2017 brings both a new year of opportunity and an expected increase in home sales. Determining the path of mortgage rates is much more complex; though low rates throughout 2016 may indicate a potential for low rates in 2017.
If you are in the market to buy a home or are interested in refinancing your loan, these tips may help you manage your mortgage in 2017.
Borrow Only What You Can Afford to Repay
Forward looking borrowers tend to stretch their initial monthly payments into uncomfortable territory. By stretching payments and spending more than your income allows can get you in trouble.
A safe and smart approach means you only borrow what you can afford to pay based on your current situation. Debt obligations come from many aspects of our lives, paying for too expensive of a mortgage can make meeting ends difficult.
Save by Refinancing into a 15-year Loan
While experts expect mortgage rates to remain the same or rise in 2017, refinancing can be a good option. Some reasons you may want to investigate refinancing include: divorce, recovering from low credit, removing mortgage insurance, maintaining positive home equity, cashing out home equity, and saving money if the rate is lower than your initial rate.
These are great reasons for refinancing because the process will place you in a more financially stable position. Refinancing into a 15-year mortgage can save you money in two ways. First, if the interest rate is lower than a standard 30-yr mortgage rate, interest is paid in a shorter time. Second, higher payments each month can expedite the payment process if you can afford the increase.
Always Maintain Savings
A major myth that homeowners hold is that using their savings to pay higher down payments is a good decision, though this is not always the case. Savings, whether it be liquid cash or near-liquid investments, enable mortgage holders to pay their payments during times of unexpected financial burdens. When you have reserves available in case of emergency, you can maintain a stable relationship with your lender by paying on time.
Your specific lender will calculate a minimum reserve needed to qualify for a mortgage to protect their investment in you. There is a possibility that the reserve requirements may require you to pay a down payment below 20% and that mortgage insurance will be necessary. If this is the case, holding off on the mortgage until more reserves can be collected is a great idea. Lenders are much happier to work with individuals who can afford regular payments, have good credit, and possess a small reserve of savings, than to receive a major down payment.
The depletion of saving reserves is a top home-buyer mistake! Do not fall into this trap.
Use FHA to Obtain a Loan with Imperfect Credit
The Federal Housing Administration (FHA) offers many insured loans which enable borrowers with imperfect credit to obtain a home mortgage. The average credit score in 2016 for an FHA homebuyer was near 686; whereas, the average homebuyer presented a credit score of 753.
To qualify for a FHA loan, a minimum credit score of 580 is needed, along with a down payment which can be as low as 3.5%. Higher down payments can enable homebuyers with credit scores less than 680 to get one too.
Show Patience during Underwriting
While applying for a loan based on your credit, it is important to maintain simple spending. Lenders will be evaluating your spending and historical use of credit to determine if you are a good or risky borrower.
Lenders also look at your credit score and report, meaning that substantial charges to credit can be a problem. Keep this in mind while you are attempting to apply for loans.
Consider Refinancing into a VA Loan
If you are currently eligible for a VA-guaranteed mortgage, and are interested in refinancing, you are in luck! Homeowners with mortgages can refinance their mortgage from a conventional type, specifically FHA-insured, into a VA loan. Although fees vary, you may be able to save a lot of money by refinancing your loans.
A Cash-Out Refinance May Work for You
A Cash-Out refinance is when homeowners decide to refinance their mortgage for more than the amount owed, allowing the borrower to pocket the difference. These types of mortgages were very popular during the real estate boom of the 2000’s, and have regained popularity as consumers seek new capital. Cash-Out refinancing can enable you to collect capital to do home improvement projects or for non-home uses.
Zero-Down VA Loans
Veterans Affairs-guaranteed mortgages are extremely popular, though commonly underused by homebuyers. An eighth of mortgages were guaranteed by the VA in 2016. Many veterans are unaware of the VA based loans which can benefit them.
VA loans are available to honorably discharged veterans, those on active duty, as well as spouses. Low rate benefits and zero-down payment required on specific loans can allow prospective homebuyers on the edge of committing to a home, the ability to purchase it.
No-Closing-Cost Mortgage Options
Closing costs can increase the final home purchase price quite a bit. By opting to pay for the closing costs and associated fees out of pocket, you may experience the lowest rates available. The typical no-closing-cost mortgages are attractive to individuals who plan on selling their home soon. If you are close to needing mortgage insurance, this may not be a good option as this can push your reserves below the needed threshold.
Small/ No Down Payments
Homebuyers typically associate mortgages with sizeable down payments, though this is no longer the norm. Prospective homebuyers can obtain a mortgage with low to no down payment required.
As always, consult with a licensed financial expert regarding your investments and financial decisions to make sure they are best for you.