Mortgage Tips for The New Year- Part #1
Was one of your New Year’s resolutions to finally buy your first house? If so, these mortgage tips will help you navigate the mortgage process with ease.
Tip #1 – Pay Less Mortgage Insurance
Conventional loans require a home buyer to make a 20 percent down payment and many home buyers don’t have enough cash on hand to make that down payment therefore they are required to pay for mortgage insurance as part of their monthly payment. This insurance protects lenders if a borrower should default on the loan. Until late 2014, Fannie Mae and Freddie Mac required down payments of at least 10 percent. This requirement pushed many home buyers into Federal Housing Administration loans or FHA loans, which have a 3.5 percent minimum down payment. The problem is that FHA premiums are costlier than private mortgage insurance. But in 2015, qualified buyers will be able to get Fannie and Freddie backed mortgages with down payments as little as 3 percent. These premiums will be dependent on credit scores and the size of the down payment. Private mortgage insurance premiums are generally more affordable than FHA premiums.
Tip #2 – Get a Thorough Pre-Approval
Sellers often prefer buyers who come with a pre-approval by a lender. This makes their offer more attractive and can help to avoid any problems that may arise down the line. If you are looking to get a pre-approval, a mortgage broker or bank loan officers will pull your credit and submit any supporting documentation to their automated underwriting system. This allows the bank to give you more accurate loan terms based on your actual credit score, debt obligations, and income. This will also help you to get ahead of the process when you find the home you want and are ready to go into contract.
Tip #3 – Monitor and Maintain Your Credit
When you are deciding on buying your first home one of the most important factors to consider is your credit. In the months leading up to your home purchase you want to avoid changing your credit obligations, especially between your pre-approval and the closing of your mortgage. The reason for this is because it could hurt your credit score in a way that could raise your fees, interest rate, or worse case scenario, keep you from qualifying altogether. Don’t close or open any credit cards, keep the balances within a normal range, and do not buy a new car. Doing any of these will change your debt-to-income ratio which is a key factor in determining mortgage rates.
Tip #4- Get Organized
When you go to get an approval for a loan your lender will need several documents from you in order to go through with an approval. This means saving pay stubs, bank statements from checking and investment accounts , W-2s, tax returns for the previous two years, and any mortgage or property tax statements for other properties you own. Since we live in a technology based world, most lenders prefer them to be sent via email so be sure to save these documents in a PDF format.
Tip #5- Don’t Move Around Your Money
In the months leading up to your home purchase, do your best to keep your hands off of your finances. Don’t move around money from your savings account to your checking account or into a Certificate of Deposit, or CD. Do not cash investments from stocks, retirement accounts or CDs. This will create a headache for yourself as you try to show the bank your paper trail of where that money came from.
Stay tuned next week as we give more mortgage tips for 2015!
