- Personal Finance
10 Mortgage Tips for 2014
Mortgage rates are expected to climb this 2014 and homeowners and borrowers alike should take note of this. It could have a massive impact on the payments they are already making or prevent them from getting a mortgage and paying for a home. In fact, interest rates had been rising even before 2014 hit and are predicted to hit the 5% line in the summer of 2014. While 5% isn’t all that high and is perfectly reasonable, it could still have a massive impact on how much people pay for their homes overall. However, there are some ways borrowers can still get great mortgage rates and deals this 2014 and they are listed below.
Top 10 Tips
1.) Document your finances. In 2014, borrowers can expect lenders to be extra diligent when it comes to underwriting home loans. The reason for this is new mortgage laws went into effect last January and it has put extra pressure on lenders to verify that people who go to them for loans actually have the money to pay them back. Keep track of bank statements, investment account, assets, and w-2s. Borrowers may even have to explain some unusual account movements because unexplained money on their accounts could delay the loan application process.
2.) Decide on a rate ASAP. This 2014, the Federal Reserve is expected to reduce the pace of the economic stimulus program which has long been the reason for low mortgage rate. With this in mind, borrowers can expect rates to climb exponentially in 2014. Those who plan on getting a mortgage should lock in a rate as soon as they find numbers they are comfortable with.
3.) If possible, refinance now. When rates got a jolt in 2013, many homeowners lost the chance to refinance and enjoy lower rates on their mortgages. However, those who pay more than 5% on their home loans might still have a window of opportunity to refinance. Speak to a loan officer and do the math. This way, it will become clear if refinancing makes sense financially after taking into account how long it will be before the whole loan breaks even after closing costs.
4.) Use bargaining powers. As mortgage rates increased, most lenders lost a big amount of their refinance business. This year, lenders are set to turn their attention to borrowers and competition will be fierce. Buyers need to take advantage of this and use it to bargain for the best deals. Tip: consider the interest rate of the loan but take into account other factors as well.
5.) Borrowers have rights. Borrowers will get a lot of new rights this 2014 because new mortgage rules passed by the Consumer Financial Protection Bureau will take effect. Borrowers who run into issues with mortgage servicers and lenders in 2014 should know their rights and put them to use. The same goes for borrowers who fall behind in payments.
6.) Watch the credit. Borrowers with decent credit rates may still not get their loans approved. For those planning to get a mortgage in 2014, the best rates usually go to those with a credit rating of 720 or higher. Those with a score of 680 can also get a mortgage but any lower than that and borrowers can expect to look at higher closing costs and interest rates.
7.) Do not overspend. Lenders will not usually be keen on giving money to people who have some money left over after they pay all their bills. If this is the case, lenders will say that the debt-to-income (DTI) ratio is too high and disqualifies an applicant for a loan. It is advisable to keep monthly dent obligations below 43% of the total income.
8.) Check alternative mortgages like ARMs. Mortgage rates may be on the right but there are alternatives that come with lower rates. Homeowners with plans to keep a house for 7-10 years could choose 7-10 year ARMs in place of a 30-year fixed rate mortgage.
9.) Reconsider FHA Loans. First-time homebuyers always opt for FHA loans since they require small down payments and do not have overly strict underwriting standards. But those perks come with a price. FHA loans come with mortgage insurance premiums that are predicted to go up in 2014. It is better to apply for a conventional loan before trying for an FHA mortgage loan.
10.) Have no place for panic attacks. It is inevitable that mortgage rates will increase in 2014 but this is no reason to panic. For people shopping for homes, it pays to move quickly but buying a home is one of the biggest financial decisions anyone could make and it pays to wait and buy until you are ready.
It Pays to Act Quickly
With the 5% interest rate, buying a $300,000 house within the next few months will cost $1,610.46 in payments per month. With a lower 4.48% interest rate, a $300,000 house will cost just $1,516.49 per month. So a 3-month delay in applying for a loan could cost borrowers $33,829.20.Taking out a mortgage may seem daunting especially when rates are on the rise but being prepared and acting quickly can save borrowers from a lot of problems and from spending a lot of money as well.