Important Tips for Mortgage Borrowers That They Must Consider
So you are thinking to shift in to a new house or ready to upgrade to a larger one then just don't fall in a trap like most of the homebuyers by making some costly mistakes and common errors. Getting a mortgage is not as that simple as it seems. On the other hand it is a complicated process which needs patience and time. It is one of the most significant events of one's life as well if we talk it in financial terms. To get a good mortgage at lower interest rate you have to stay on the top of your game, keep your finances in order to grab best mortgage deals.
Here we discuss some pit falls that a mortgage borrower must consider so that you can take wise decisions.
Keep a record of your finances: The first major step for a mortgage borrower is to document his or her finances. Lenders are now extra diligent when underwriting home loans and new rules and policies put extra pressure on them to verify whether borrowers have the ability to repay loans or not. So a record or history of your finances like bank statements, tax returns and any other assets will surely help you to analyze your situation.
Know your rights as a borrower: Be aware of your rights as a mortgage borrower because there are many new mortgage rules created by Consumer Financial Protection Bureau which go into effect from January 2014. So, if you have any issues with mortgage servicer or fall behind your payments these new policies and rules surely would be a great help for you.
Don't apply for new credit alongside the mortgage: Be sure to avoid applying for any other type of credit before or during the mortgage application process. Whenever you apply for new credit along with new credit or auto loan around the same time then you are at greater risk. Your credit score might get rejected or kill your eligibility or bump up your interest rate.
Reconsider your FHA loan: Try to qualify for a conventional loans before applying for FHA loans. FHA loans have long been popular among first-time homebuyers because they require low down payments and less strict underwriting standards than conventional loans. But due to recent changes in Mortgage Insurance Premiums on FHA loans the borrowers are now required to pay mortgage insurance for the life of a loan.
Don't forget to lock your rate: If you are happy with your mortgage rate then just lock it. Mortgage rates change daily and sometimes several times in a day. All these mortgage rates are of no use or they are just quotes until you actually tell the bank, broker or lender to lock it. Once locked, your rate is guaranteed for a certain period of time.
Don't panic: It is true that mortgage rates are high in 2014 but don't panic by thinking you have to buy a now to grab a low rate. Instead have patience and shop around for a home and do your best to move quickly because it is one of the biggest decisions of your life. Get the mortgage and buy your dream house whenever you feel ready.
Some New Mortgage Rules and There Affect on Consumer
If you are looking to get mortgage loan then wait because form 26th April 2014, the lenders will be required to operate under new rules. These new rules which are coming in effect are the result of mortgage market review (MMR). The rules are mainly introduced to strengthen consumer protection and are applied across the whole industry and are supervised by the industry regulator, the Financial Conduct Authority (FCA). Most of the consumers are still unaware about these new rules and about their impact.
So take a look at these mortgage rules what they do and why they matter.
Taking a mortgage now takes more time: Earlier on mortgage interviews are short but now after the implementation of rules the borrowers need to answer several questions and thus mortgage interviews will be longer. Now mortgage lenders wants to determine which mortgage product is more suitable for the borrower according to his circumstances or credit history, what length of mortgage term is most appropriate, what other loan features are more suitable or whether he need fixed monthly interest payments or variable rates etc.
Be prepared to provide more details about your income, tax and expenditure: According to new rules there must be a careful and detailed assessment of mortgagee affordability. The assessment not only focuses only on the borrower's present circumstances but on the future as well and thus lender must take into account the income, expenditure and other basic costs reflecting the borrowers quality of living. So be prepared with your bank statements, tax returns, evidences of any overtime, pay slips form each job etc. If you are self employed then you have to provide the details of your expected business plans, business accounts, future projections of income etc.
How much you can borrow: According to new rules lenders may ask you several questions regarding your expenditure to which you are already committed so that he can make a realistic assessment of your commitments. According to new rules a stress test is to be performed on borrower to check the affordability of mortgage payments against higher interest rates. Due to stronger affordability checks it is possible that the new borrowers may find it quite difficult to get mortgage as compared with a few years ago.
Possibility to still take the interest-only mortgage: Lenders continuing to offer interest-only mortgage to the borrowers will need to ensure that you have a credible strategy for repaying the loans when it matures and they may even ask you evidences to support your chosen strategy like the statements if you have regular deposits into a saving plan, or ISA, pay slips from employers that show the use of bonus payments or other irregular sources of income etc.
The majority of lenders are switched to these new rules are applying these new rules in practice and for borrowers the major benefit of these rules is greater consistency in the approach whether this mortgage suits them or whether this mortgage is affordable for them in all circumstances.
Tips for Comparing Mortgage Quotes Online for Various Brokers
Mortgage Interest rates can change on a daily basis depending on market conditions and economic factors. It is important to compare mortgage quotes with accuracy. In most cases you want to get loan quotes all on the same day, so you can compare apples to apples. It doesn't matter whether you are comparing home equity loans, purchase loans or credit lines, get same day quotes. If you get several mortgage rate quotes from different lenders on various days, then you may be getting inaccurate interest rates.
Here are the inside tips to help you get to the bottom line:
- Interest rates can change on a daily basis, and sometimes even multiple times per day depending on economic factors. To compare accurate mortgage quotes, try to get quotes on the same day.
- For most types of loans, lender's rate sheets have pricing based on a lock period, which are offered in increments such as 15, 30, or 60 days. A lock guarantees the rate for a specific time. Longer lock periods usually have higher rates. Compare mortgage quotes for similar lock periods.
- Compare the average percentage rate (APR) for any variable mortgage or adjustable rate mortgage and have lenders quote the interest rate separate from other fees.
- You'll want to compare all fees separately. Be sure to ask what fees are for and for definitions of any terms you don't understand.
- Don't be fooled by other kinds of incentives, like cash back. Even if you are going to take that cash and put it directly against your mortgage, it's not necessarily a good deal unless you are getting the best mortgage interest rate possible at the same time. Often incentives are offered on longer-term mortgages, which are usually at higher interest rates than the shorter-term mortgages. Therefore, the lender expects to make more on you. That's how the lender can afford to give you the incentive.