Bond Yield Plunge is a Boon for Mortgage Borrowers

Post-Brexit uncertainty has meant that global investors are pouring money into so-called safe haven investments, like US government bonds. As prices rise, benchmark 10-year Treasury yields touched an all-time low of 1.344 percent – think about that…if you lend the US government money for ten years, you will only receive just over 1.3 percent interest—and if you lend for 30 years, you will only get about 2.1 percent! That’s terrible news for savers, especially risk-averse ones -- as well as pension funds, which try to provide stable income for retirees. But it's great news for mortgage borrowers. The average contract interest rate for 30-year fixed-rate mortgages for conforming loans ($417,000 or less) has dropped to near all-time lows for those with good credit. There are some lenders going as low as 3.25 percent, the lowest level since May 2013. 15-year loan rates are running at about 2.75 percent. Adding to the good news is that at the same time, home prices have mostly increased and credit scores have improved, which means many people who couldn’t refinance a few years ago, can do so now.

According to Mike Raimi of Luxury Mortgage Corp, “Closing a loan is still labor intensive. Borrowers need patience and perseverance” according to Mike. Mortgages for new home purchases can take about three weeks to close, while refinancing can take longer – “anywhere from 30 to 45 days.”

If you are looking for a 30-year conventional mortgage with 20 percent down, the best rates are available for those with credit scores above 740. For every 20-point drop in score, the mortgage rate jumps by a quarter of a percent. If your credit score is below 620, it’s tough to get a loan closed. (Credit scores do not have nearly as much impact on loans of 15 years and shorter.)

If you are preparing for the mortgage process, here’s what you will need:

• W-2 (2 years)
• Tax Returns (2 years)
• Pay Stubs (2 months)
• Bank statements – all pages (2 months): You may also need to provide the lender with an explanation for any large deposits that have been made into bank accounts. This has more to do with beefed up anti-money laundering efforts than the mortgage process itself.
• 6 months of mortgage payments in cash reserves (sometimes less, but this is a good rule of thumb)
• Investment accounts: If bank accounts do not show adequate assets, lenders may ask for investment account statements.
• Donor letter: If a family member or friend is helping you with your down payment or providing cash for the re-fi, he or she may be required to provide a letter and may also have to present his or her account statements.
• Self-employed applicants: Must have 2 years of proof of self-employment and 2 years of tax returns. Gone are the days when self-employed borrowers can “add-back” tax preference items. While you may have used the tax code to your advantage, the bank will not cut you any slack – the numbers on the return are set in stone.