03
Feb
By Fred Gruber
Financial Reports

What’s Ahead For Mortgage Rates This Week – February 3rd, 2025

The previous week’s reins were held by the Federal Reserve’s Rate Decision and also the preferred inflation indicator, the PCE Index. With the PCE Index coming in well above the Federal Reserve’s 2% target, it suggests that rate cuts may be postponed much longer this year than initially anticipated.

Looking ahead, the upcoming week features the CPI and PPI inflation data reports, making for a busy schedule. However, this week’s reports are relatively limited in terms of significant market impact. The most notable releases include Unemployment Data and U.S. Wages, both of which will complement the inflation data to provide a broader outlook on the economy’s trajectory. Additionally, the Consumer Sentiment and Consumer Credit reports may offer insight into consumer conditions amid a changing administration and ongoing inflation. Notably, inflation has had a strong impact on markets such as eggs and livestock poultry, which have reached all-time high prices in the past decade.

PCE Index

The PCE index rose 0.3% last month, the government said Friday, to mark the biggest increase since last April. The increase in inflation in the past year was at a seven-month high of 2.6%, up from 2.4% in the prior month.

FOMC Rate Decision

In a widely anticipated move, the central bank’s Federal Open Market Committee left unchanged its overnight borrowing rate in a range between 4.25%-4.5%.

Primary Mortgage Market Survey Index

• 15-Yr FRM rates saw a decrease of -0.04% with the current rate at 6.12%
• 30-Yr FRM rates saw a decrease of -0.01% with the current rate at 6.95%

MND Rate Index

• 30-Yr FHA rates saw a decrease of -0.08% for this week. Current rates at 6.46%
• 30-Yr VA rates saw a decrease of -0.07% for this week. Current rates at 6.48%

Jobless Claims

Initial Claims were reported to be 207,000 compared to the expected claims of 228,000. The prior week landed at 223,000.

What’s Ahead

CPI and PPI reports are set to release tomorrow along with Consumer Sentiment and Consumer Credit reports.

31
Jan
By Fred Gruber
Mortgage

Should You Use Home Equity to Pay for College?

Higher education can be one of the most significant financial investments you’ll make, second only to purchasing a home. While federal loans are a common method for covering college costs, using your home’s equity is another option to consider. Before making a decision, it’s important to understand the pros and cons of tapping into your home equity to pay for college.

The Financial Cost of College

Just as most buyers need a mortgage to finance a home, many families rely on loans to fund college expenses. The average net price of college, which accounts for tuition, room, and board after financial aid, can be significant. According to the College Board, during the 2019-2020 school year, the average annual net price was $27,400 for private colleges and $15,400 for public institutions.

Advantages of Using Home Equity for College

For families exploring ways to pay for college, home equity loans or Home Equity Lines of Credit (HELOCs) may present some unique benefits.

1. Bridging the Gap Beyond Federal Loans

Federal loans often have borrowing limits that may not fully cover the cost of tuition, room, and board. Home equity loans can help close the gap. You can typically borrow up to 85% of your home’s equity as either:

  • A Lump-Sum Loan: A fixed amount borrowed with regular monthly payments.

  • A HELOC: A revolving line of credit with variable interest rates, offering more flexibility.

2. Lower Interest Rates

Home equity loans usually have lower interest rates compared to federal PLUS loans or private student loans. Since these loans are secured by your home, lenders can offer more favorable rates, saving you money over the life of the loan.

3. Immediate Access to Funds

Home equity loans or HELOCs allow quick access to funds, making them ideal for unexpected expenses or semester payments. A HELOC, in particular, offers flexibility by allowing you to borrow only what you need, reducing the amount of interest you pay. For example, if you open a $50,000 HELOC but use only $20,000, you’ll owe interest only on the $20,000, potentially saving you money.

Disadvantages of Using Home Equity for College

While there are advantages, it’s equally important to consider the potential downsides of using home equity for education costs.

1. Risk of Losing Your Home

Since your home serves as collateral for a home equity loan or HELOC, failure to make payments could result in foreclosure. Unlike federal student loans, which do not jeopardize your home, defaulting on a home equity loan carries significant risks. Carefully evaluate your financial situation before proceeding.

2. Limited Tax Benefits

The Tax Cuts and Jobs Act of 2017 eliminated the tax deduction for home equity loan interest unless the funds are used to improve your home. This means you cannot deduct home equity loan interest used for education expenses. In contrast, federal or private student loans may qualify for a Student Loan Interest Deduction of up to $2,500 annually.

3. Long-Term Financial Impact

Using home equity for college ties up a major asset that could otherwise be used for emergencies, retirement, or other future needs. It’s important to weigh whether reducing your home equity is worth the potential long-term financial impact.

Making the Right Decision

If you or your child are preparing for college, now is the time to explore your financing options. Home equity loans can be a viable choice for covering education costs, especially if:

  • Federal loans don’t meet your needs.

  • You’re confident in your ability to make payments.

  • You prefer lower interest rates and flexible borrowing options.

However, weigh the risks carefully, particularly the potential impact on your home and finances. Speak with a financial advisor or lender to determine whether using your home equity aligns with your overall financial goals.

 

30
Jan
By Fred Gruber
Mortagage Tips

Can You Buy Land with a VA Loan?

The VA loan program offers exceptional benefits to veterans, active-duty service members, and eligible surviving spouses, including no down payment, competitive interest rates, and no private mortgage insurance (PMI). But what about buying land? While the rules around using a VA loan for land can be more complex, there are still ways to make it work. Here’s a breakdown of your options if you’re looking to buy land using a VA loan.

Understanding VA Loans

VA loans are specifically designed for veterans and service members looking to buy, build, repair, or adapt a home for personal occupancy. These loans come with several advantages over conventional loans:

  • No Down Payment: VA loans often don’t require a down payment, making homeownership more accessible.

  • Competitive Interest Rates: VA loans typically offer lower interest rates than conventional loans.

  • No PMI: Unlike most loans with less than a 20% down payment, VA loans don’t require private mortgage insurance (PMI).

  • Lenient Credit Requirements: VA loans often have more flexible credit score requirements, making them easier to qualify for.

Can You Buy Land with a VA Loan?

The simple answer is no – you cannot typically use a VA loan to purchase land alone. VA loans are primarily for purchasing or refinancing homes. However, there are certain scenarios where you can use a VA loan to buy land, particularly if it’s part of a plan to build a home.

Purchasing Land and Building a Home

One of the most common ways to buy land with a VA loan is by combining it with the construction of a home. Here’s how this works:

  • Start with a Construction Loan: A construction loan provides the necessary funds to purchase the land and build the home. Keep in mind that these loans generally have higher interest rates and stricter requirements than traditional loans.

  • VA Loan Conversion: After the home is built, you can refinance the construction loan into a VA loan. This allows you to take advantage of VA loan benefits, such as lower interest rates and no PMI.

This approach is ideal for veterans who wish to build a custom home on a piece of land they’ve chosen.

Buying Land with the Intent to Build Later

If you plan to purchase land and build a home at a later date, you’ll need to secure financing for the land purchase itself, since VA loans can’t be used for land-only transactions. Once you’re ready to build, you can then apply for a VA construction loan to cover the building costs. The key is that the VA loan must be tied to the construction of a home, not just the land.

Combining Land Purchase with a Home

If you find land that already has a home on it, and the home meets VA standards, you may be able to use a VA loan to purchase the property. This is a straightforward process, as the loan is used to buy the home, and the land is included as part of the overall property.

Alternatives for Buying Land

If you want to buy land without immediate plans to build, here are some alternative options:

  • Land Loans: These loans are designed specifically for purchasing land, but they often require a higher down payment and come with higher interest rates than VA loans.

  • Personal Loans: For smaller land purchases, a personal loan may be an option, though they typically come with shorter terms and higher rates.

  • Seller Financing: Some sellers offer financing directly, allowing you to pay for the land over time.

  • Home Equity Loan: If you own a home with significant equity, you might be able to use a home equity loan to finance the land purchase.

While VA loans are generally intended for buying or refinancing homes, you can use them in specific circumstances to buy land, especially if you plan to build a home. Understanding the requirements and exploring other financing options will help veterans and service members find a path to owning land and building their dream homes.

Working with experienced lenders and real estate professionals who understand the ins and outs of VA loans can ensure a smoother process and help you make the most of your benefits.