Pre-Qualification vs. Pre-Approval

By Sabrina Karl

If you’re shopping for a new home, it’s smart to get a mortgage lender involved early. But does that mean getting pre-qualified or pre-approved? Knowing the difference can save you from a common homebuyer mistake and possible missed opportunities.

Pre-qualification is easier and comes first for most buyers. Based on debt, income and asset information you provide, the lender recommends the type and amount of mortgage they’ll likely approve for you. The process is quick and generally free, and involves no credit analysis.

As a result, the pre-qualification amount is only an estimate of what you might be able to expect. If you’ve overlooked reporting any debts, have overstated income or assets, or have less than excellent credit, you may find out later your approved mortgage amount is less than your pre-qualification.

Once you’ve gotten serious in your house hunting, it’s wise to apply for pre-approval and pay the fee it usually requires. Here, you provide information for the lender to confirm and analyze your debt, income and assets, as well as your credit score and report.

With this, the lender can commit on the type and amount of mortgage they’re willing to offer you, as well as the rate. This is conveyed in a conditional commitment letter, which confirms you have financing for homes at or below the approved amount.

If you’re sure you plan to buy, pre-approval offers advantages that are worth the application fee. Not only does it help you avoid wasting time on homes beyond your price range – it can also give you an edge with a seller, as it demonstrates you can move quickly without a contingency to secure financing.

Pre-qualification is a great first step for most home buyers, but as soon as the house hunt becomes serious, pre-approval becomes your next smart move.

Four easy steps to protecting your phone from hackers

By Sabrina Karl

In today’s world, you carry an immense amount of sensitive personal information almost everywhere you go. That’s because your cell phone stores usernames, passwords, account numbers, emails, texts, and personal photos and videos.

Fortunately, it’s not hard to put roadblocks in the way of thieves and hackers who might try to use your phone to steal your identity or buy things with your credit cards or bank accounts. Four simple steps recommended by the Federal Trade Commission can make a world of difference in reducing your risk.

First, make sure you have your phone set to lock whenever you’re not using it, and to only allow unlocking with a secure method. This can be a numeric passcode (if so, 6-digit codes are more secure than 4 digits), or it may be biometric, like a fingerprint or face scan. This is your first line of defense against anyone trying to gain access to your phone’s data.

Second, embrace your phone’s operating system updates. Whenever security vulnerabilities are identified, software updates are released to close the door on those risks. But these security patches only work on phones where they’ve been installed, so either set your phone to automatically install updates or manually install any updates as soon as you see them become available.

Third, if you lose your phone, you won’t also lose your data if you regularly back it up to the cloud or to your computer. So be sure to set an automatic backup system that regularly runs without needing your input.

Lastly, turn on the feature in your phone’s settings to help find your phone should you lose it. This can help reunite you with your phone, or may alternatively enable you to lock and erase your phone if you feel it has fallen into dangerous hands.

How high will the Fed take rates in 2023?

By Sabrina Karl

The Federal Reserve’s first 2023 rate-setting meeting is coming up, and after 2022’s historically fast rate increases, all eyes are on what they’ll do this year. Will rates move higher still?

First, a recent history primer. At the pandemic’s outset, the Fed dramatically dropped the federal funds rate to zero over the course of two emergency meetings, aiming to prevent a Covid-triggered financial crisis.

The federal funds rate is the interest rate that banks charge each other for overnight loans of their reserves, and where it has the biggest consumer impact is in deposit rates (savings, money market, and CD accounts) and short-term debt, like credit card rates. The federal funds rate does not directly influence mortgage rates, though there is some ripple effect.

Last March, the Fed began building the federal funds rate back up. They started with a quarter point hike, but as the threat of inflation became stronger, they ramped up their next hike to 50 basis points, and then followed that with four hikes of 75 basis points, followed by another 50-point hike in December.

As a result, we’ve witnessed the fastest rise in the fed rate in more than 40 years, with an increase of 4.25% over just 10 months. But where will they go from here?

While there is no crystal ball for predicting the Fed (they make each decision based on the latest economic data), it’s strongly expected that 2023 will see minor additional movement upwards, but that 2022’s fireworks are behind us.

Specifically, market forecasters currently predict we’ll see a mild quarter-point increase on February 1 and another quarter point March 22, followed by a period of holding steady. After that, some predict the Fed will start lowering rates in late 2023, though rate predictions that far out are less reliable.

How high will the Fed raise rates?

By Sabrina Karl

On Wednesday the Federal Reserve announced yet another 2022 rate hike. It’s the sixth one this year, and the fourth massive one in a row. So how much higher will they go?

The only known answer is that no one, in fact, knows. Not even the Fed. That’s because rate decisions are made one-by-one, about every 6-8 weeks, based on the latest economic data.

When the pandemic took hold in March 2020, the Fed dramatically dropped the federal funds rate to zero, and held it there for two years. But when inflation spiked early this year, they kicked off a series of hikes in March.

The first 2022 increase was by a quarter percentage point. But in May, they doubled the hike to 0.50%, only to go even further in June with a 0.75% increase. They’ve since implemented three more massive hikes of 0.75%, with last week’s being the fourth.

That takes the federal funds rate to 3.75% compared to the pandemic’s 0%, and is why what you can earn on savings, money market, and CD accounts has bolted higher. On the flip side, it’s also catapulted interest rates on short-term borrowing like credit cards.

While no one knows how far the Fed will go, they have signaled they’re not don. And you can see the odds the financial markets place on different increase amounts. As of this writing, the CME FedWatch Tool indicates a 57% probability that the December hike will be 0.50%, with a 43% chance of another 0.75% increase.

Note that these forecasts change daily. Still, it’s interesting to see what the odds-on favorite is for the ultimate 2023 peak. Currently, the most common bet is that the Fed will stop when it reaches 5.00%, or 1.25% higher than last week’s announcement. But only time will tell.

National mortgage average hits new 20-year high

By Sabrina Karl

When it comes to mortgage rates, a number of national averages are calculated by different entities. But the most-quoted is the Freddie Mac average, which comes out every Thursday morning.

Freddie Mac’s average is based on lender surveys from the start of the week, with most coming from Monday and some from Tuesday. As such, a shortcoming is that it is only a weekly average and can be skewed by capturing big changes early in the week or missing others occurring between Wednesday and Friday.

But what Freddie Mac’s average has going for it is that it is the most historically far-reaching average available, with data going back all the way to 1971.

Last Thursday, Freddie Mac notched its highest weekly average since April 2002, at 6.92%. Other averages had already reported 20-year highs, up to two weeks ago when rates surged in late September. But given its methodology of recording early weekly rates, the Freddie Mac average didn’t fully capture that spike and therefore didn’t set its own 20-year high til last week.

What’s also important to understand is that each mortgage average uses its own methodology. There may be different assumptions regarding applicants’ FICO scores, different criteria on points vs. no points, and so forth. For instance, Freddie Mac’s recent 6.92% average assumes fees and points of 0.8%.

Other notable averages are the Mortgage Bankers Association’s reading, which goes back to 1998 but is also only weekly, and Mortgage News Daily’s average, which has the strong advantage of providing a daily reading, but only as far back as 2008.

In other words, comparing today’s mortgage rates to the past is an imperfect science based on incomplete historical data and varying methodologies. But no matter your favored indicator, it’s clear these are notable times in the mortgage market.