s an alphabet soup of acronyms that all add up to one thing: sensible lending guidelines.

How New Rules Will Affect Mortgage Income Requirements in 2015

Here’s how the new rules will affect mortgage income requirements in 2015 and beyond. Both QM and QRM feature a 43% debt-to-income (DTI) limit for borrowers. This means a borrower’s total recurring debts should add up to no more than 43% of his or her gross monthly income. That is, if the loan is to be considered QM / QRM compliant.

Calculating debt-to-income

Here’s how the FDIC and other federal agencies described it in their 600-plus-page rule explanation:

“the QM definition requires full documentation and verification of consumers’ debt and income, and generally requires borrowers to meet a DTI threshold of 43 percent or less…”

There are plenty of loopholes and exceptions to these mortgage income rules and requirements. For instance, the joint-agency QM / QRM document mentioned earlier goes on to state that certain smaller lenders can make loans to borrowers with DTI ratios above 43%:

“A loan eligible under these special ‘small creditor’ QM definitions must meet the general requirements of a QM, except that these loans receive greater underwriting flexibility (i.e., do not need to meet the quantitative DTI threshold of 43 percent or less).”

Additionally, lenders are not being forced to comply with the QM standard. They are given strong incentives to use the standard — but they are not being compelled to do so.

In December 2013, one month before the QM rule took effect, the Consumer Financial Protection Bureau (CFPB) debunked a a handful of myths and rumors pertaining to the new rule. According to CFPB director Richard Cordray: “it does not stop lenders from lending to any borrower with a debt-to-income ratio above 43%; this particular claim is wrong in three ways.”

He explained that mortgage companies can issue non-QM home loans simply by using their own judgment and underwriting guidelines. The important thing is that they evaluate the borrower’s ability to repay the obligation, to comply with the aforementioned ATR rule.

Here’s the bottom line in plain English:

In 2015, borrowers should expect a slew of paperwork requests from their lenders. They’ll be asked for W-2 forms, tax returns, bank statements, pay stubs, and other documents relating to their income and assets. This is all part of the verification process mandated by ATR. Some lenders may impose a 43% DTI limit on borrowers, in order to capitalize on the “rewards” of being QM / QRM compliant. Other lenders will continue to offer financing to well-qualified borrowers who are above the 43% threshold.

A Different Question: How Much Can You Actually Afford?

Here’s a mantra to keep in mind when shopping for a home loan: “My lender is not my financial advisor.”

These days, a lot of mortgage companies sell the loans they make into the secondary market. They don’t always keep them on the books. Additionally, government insurance programs like FHA ensure that lenders get paid, even if a borrower defaults on the loan down the road. So in many cases, lenders bear very little long-term risk from the loans they produce. Refer back to the mantra above.

Mortgage income requirements and monthly payment affordability are two different things. Borrowers must decide where their comfort zone lies, in terms of monthly housing costs. This is the borrower’s responsibility — not the lender’s.

We encourage home buyers to create a monthly housing budget and spending limit, and to have it on paper before they start shopping for a loan. Here’s one way to go about it.

Disclaimer: This story provides an overview of mortgage debt-to-income requirements for 2015. These are general rules that apply in some scenarios, but not in all scenarios. Individual lenders have their own guidelines and criteria for borrower income. There are exceptions to the rules mentioned above. Some of these exceptions were touched on above, while others were omitted for the the sake of brevity. Every lending scenario is different, because every borrower is different. The only way to find out if you are qualified for a home loan is to apply through one or more lenders.

30-Year Mortgage Rates Could Average 4.6% Next Year, Says Economist

A prominent U.S. economist issued a prediction for average mortgage rates today. Frank Nothaft, chief economist for mortgage-buying giant Freddie Mac, recently stated that 30-year mortgage rates could average 4.6% next year. He also said the average rate will likely be higher at the end of 2015 than at the beginning, perhaps reaching 5.0% by year’s end. This was one of several predictions offered as part of the company’s monthly housing outlook.

Here’s a video that summarizes the latest report:

Additional forecasts for next year:

  • The 10-year Treasury yield is expected to average 2.9 percentage points next year, up from 2.6 this year. Long-term mortgage rates tend to increase along with the 10-year Treasury yield. That is why Mr. Nothaft and company have predicted higher interest rates on home loans next year.
  • Freddie Mac’s economic team also expects to see a continued slow-down in annual home-price increases. In 2013, U.S. home prices rose by 9.3%. In 2014, the annual gain fell to 4.5%. Next year, prices are expected to rise by around 3.0% — a slower pace than what we have seen in recent months.
  • Housing affordability will decline in 2015, as a result of rising mortgage rates and home price appreciation. But the bigger picture is that housing is still very affordable. According to Freddie Mac’s recent news release: “Historically speaking [we are] moving from very high levels of affordability to high levels of affordability.”
  • We could see a significant increase in the number of new homes being built next year. Housing starts are expected to climb by 20% from 2014 to 2015, partly the result of a strengthening economy and job gains.
  • Home sales are also likely to rise next year. According to the housing report, the total number of home sales (including both new and existing homes) could rise 5% next year to reach its highest level in eight years. That would mark the best sales pace since before the housing crisis, another sign of the ongoing recovery.
  • Overall, mortgage loan originations are expected to fall next year. Freddie Mac’s economists anticipate a rise in purchase loan originations (i.e., home buyers), but it will not be enough to offset the expected decline in refinance originations. So total loan volume will likely fall next year.

With the predicted rise of home prices and average mortgage rates, it seems the best deals for home buyers might be in the rear-view mirror. Granted, these are national averages and trends we are talking about. Conditions vary widely at the local level. Home prices could hold steady, or even decline, in some U.S. cities next year. That’s why we encourage home buyers to conduct plenty of local research before purchasing a home.

Good Credit, Points Needed to Get the Best Rates

This story focuses on average mortgage rates, which is the average interest cost assigned to home loans at a particular period of time. Actual rates, on the other hand, tend to vary from one borrower to the next. This is largely the result of differences in credit scores, down payment size, points paid at closing, and the type of loan being used.

In order to qualify for the best rates available, borrowers must have excellent credit and will likely have to pay points as well. A discount point is a form of prepaid interest — you pay a certain amount at closing in order to secure a lower interest rate over the long term. The discount-point strategy is best suited for long-term housing scenarios, as opposed to a short stay of only a few years (learn more). Bear this in mind when shopping for a home loan, and when researching average mortgage rates.

Disclaimer: This story contains forward-looking statements relating to the mortgage industry. Such statements are the views of the authors / speakers and do not necessarily reflect the views of the publisher. This article includes third-party data that is deemed reliable but not guaranteed. We make no claims or assertions about future interest rate averages or other economic conditions.