✅ Why mortgage rates can rise even when the Fed cuts rates

Mortgage rates don’t move directly with the Fed Funds Rate. Instead, they are primarily driven by the 10-year Treasury yield and investor expectations about inflation, recession risk, and future Fed policy.

Here are the main reasons this disconnect happens:

1. Markets expected the rate cut already

If investors already priced in the Fed’s cut weeks or months beforehand, then the cut itself is old news.
When the announcement hits, mortgage rates may not fall—and often rise if the Fed hints at fewer future cuts.

2. Fed cuts can signal economic trouble

Sometimes the Fed cuts because the economy is weakening. That can cause:

Investors to worry about higher future inflation, or

A “risk-off” move where money leaves bonds

Both of these drive the 10-year yield UP, which pushes mortgage rates UP even though the Fed cut.

3. Bond investors wanted a bigger cut

If markets expect a 0.50% cut but the Fed only delivers 0.25%, that’s seen as “too tight.”
Result:

10-year yield jumps

Mortgage rates move higher

4. Fed messaging (“forward guidance”) matters more than the cut

Example:
The Fed cuts today, but says:

“We may need to slow or pause future cuts.”

That single sentence can raise mortgage rates, even though short-term rates just went lower.

5. Inflation surprises after the cut

If new inflation data comes in hot after a Fed cut, the bond market panics → yields go up → mortgage rates go up.

Quick summary
Fed Cuts Rates Mortgage Rates Move
✔ Expected or priced in Can rise or stay flat
✔ Fed hints at fewer future cuts Often rise
✔ Inflation remains sticky Rise
✔ Economy looks unstable Rise
❗ Only when 10-year yield falls Mortgage rates fall

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Here are the anticipated conforming loan limits for Fannie Mae / Freddie Mac for 2026 (pending official announcement by the Federal Housing Finance Agency):
819,000 is the new loan amount, so you can buy a home for $862,105 and only put 5% down to keep in conforming
Interesting how prices of homes have come down, and the loan amounts have increased, so it's another way of not having to go to Jumbo financing.

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What Does “No Credit Score Mortgage” Mean (for FNMA)

Policy Change

As of November 15, 2025, Fannie Mae’s automated underwriting system (Desktop Underwriter, or DU) will no longer require a minimum third-party credit score.
Fannie Mae
Instead of relying on a fixed cutoff (like “you must have a 620 FICO”), DU will use Fannie Mae’s proprietary risk-assessment model to evaluate credit risk.
Fannie Mae
That model considers more than just credit score: payment history, “trended” credit data, nontraditional credit sources like rent, utilities, and so on.
Fannie Mae
Nontraditional Credit Allowed
Fannie Mae’s Selling Guide includes rules for “nontraditional credit” — that is, credit history documented without a standard credit score.
Selling Guide

When a borrower truly has no credit score, lenders must document nontraditional credit history. For example, they might look at 12 months of cash flow or payment history (rent, utilities, insurance, etc.).
Fannie requires borrowers without any credit score to complete homeownership education before closing.
Selling Guide
Why This Could Be a Good Thing
Greater Access to Homeownership
This change will likely help people who are “credit invisible” (i.e., they don’t have a traditional credit score) get conventional mortgages.
Historically underserved groups (such as those who rent, use nontraditional credit, or have limited credit history) could benefit.
More Holistic Underwriting
By removing the rigid score minimum, DU can look at the whole financial picture. This means more weight on things like debt-to-income ratio, reserves, employment, and nontraditional credit.

Using more data (rent history, payment trends) can be more predictive of whether someone will make mortgage payments than just a credit score.
Potential Cost Benefits for Some Borrowers
If done right, borrowers with limited credit but solid finances could qualify for a conventional loan (which may have more favorable terms than some other high-risk or subprime options).
It may reduce the need for more expensive or risky loan products for people who don’t fit the “traditional” credit profile.
Risks and Downsides
Higher Risk for Lenders → Possibly Higher Cost
Without a credit score floor, lenders are taking on more uncertainty. They may require larger down payments, lower loan-to-value ratios (LTVs), or more reserves to compensate.

If the borrower is truly “credit invisible,” the lender’s verification burden is higher (to safely assess risk), which could make underwriting more stringent in non-score cases.

Potential for Higher Interest Rates / Pricing Risks

Even if a borrower qualifies, the interest rate may be higher compared to someone with a very good credit score, because the risk model may not “discount” as heavily without a high score.

There could be loan-level price adjustments (or other risk-based pricing) tied to the riskiness of nontraditional credit profiles.

Performance Uncertainty

This is a newer underwriting paradigm for Fannie Mae, so long-term performance is less “battle-tested” at scale for certain nontraditional credit borrowers.

If default rates go up for these loans, it could have negative implications for lenders or investors (or for how such loans are underwritten in the future).

Lender Overlays

Just because Fannie Mae has this policy doesn’t mean all lenders will be aggressive in offering no-score loans. Some may add their own stricter requirements (“overlays”) that make it harder than it sounds.

You’ll need a lender that is comfortable underwriting nontraditional credit and willing to do the extra documentation.

Is It a Good Thing For You Personally?

It depends on your situation:

Y

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✅ the principal you borrowed
✅ all interest paid over the years
❌ It does NOT include taxes, insurance, or HOA unless noted.

Because longer terms spread payments out more slowly, they lower the monthly payment but massively increase total interest paid.

Below is a simple example to show how total payments change by loan term.

✅ Example: $300,000 loan at 6% interest
15-Year Mortgage

Monthly payment: ≈ $2,531

Total paid: ≈ $455,682

Total interest: ≈ $155,682

30-Year Mortgage

Monthly payment: ≈ $1,799

Total paid: ≈ $647,514

Total interest: ≈ $347,514

40-Year Mortgage

Monthly payment: ≈ $1,650

Total paid: ≈ $792,089

Total interest: ≈ $492,089

50-Year Mortgage

Monthly payment: ≈ $1,595

Total paid: ≈ $956,140

Total interest: ≈ $656,140

✅ Summary: Total Payments by Loan Term
Term Monthly Payment Total Paid Over Life Total Interest
15-Year ~$2,531 $455,682 $155,682
30-Year ~$1,799 $647,514 $347,514
40-Year ~$1,650 $792,089 $492,089
50-Year ~$1,595 $956,140 $656,140
✅ Key Takeaway

A longer mortgage = lower payment, but the total paid skyrockets because interest accrues for decades longer.

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Here are the main types of events that typically cause the 10-year yield to drop:

Economic slowdown or recession signs

Weak GDP, rising unemployment, or falling consumer spending make investors expect lower future interest rates.

Example: A bad jobs report or slowing manufacturing data often pushes yields lower.

Federal Reserve rate cuts (or expectations of cuts)

If the Fed signals or actually cuts rates, long-term yields like the 10-year typically decline.

Markets anticipate lower inflation and slower growth ahead.

Financial market stress or geopolitical tension

During crises (wars, banking issues, political instability), investors seek safety in Treasuries — pushing prices up and yields down.

Lower inflation or deflation data

When inflation slows more than expected, the “real” return on Treasuries looks more attractive, bringing yields down.

Dovish Fed comments or data suggesting easing ahead

Even before actual rate cuts, if the Fed hints it might ease policy, yields often fall in anticipation.

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🏦 1. Fed Rate vs. Market Rates

When the Federal Reserve cuts rates, it lowers the federal funds rate — the rate banks charge each other for overnight loans.
That directly affects:

Credit cards

Auto loans

Home equity lines of credit (HELOCs)
These tend to move quickly with Fed changes.

🏠 2. Mortgage Rates

Mortgage rates are not directly set by the Fed — they’re more closely tied to the 10-year Treasury yield, which moves based on investor expectations for:

Future inflation

Economic growth

Fed policy in the future

So, when the Fed signals a rate cut or actually cuts, Treasury yields often fall in anticipation, which can lead to lower mortgage rates — if investors believe inflation is under control and the economy is cooling.

However:

If markets think the Fed cut too early or inflation might return, yields can actually rise, keeping mortgage rates higher.

So, mortgage rates don’t always fall right after a Fed cut.

📉 In short:

Fed cuts → short-term rates (credit cards, HELOCs) usually fall fast.

Mortgage rates → might fall if inflation expectations drop and bond yields decline — but not guaranteed.

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1. FHA Streamline Refinance

Purpose:
Simplify refinancing for homeowners who already have an FHA loan — lowering their rate or switching from an ARM to a fixed rate with minimal paperwork and cost.

Key Features:

No income verification usually required

No appraisal required in most cases (uses the original home value)

Limited credit check — just to confirm good payment history

Must benefit financially (lower rate, lower payment, or move to a more stable loan)

Basic Rules:

You must already have an FHA-insured loan

No late payments in the past 12 months

At least 6 months must have passed since your current FHA loan was opened

The refinance must result in a “net tangible benefit” — meaning it improves your financial situation

Appraisal Waiver:
Most FHA Streamlines don’t require an appraisal at all — it’s based on the original value when the loan was made.
👉 So, the loan amount can’t exceed your current unpaid principal balance plus upfront MIP (mortgage insurance premium).

🟦 2. VA Streamline Refinance (IRRRL)

(IRRRL = Interest Rate Reduction Refinance Loan)

Purpose:
For veterans, service members, or eligible spouses who already have a VA loan, this program allows them to lower their rate quickly and cheaply.

Key Features:

No appraisal required (uses prior VA loan value)

No income or employment verification

Limited or no out-of-pocket costs (can roll costs into new loan)

No cash-out allowed — it’s only to reduce the rate or switch from ARM to fixed

Basic Rules:

Must have an existing VA-backed loan

Must show a net tangible benefit (like lowering monthly payment or rate)

Must be current on mortgage payments

Appraisal Waiver:
VA Streamlines typically waive the appraisal entirely, meaning your home value isn’t rechecked.
This makes the process much faster and easier.

🟨 3. The “90% Appraisal Waiver” Explained

This term often shows up when:

A lender chooses to order an appraisal, but wants to use an automated value system (AVM) or

When the lender uses an appraisal waiver (like through FHA/VA automated systems) up to 90% of the home’s current estimated value.

In practice:

It means the lender or agency allows the loan amount to be up to 90% of the home’s estimated value without a full appraisal.

It’s a type of limited-value check — often used when rates are being lowered and no cash-out is being taken.

It helps borrowers avoid delays and costs tied to a new appraisal.

Example:
If your home’s estimated value (per AVM or prior appraisal) is $400,000, a 90% waiver means your loan can go up to $360,000 without needing a new appraisal.

✅ Summary Com

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Here are alternative ways to qualify for a mortgage without using tax returns:

🏦 1. Bank Statement Loans

How it works: Lenders review 12–24 months of your business or personal bank statements to calculate your average monthly deposits (as income).

Used for: Self-employed borrowers, business owners, gig workers, freelancers.

What they look at:

Deposit history and consistency

Business expenses (they’ll apply an expense factor, usually 30–50%)

No tax returns or W-2s required.

💳 2. Asset Depletion / Asset-Based Loans

How it works: Instead of income, your assets (like savings, investments, or retirement funds) are used to demonstrate repayment ability.

Used for: Retirees, high-net-worth individuals, or anyone with substantial savings but limited current income.

Example: $1,000,000 in liquid assets might qualify as $4,000–$6,000/month “income” (depending on lender formula).

🧾 3. P&L (Profit and Loss) Statement Only Loans

How it works: Lender uses a CPA- or tax-preparer-prepared Profit & Loss statement instead of tax returns.

Used for: Self-employed borrowers who can show business income trends but don’t want to use full tax documents.

Usually requires: 12–24 months in business + CPA verification.

🏘️ 4. DSCR (Debt Service Coverage Ratio) Loans

How it works: Common for real estate investors — qualification is based on the property’s rental income, not your personal income.

Formula:
Gross Rent ÷ PITI (Principal + Interest + Taxes + Insurance)

DSCR ≥ 1.0 means the property “covers itself.”

No tax returns, W-2s, or employment verification needed.

💼 5. 1099 Income Loan

How it works: Uses your 1099 forms (from contract work, commissions, or freelance income) as income documentation instead of full tax returns.

Used for: Independent contractors, salespeople, consultants, etc.

Often requires: 1–2 years of consistent 1099 income.


Higher down payment and interest rate required.

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