These 10 mortgage tips can help you with your mortgage decisions in 2014.
1. Document your finances.
New mortgage regulations went into effect in January and Lenders will be extra attentive when underwriting home loans. These rules were established to put some pressure on lenders to make sure they verify that borrowers have the ability to repay their mortgage loans. Remember to keep good records of your finances, including tax returns, investment accounts, bank statements, W-2's, and any other assets. And be sure you can be able to explain any unusual deposits to your accounts. Even a $500 birthday deposit from your grandparents can cause a delay in loan closing if you can't prove where the money came from.
2. Take good care of your credit.
If you are planning to get a mortgage, monitor your credit history and your FICO score until your loan closes. The best mortgage rates usually go to buyers with scores of 720 or higher. You may still get a mortgage with a score of 680, but lower scores will mean higher closing cost and higher rates.
3. Refinance now, if you still can.
When rates jumped in the later part of 2013, many homeowners lost the chance to refinance at a lower rate. However, those who are paying more than 5 percent interest on their mortgage loans might still have an opportunity. If you think you may be able to save with a refinance, but you are not sure, it does not hurt to try. Contact a loan officer and take a look at your numbers to see if refinancing makes financial sense. We recommend one that specializes in refinance.
4. Buyers, use your bargaining power.
As mortgage rates climbed, lenders lost a big chunk of their refinance business. This means they will fiercely compete for homebuyers business. Buyers should take advantage of bargaining power they gain with that increased competition and shop around for the best deal and look beyond the interest rate on the loan.
5. Learn your rights as a borrower.
Mortage borrowers will get many new rights as consumers this year when new mortgage rules created by the Consumer Financial Protection Bureau go into effect in 2014. If you run into issues with your mortgage servicer or fall behind on your payments, make sure you are aware of your rights and put them to use.
6. Don't overspend.
If your DTI, debt-to-income ratio, is too high, then you will not qualify for a loan. Lenders don't want to give out loans to borrowers who have little money left each month after they pay their mortgages and other debt obligations such as student loans and credit cards. Try to keep your monthly debt obligations, including your mortgage and property taxes, below 43 percent of your income.
7. Lock a rate as soon as you can.
Rates are expected to climb in 2014 as the Federal Reserve is expected to reduce the pace of the economic stimulus program that has long helped keep rates low. If you are planning to get a mortgage, lock in a rate as soon as you are comfortable with the numbers.
8. Consider alternative mortgage options.
There are alternatives to grab a lower rate, depending on your plans. A homeowner planning to keep a house for 7 to 10 years could take advantage of lower mortgage rates by choosing a 7 or 10 year ARM instead of the 30 year traditional fixed rate mortgage. If you are unsure on how long you will keep the house, a fixed rate is most likely your better choice.
9. Considering an FHA loan? Reconsider.
FHA loans have long been popular among first time home buyers because they require a low down payment. But FHA loans come at a price. Mortgage insurance premiums on FHA loans are likely to continue to rise in 2014, and after recent changes, the borrower is now required to pay for mortgage insurance for the life of the loan. When qualifying, go conventional first.
10. Don't panic.
Yes, mortgage rates will most likely climb in 2014. Don't panic. If you're shopping for a home, do your best to move quickly, and remember that this is one of the biggest financial decisions of your life. Get your mortgage and buy your home only when you feel ready.