Home sales are sure to increase, and a brand new president will occupy the White House; these are two statements about 2017 that can be said with absolute certainty. When it comes to mortgage rates, however, the predictions are less clear. 2016 saw low rates, but they could rise in 2017; there isn’t room for them to go much lower.
Regardless of whether you plan to buy a home or refinance a loan, here are 10 mortgage tips to help you save money during 2017.
1. It is possible to not make a down payment
Lenders frequently inform clients that the days of making a 20% down payment are long-gone. Some loan programs require a down payment as low as 3 to 3.5 percent, while other programs require no down payment at all.
Borrowers who qualify for the Department of Veteran Affairs program are offered zero-down mortgages. To qualify, you must be a veteran, an active-duty service member, or a member of the National Guard or Reserves.
The U.S. Department of Agriculture offers zero-down to buyers in rural areas as part of its Rural Development initiative.
Qualified members of the Navy Federal Credit Union are offered zero-down mortgages to purchase primary residences.
Lastly, the Federal Housing Administration allows down payments of 3.5 percent on mortgages it insures. Other lenders provide mortgages with a down payment as little as 3 percent if you have private mortgage insurance.
2. The FHA will give out loans to those with imperfect credit
You don’t need stellar credit to qualify for a Federal Housing Administration loan. The average homebuyer has a credit score of 753. For an FHA borrower, it was 686.
A minimum credit score of 580 is required for FHA-insured mortgage that has a down payment of 3.5 percent. If your credit score is between 500-579, a down payment of at least 10 percent is required. In that case, however, you must first find a lender to approve the loan.
3. Make sure to keep some of your savings available
Mortgage lenders advise against spending all of your savings on closing costs and the down payment. If unexpected costs were to arise, you would need a way to pay for them without missing a house payment.
Your lender will calculate the minimum amount of money you need to have in reserve in order to qualify for a mortgage. Sometimes, more needs to be kept in reserve than anticipated, which leads to you making a down payment of less than 20 percent. This subsequently requires mortgage insurance. In this specific scenario, you would have to walk away from the deal and stockpile your funds in order to avoid needing mortgage insurance.
Lenders would prefer that you have a rainy day fund, even if it means that you need to make higher house payments due to mortgage insurance.
Running out of money in your savings is one of the five critical mistakes first-time homebuyers make.
4. You can save money by refinancing into a 15-year loan
Despite mortgage rates being expected to rise in 2017, it may be beneficial to some homeowners to refinance. There are a few reasons to do so, depending on your situation:
– Recovering from bad credit
– To do away with mortgage insurance
– Positive equity
– To cash out on some of your equity
– To save money long-term
The last option applies to a 15-year mortgage, and it saves money in two separate ways: 15-year mortgages have lower interest rates than 30-year loans and interest is paid over a shorter period. While the monthly payments will be higher on a 15-year loan than they would be on a 30-year loan, you will pay less total interest.
5. Only borrow what you can afford
First-time homebuyers will often stretch their funds in order to cover the initial payments. They do so under the assumption that their incomes will definitely increase over time.
However, it is much smarter to live within one’s means; buying an expensive home should come after the big raise. A general rule is all of your monthly financial obligations, house payment included, should be less than 36 percent of your gross income.
For example, if you take home $5,000 each month, your monthly house payment, credit card, child support, student loan payment and other payments should not exceed 36 percent of $5,000, which in this case is $1,800.
Those with a higher credit score and more money in the bank will be able to make a higher house payment. However, if you exceed the 36 percent guideline, there will be very little money left over to enjoy yourself and save for the future.
6. Make sure to ask about a mortgage without closing costs
Typically, mortgages require thousands of dollars in fees and closing costs. Paying out of pocket will allow you to get the lowest possible interest rate. Choosing to accept a higher interest rate may allow you to avoid most, if not all, of the closing costs you would typically encounter.
For example, if you pay the closing costs yourself, you may be offered a rate of 3.75 percent. Another option is to take a 4.125 percent interest rate, but have the lender cover the closing costs.
The people who benefit most from this type of plan are those who intend to sell their newly purchased homes within the next five years. If you plan on staying longer than five years, it would save you money to pay the closing costs yourself and take the lower interest rate. One should be careful not to cover the closing costs if it will affect your down payment, as then you may need mortgage insurance.
7. Pursue a zero-down VA loan
While Veterans Affairs mortgages were already mentioned, these types of loans are typically underused.
In 2016, according to the Mortgage Bankers Association, the Veterans Association guaranteed one-eighth of mortgages. Yet, in 2010, a survey found that many veterans who were looking to purchase homes were not aware of the VA loan benefits. Approximately 25 percent of active-duty military personnel did not know they were eligible for this type of loan.
Perhaps those same active-duty members thought those loans only applied to those who were already retired or had been discharged. VA loans are available to those who have been honorably discharged, personnel on active duty, or those who have served for at least six years n the National Guard or certain Reserve units. Surviving spouses of a deceased veteran are eligible in some circumstances, as well.
VA loans are so enticing because they allow one to bypass the down payment when buying a home.
8. Cash-out refinancing may be a good idea
Cash-out refinancing occurs when the homeowner refinances their home for more than the amount they owe. The borrower then pockets the difference in funds.
Cash-out refinances were popular during the early 2000s when real estate was booming. Then, the housing bust happened, and billions of dollars in equity virtually dissolved. Today. Now that home values are on the rise once again, cash-out refinances have once again returned.
A home equity loan or lines of credit are other ways to get cash from equity. If you intend to spend the money in a short period of time, such as a wedding or a vacation, a home equity loan or line of credit are good options. If the money is going to be spent over a longer period of time, such as adding onto a home, then cash-out refinancing is a better option.
9. You could refinance into a VA loan
If you qualify for a VA-guaranteed mortgage, it may be possible for you to refinance your conventional mortgage into a VA loan.
In most cases, you can refinance up to 100 percent of the current value of your home. This allows you to cash-out refinance by using a VA loan. Funding fees for cash-out VA finances range from 2.15 percent to 3.3 percent, and that fee can be added to the balance of the loan.
10. Underwriting requires patience
Holding onto your finances tightly is recommended when you apply for a mortgage until you close the loan.
While this sounds simple, it can prove to be very difficult, especially for first-time buyers. Having a little discipline and avoiding credit card debt or applying for new credit are necessary while underwriting is occurring.
A lender looks at your credit report and score when you apply for a loan. Right before closing, they look at both once more. If, during this timeframe, you managed to rack up a large amount of credit card debt via purchasing furniture and appliances, the lender may delay closing for your mortgage. In certain cases, you could ruin your chance at a mortgage and have to reapply.
Applying for new credit before you’re cleared is one of the three major ways to ruin a mortgage closing. For more tips, [Click Here].