Image courtesy of Flickr, audiencestack.com
It's a new year, and you're ready to buy a house. Before you do, consider some tips from mortgage experts.
Mortgage rates have been at historic lows for quite some time. But they've been starting to creep up since late 2016. Every time mortgage rates rise, it becomes more difficult for people to get a mortgage loan since their payments will also increase.
''For most of 2016, we saw 30-year fixed mortgage rates in the high 3s. For 2017, we expect to see 30-year fixed mortgage rates in the low to mid 4s,'' says Richard Airey, a loan officer with First Financial Mortgage in Portland, Maine. ''To put that in perspective, the difference in mortgage payment on a $200,000 30-year mortgage from a rate of 3.75 percent to 4.25 percent is $57.64 per month.''
Many people plan to buy in 2017, and the sooner the better, especially if they think rates will continue to rise. If you want to buy a house this year, we've asked some experts to chime in on their five best tips for getting a mortgage in 2017.
Many people can afford to make monthly mortgage payments, but they have a hard time saving up enough for the down payment. If putting down 20 percent would put you out of the game, you'll be happy to know that you don't have to put down that much.
''FHA allows for 3.5 percent down, and conventional (Fannie Mae and Freddie Mac) allow for 3 percent down,'' says David Hosterman, branch manager of Castle & Cooke Mortgage in Colorado. ''In addition, there are many national, state, and county grant programs that allow consumers to utilize grants for down payment assistance.'' Hosterman also says that many programs that are designed for first-time homebuyers aren't restricted to only first-time buyers. Ask your lender for information on how to take advantage of a low down payment or grant program.
You might already know that if you have bad credit , you might not be able to get a mortgage. You need a credit score of at least 580 to get an FHA loan. To get a conventional loan, you typically need a credit score of at least 620. If yours falls short, talk with your lender. ''A good loan officer will have resources to assist you with correcting any inaccuracies on your credit report and will be able to give you a plan to increase your credit scores,'' says Airey.
But besides having a good credit score , you also need to have a score. If you don't have any established credit yet, lenders don't know whether they can take a risk on you. The best way to establish credit is through use of a credit card. But there are other ways to establish credit. ''We take into account what are called ‘alternative credit trade lines,''' says Hosterman. ''These types of credit are anything from rental history, car insurance, utilities, monthly subscriptions services, and cell phone. We are looking for a pattern of good credit with those companies for a period of 12 months or longer.''
Lenders look at how much debt you have compared with how much money you make, your debt-to-income (DTI) ratio . The highest your DTI can be to get a mortgage loan is 43 percent. The lower your DTI the easier it will be to handle mortgage payments.
In 2017, with the possibility of interest rates rising, you may no longer qualify for a mortgage since your mortgage payments will be higher. ''Borrowers will now pay more per month for the same amount of loan compared to last year when the rate was lower,'' says Thomas Miller, a Realtor with Keller Williams Capital Properties in Washington, D.C. ''Since lenders use the debt-to-income ratio when calculating the maximum amount a borrower can borrow, for some buyers this will mean the amount they can borrow, and thus the maximum sum they can purchase, will be less.'' So you may need to buy less of a home or try to pay off some debt.
Check with the U.S. Department of Housing and Urban Development to see whether you qualify for a home buying program for your state. You can also talk with mortgage lenders to find out what might be available to you. You might need to shop around to get answers since not all loan officers are familiar with all the programs available.
''Not all lenders will have access to first-time homebuyer loan programs,'' says Reba Haas, Realtor and volunteer for the Washington State Housing Finance Commission . ''Many states, like Washington, have special loan programs available for people in certain income levels, and they're not available to all loan officers.'' Her pro tip: ''Check to see if the Mortgage Credit Certificate program is available in your area. It's an amazing way to save not only on taxes, but to qualify for more purchasing power.''
Whether interest rates go up, down, or stay the same, you still need to be able to afford to pay your mortgage and all that goes along with owning a house before you apply for a mortgage this year. Find out whether you can afford to buy a home , and if you do, how much house you can afford by using a Mortgage Affordability Calculator .
''Ultimately the decision to buy a home should be much more heavily based on buyers' personal situations, rather than macroeconomic trends,'' says Brian Davis, a real estate investor with Spark Rental. ''No one should buy a home unless they are 100 percent certain they can comfortably afford it, and they shouldn't buy unless they plan to own it for at least a few years.''
Although interest rates may be rising, mortgage insurance and loan fees may be declining. ''The FHA announced they are reducing their mortgage insurance premium by a quarter percent,'' says Tracey Hampson, a real estate agent with Century 21 Troop Real Estate in Santa Clarita, California. ''That is great news for homebuyers.'' Airey points out that this reduction on a $200,000 mortgage equates to a savings of $41.35 per month.
Bobby Atkisson , loan production office manager for Community First National Bank in Missouri, says that the over regulation we have seen in the past seven years to get a mortgage will loosen, resulting in lower fees. ''Fees will get cheaper in 2017. A lot of the fees you see these days have to do with over regulation. As regulations decrease, so will fees.'' He adds, ''Even if rates do increase a little, the mortgage insurance decrease may offset the extra cost.''
Just because interest rates are rising slightly, it's still a good time to buy a home if you're ready. ''In my opinion, it makes sense to buy sooner than later,'' says Hosterman. ''Buying a home is a big investment that can pay dividends in the long-term and is potentially a great source of future retirement.''
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