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New Year, New Rates? An Overview of January's Mortgage Rates + Conventional Loans

Updated: Feb 16

Happy February and welcome back to one of our new blog series! Every month we will highlight the previous month’s average mortgage rates, along with a new home loan product or transaction type. The goal with this series is to help educate individuals of the various loans Essex offers as well as the basic requirements to qualify for each loan.

Houses in a line on a beautiful day inside of a suburban neighborhood with conventional loans written in the sky..

Conventional Loans

Last month we talked about Fannie Mae and Freddie Mac which properly leads us into this month's topic: Conventional loans. Unlike a few other loan types (FHA and VA), conventional loans do not have government backing. Instead, they conform to the guidelines set by Freddie Mac and Fannie Mae.

The difference between government backed loans and non-government backed loans are the perks offered. If you don’t have a great credit score or a large down payment, government backed loans could be a great solution. Non-government backed loans are backed and serviced by private mortgage lenders such as financial institutions, banks and credit unions.

Conventional loans are one of the most popular types of loans. They provide flexible term options, the two most common being 15-year and 30-year term lengths. Since conventional loans include many other loan types, there is no single set of requirements for this loan. That said, we’ve provided some baseline requirements of the loans below. As with everything we do, we always recommend contacting one of our Loan Officers for more accurate information.

Minimum Requirements:

  1. Credit score of at least 620 (may accept lower with other compensating factors)

  2. Debt to income ratio of 45% (may accept higher ratio for qualified borrowers)

  3. Minimum down payment of 3% of the purchase price. However, more is preferred to avoid private mortgage insurance.

Remember, that these minimum requirements apply to some of our loan options. There are many other alternatives and requirements available as well.

January Mortgage Rates

Blocks placed at different points in a positive trending line graph.

As of January 30th, we are seeing a slight downward trend, offering some relief for homebuyers. We ended this month with an average of 6.96% for a 30 year fixed, 6.50% for a 15 year fixed rate, and 6.12% for a ⅚ adjustable mortgage rate (Bankrate, January 30, 2024).

Another point to consider, 30-year jumbo loan rates are averaging around 6.98%, which from last week, is down 2 basis points. A basis point (bp) is a unit of measurement that is used in finance to express changes in percentages like interest rates. When it comes to mortgages, one basis point is .01%. For example, if a mortgage rate is at 6.25% one week and another week it goes up 25 basis points, it becomes 6.50%. That might not seem like a lot, but it can have a significant change on your monthly mortgage payment and the total cost of your loan overtime (basis points have more of an impact overtime when you have adjustable mortgage rates).

What does this mean for you?

The current mortgage rates have different implications for individuals based on their situation. Homeowners and homebuyers face varying degrees of benefits and drawbacks. Here’s a breakdown of how the current mortgage rates can affect both groups of people:

  • Homebuyers:

    • Since there is a slight decrease in rates compared to the last few weeks, there is a glimmer of hope for homebuyers who have been facing challenges the past year due to rising rates. Lower rates can lead to reduced monthly payments, making home ownership more affordable. Lower rates can also lead to more purchasing power. This could allow buyers to qualify for a slightly higher loan amount, providing more opportunities in terms of size and location of a home.

    • On the other hand, rates are still higher than they have been in the past. Knowing this means there are higher borrower costs. As a buyer, you will still be paying more in interest overtime compared to if you had purchased a home when rates were lower. That’s why it is important to compare multiple loan offers so you can get the best rate for your needs.

  • Homeowners:

    • If you are already a homeowner and have a fixed rate mortgage, this provides stability and your monthly mortgage rates remain predictable, providing financial stability. With home prices rising, so does your equity! The value of your home is most likely increasing which is potentially offsetting higher interest rates.

    • On the other hand, if you're currently paying more in interest rates than the current average and you’re looking to refinance your mortgage to take advantage of the lower rates, the cost of refinancing might outweigh the savings from lower interest rates.

Overall, the meaning of mortgage rates completely depend on your individual financial goals and circumstances. We recommend speaking with one of our Loan Officers before making any big decisions about buying, selling or refinancing your home.

One thing to remember is individual rates will vary. Rates also depend on your credit score, loan amount and more. Make sure to stay on top of mortgage rates so you can get the best deal for your dream home!

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