If you've been thinking about applying for a new home loan or refinancing your current one, the time to act is now! Record-low mortgage rates and rising home prices are both reasons why 2013 is a great year to apply for a new or refinanced mortgage. Here are 6 tips to help you on your journey:
1. Stop stalling
If you haven't refinanced your mortgage, chances are you are paying a higher interest rate than you have to.Mortgage rates are at all-time lows, and will remain that way for the first few months of 2013, but economists expect rates to gradually increase as the year continues. So why not save a few bucks each month by paying less on your mortgage? Even if you're underwater on your current loan and have been denied a refinance before, try again. The Home Affordable Refinance Program (HARP) was recently revamped to allow homeowners to refinance, regardless how deeply underwater they are.
2. Go buy
If you're a prospective buyer, now is the time to act. Home prices are still low enough where they are affordable, yet are on the rise – meaning the value of your investment will soon increase. Take advantage of a housing market where homes are still selling below their value, and where you can get a mortgage with a record-low rate! Home prices and interest rates will continue to go up as the year progresses, so the longer you wait, the more money you're going to have to spend.
3. Check your credit
This one always makes the list, and with credit standards stricter than ever, this tip is especially important in 2013. Most lenders require a minimum credit score of 720, and want to see at least a year of clean credit history. That means no late or missed payments. Also, they want to see how much debt you have. If you’re using more than 30% of the credit available on your cards, it can hurt your score. So if you can afford to do so, pay down your credit cards before you apply for a mortgage. Also, make sure your credit report doesn’t have any errors before you meet with a lender.
4. Shop around
Don't just meet with one lender. While their standards for mortgage approval may be stricter these days than in years past, banks still want the business of borrowers who have a good credit history of paying off debts. If you're a responsible borrower with a good credit score, chances are you'll get approved by more than one lender. So, meet with a handful to see who can give you the best deal!
5. Compare different types of loans
Generally speaking, anyone who can't afford to make the typical 20% down payment on a conventional loan tends to opt for a loan insured by the Federal Housing Administration (FHA). While it's true that FHA loans require a smaller down payment (3.5% of the total loan), these types of mortgages come with additional fees, like insurance premiums. The FHA is now in a financial bind, so their standards for loan approval have increased, and so have the fees associated with that type of mortgage. Ask your lender about conventional loan options with a smaller down payment percentage, sometimes as low as 5%. These loans can sometimes cost less in the long run than a FHA-insured loan.
6. Once approved, leave your credit alone
Most lenders order a second credit report a few days before closing to make sure your credit hasn't changed, yet many borrowers aren't aware of this. So, don't go charge that new bedroom set for your new home until after your closing date. If you barely qualified, those new charges may get you rejected right at the last minute. Remember, nothing is final until your closing date. Even if you've been approved for a mortgage and locked in an interest rate, none of it is legally binding until everyone has signed the paperwork!
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