Take Aways
The interest rates for 30-year fixed loans have remained high, with non-farm payroll and CPI numbers being determining factors for rates moving forward. The conventional loan structure is undergoing changes, with pricing now also factoring in debt-to-income ratio and credit score. The best rate currently is 6.875%, while mid-sevens to 7.6% could be expected for credit scores in the 600-680 range. FHA loans will see a decrease in monthly mortgage insurance from 0.85 to 0.55 starting March 20th, resulting in lower payments. FHA loans do not have loan level price adjustments, unlike conventional loans.
Transcription:
Dave: (00:05)
Hey there everyone. Dave Barlow here with the Sell for 1% Gang. We got Scott Hall . Yeah, there he is. , we got Jaimerinsky, Mike Hopper, and our very special guest to keep us all in line this morning. Rich Ch-con-y, . Am I getting it down?
Rich: (00:27)
You’re getting better at it Dave. We’re going to nominate you into the Italian American Club pretty soon.
Dave: (00:35)
I’m going to get yelled at later on. I know. First by my daughter, then by my wife. You got it all wrong, . I do it. Especially for them.
Speaker 3: (00:44)
Yeah.
Dave: (00:46)
So Rich, interest rates are a little like the weather one day. It’s nice. Next day, not so much. What’s going on out there in the world of interest rates?
Rich: (00:58)
Well, right now it’s the January of interest rates cause it’s pretty much not so nice. We’ve had a really bad month for the month of February in terms of progression towards higher rates. The economic numbers, as we’ve talked about many times have, not been conducive to lower rates the entire month. And we’re still at that high six, low seven kind of a rate right now on a 30 year fix. And the numbers tomorrow and next week are really, really big. So stay tuned and we’ll see how things go. But we have a non-farm payroll number tomorrow morning, which is what the Fed is really looking at. We’re looking at job creation, how many jobs are created or not created in the economy. So depending on what happens with that number tomorrow morning at 8:30, and then next week the CPI number comes out. So we’ll have a CPI consumer price index number on Tuesday. Those two figures will be a determining factor as to what, we’re seeing in terms of rates moving forward I think for the next 30 days or so.
Dave: (02:22)
And so the one thing, cause everything’s kind of like the opposite of what you would think, we got somewhat good news this morning, although I would say it’s not so good news, but jobless claims were higher than expected
Rich: (02:38)
Right.
Dave: (02:39)
For interest rates. That’s good news.
Rich: (02:42)
Yeah, bad news is good news. Yeah, bad kinda like, it’s one of the conundrums of my, profession. But, that is correct that we had more jobless claims than what were expected. And consequently, we’re seeing the stock market rally a little bit and we’re seeing interest rates at least not go up today. I wouldn’t say their interest rates have gone down today, but they, they quit going up, at least for the time being. So, that’s kind of where we are. And so, bad news tomorrow, meaning that there, there weren’t so many jobs created would be good news for interest rates because the bad news means that the Fed doesn’t have to continue to fight a strong economy with higher rates. So that’s why bad news is good news for interest rates, basically.
Dave: (03:36)
And so right now we are kind of straddling that 7% number right now.
Rich: (03:43)
Correct. And you know, one of the things I want to mention, Dave, because this is happening live right now as we speak, is that there are many changes happening in the conventional loan structure. There’s something in the pricing of conventional loans. It’s called loan level price adjustments, L L P A. And there’s essentially a grid and it’s credit score and loan to value. And now they’ve added also debt to income into that. And those three factors, depending on what your credit score is, how much you’re putting down and what your debt to income is, all three of those factors determine adjustments to what the standard rate would be for you. So if a person calls me up and says, what’s your rate today? I have about five or six questions that have to be asked before I can even begin to quote them an exact rate. That’s just the reality of what’s happening with conventional loans right now.
Dave: (04:48)
So if I called up and said, Hey, rich, I’d like to get a loan. What, are those questions that I should be prepared for?
Rich: (04:57)
Well, I’m going to want to know what your credit score is. And a lot of times people have gotten a credit score from Credit Karma or something like that, you know, that that maybe is not the same credit scores that I would get if I ran your credit. So if you really want an exact number, I’m going to have to run your credit, do a hard pull on your credit and we’re going to need to know how much are you putting down? And then I’m going to have to do a calculation to determinewhere you fall on your debt to income structure. So once I’ve run your credit, I can see what your debt is, and then if I can get a clear picture of what your income is, then I can do that calculation and be able to give you an answer. Now that, I mean this, I hate to make things complicated as, you know, I try to make things simple. But, uh, that’s where we are in 2023 with the banking business and the way the federal government has become involved in everything that we do.
Dave: (05:53)
So if everything comes back aces, I’ve got excellent credit score. My debt to income is good. Everything else, you know, that you’re looking at, what’s the best rate that I can get in today’s world?
Rich: (06:09)
6.875% would be the, would be the rate right at this moment. So we’re right there, as I said, straddling that 7% rate. That’s where we would be.
Dave: (06:22)
And then if I, let me ask real quick, and then if I’m kind of suspect, and you can still get me done, what kind of rate would I expect?
Rich: (06:32)
Well, let’s say someone has, has a credit score in the, 600-680 range, they could be looking at mid sevens. It can go up that much. Wow. Mid, mid to mid sevens to 7.6, uh, on a situation like that.
Dave: (06:53)
Okay. So I mean, you’re half a point to five eighths of a point higher if your credit’s just not quite as strong.
Rich: (07:02)
That is correct. Yeah.
Dave: (07:04)
Huh. That’s a big difference. Cause a year ago it was pretty much, you know, run my credit and off we went.
Rich: (07:11)
Yeah. Well, we tried to simplify. Like I said, I’ve learned in 25, 30 years of business, you know, keep it simple, stupid. So, you know, I kind of like try to get a feel for someone, you know, in a conversation and give them a quote and try to stand by it as easily as I could. But the minutiae has gotten much more, prevalent now. So we, there’s all these things that we need to consider when we’re looking at someone’s interest rate. And again, I try to make assumptions and give people a rule of thumb at least so that they can decide if they want to make an offer and have some feel for where their payment would be without me having to run their credit. I don’t try to make it a difficult discussion.
Dave: (07:56)
Sure, sure.
Rich: (07:58)
So, Hey Dave, I do have, I do have some good news on one front. All right.
Dave: (08:04)
We’ll take it. You
Rich: (08:05)
You know, the loans we’ve been discussing here so far, conventional loans, but then there’s also FHA loans. So with FHA loans, um, there’s a change coming March the 20th, where the mortgage insurance, the monthly mortgage insurance is decreasing. So, it has been a fact a factor of 0.85. The mortgage insurance on an FHA loan has been 0.85 to whatever amount you’re financing divided by 12. FHA is lowering that to 0.55. So 30 basis points lower on the mortgage insurance. So that’s substantial in terms of someone’s payment that’s over a quarter percent lower on their payment on an FHA loan. So that’s a little bit of good news at least.
Dave: (09:05)
And so for clarification, the LLPA does not apply to FHA loans?
Rich: (09:11)
Correct. FHA loans do not have loan level price adjustments. Those are conventional loans and nationwide conventional loans, Fannie Mae and Freddie Mac.
Dave: (09:21)
Yeah. And so it kind of seemed, you know, after the financial crisis and, Freddie Mack and Fannie Mae, you know, be almost became insolvent and the federal government stepped in and, and helped out their own entities, so to speak, uh, that they were really trying to push more people towards FHA financing., and I think I’ve read that as much as 60% of all home loans now are FHA
Rich: (09:52)
You know, if you’ve read that, I’ll go with your figure. I don’t, have that off the top of my head. I wouldn’t say that my business is 60% FHA though. Um, you know, I am still doing a healthy amount of conventional still, and still all things being equal. Conventional mortgage is a little bit of a better, and if someone has good credit, the the better way to go would be a conventional loan because of some of the long-term, uh, mortgage insurance and upfront mortgage insurance cost of the FHA.
Dave: (10:25)
Okay. All right. Well, I appreciate your time. Thanks for the information. And of course, if anybody has a question, your contact information is here on the screen, feel free to give Rich a call. He’s been doing this a long time, has a lot of information, a lot of knowledge, and, and, uh, more importantly, a lot of experience to get you from point A of wanting to look at houses to point B, which is actually closing on your new home. So again, Rich, thank you.
Rich: (10:54)
Thank you, Dave. Appreciate it.
Dave: (10:56)
All right guys. Thanks for joining us here this morning.
Rich: (10:59)
Have a good one.
