New lending rules that are part of the Dodd-Frank Act took effect on January 10th and will effectively make it more difficult for many people to get a home.
Time is running out for home buyers who are seeking to get the home loan they want at an affordable price. If you want to stay ahead of the curb and rising rates, then you must understand how purchasing a home in 2014 is going to look different from how it did just one year ago.
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1. Manage Your Finances
Getting your debt-to-income ratio (DTI) as low as possible is very important when you’re considering buying a house. In 2013, lenders would consider granting a home loan for borrowers with DTI ratios at 48% or even 50% depending on their credit. But in order to stay compliant with the new lending regulations lenders aren’t able to give loans to borrowers with DTI ratios above 43%. If you find yourself just north of this mark, then plan on cutting back any discretionary spending in order to get below 43%. Or, if you can, try to make more money.
2. Waiting Costs Money
Mortgage rates are expected to climb in 2014. The Federal Reserve has just begun to taper its bond buying program that has been artificially keeping rates low. With that restraint on the market slowly beginning to disappear, it’s likely that interest rates could surpass 5% for a 30-year fixed rate mortgage before the end of the year. Locking in a low interest rate while it’s still possible is not only smart, it’s going to save you a lot of money.
3. When Banks Compete, You Save
Rising mortgage rates have caused a decline in refinancing applications recently. This means that mortgage lenders are more aggressively targeting potential home buyers. And increased competition is one of the key factors that helps drive down prices. Those looking to purchase a home should keep this in mind and shop around for the best prices.
4. Manage Your Credit
It can be very difficult to get a home loan without decent credit. Good credit is a lot like your reputation. It takes years to build up, but it can be completely torn down with one or two careless mistakes. Just ask any man who has forgotten to get his wife something for their anniversary. It’s much easier to maintain good credit than it is to repair it, though it’s not impossible.
The best mortgage rates are typically reserved for borrowers with scores of 720 or higher. Though it’s possible to get a loan with a score of 680, higher closing costs and mortgage rates will apply for these loans. But don’t despair if you want to buy a house and your credit isn’t all that it should be. There are FHA loans specifically designed for borrowers with poor credit. They have made the dream of owning a home a reality for thousands of Americans. And an FHA loan could make that dream a reality for you, so contact a local FHA lender today.
