8 Mortgage Tips for 2018
All signs point to another great year for real estate. So, if you are buying a home or thinking of refinancing, you’ll want to keep these mortgage tips in mind for 2018.
Tip #1: You May Not Need 20% Down
Traditional loans often require up to 20% of the purchase price of the home for a down payment. However, there are many loan programs available that require far less – some even require no down payment.
- VA Loans: This is a 0% down loan for veterans, active-duty military, and some members of the National Guard and Reserves.
- Rural Development Loan Program: This 0% down mortgage program works for homes in eligible rural and suburban areas.
- Navy Federal Credit Union: Offers 0% down loans for qualified members on primary residences.
- FHA Loan: Offers loans with as little as 3.5% down to qualified applicants.
Tip #2: You Can Get a Loan With Less Than Perfect Credit
FHA loans are available to those with mediocre credit. As long as you have a credit score that is 580 or better, you can qualify for a 3.5% down loan. However, if your score is lower but not below 500, you may still qualify for an FHA loan as long as you have 10% to put down.
Tip #3: Don’t Deplete Your Savings Account
In addition to saving money for a down payment and closing costs, your lender will want to see that you have some savings left over. They feel more comfortable lending to someone that can take care of emergency expenses without having to miss their house payment. Talk to a lender to determine how much you need to have in savings to qualify for a home loan.
Tip #4: Consider Refinancing Into a 15-Year Loan
Many homeowners choose to refinance their home in order to save money. When you refinance into a 15-year loan, you can save in two ways:
- Shorter mortgages have lower interest rates
- You pay interest over a shorter period of time
Be sure that you can afford the new mortgage payment. It will likely be higher than your 30-year mortgage, but the overall savings often make it desirable.
Tip #5: Don’t Borrow More Than You Can Afford
It is not uncommon for home buyers to buy a home at the top of their limit. The hope is that, in time, their incomes will increase. However, it is a much better idea to buy a home that is within your current means. This will make paying your house payment much easier. How much house should you buy? Of course, it is up to you, however, a rule of thumb is that your debt should not be more than 36% of your gross income.
Tip #6: See If a No-Closing-Cost Mortgage Is Right For You
A traditional mortgage will often cost you between 1 and 3% of the price of the home. By paying for these fees out of your own pocket, you can often get a lower interest rate. However, it is possible to accept a higher interest rate and have the lender pay some or all of the closing costs. This is a good idea for those planning to stay in their homes five years or less.
Tip #7: Consider a Cash-Out Refi
A cash-out refi is when you refinance your home for more than the amount that is owed on the house. You keep the difference and can use the money for any purpose. This is best used when wanting to make big renovations to your home, such as an addition.
You can also choose to open a home equity line of credit. This allows you to use the equity in your home at a low interest rate. This is a good way to get money for short-term events.
Tip #8: Don’t Be Foolish During Underwriting
During the underwriting process, you need to keep your finances as steady as you can. This means you should not open new credit cards, put a lot of debt onto a credit card, skip debt payments, be late on payments, or start a new job. Your lender will look at your credit before you begin house hunting and then again right before closing. If there have been substantial changes, the closing can be delayed, or you may even need to reapply.
If you’d like more mortgage tips, please give us a call. We’d be happy to provide you with information as well as a list of our preferred lenders.