5 Mortgage Tips for Home Buyers

1) Be Prepared to Document Your Finances

Buyers should be prepared for extra review by lenders when underwriting mortgages due to new mortgage regulations that took effect in January, particularly in proving borrowers’ ability to repay their loans. Borrowers should be prepared to show bank statements, tax returns, W-2s, investment accounts, and documentation of any other assets they own.

Also, they should be prepared to explain any large deposits to their accounts—even a $500 check from a family member during the holidays. If they can’t prove where the money came from, it has the potential to delay closing.

2) Lock in a Rate Soon

Mortgage rates are expected to rise as the Federal Reserve winds down its $85 billion per month bond-buying stimulus program. A rate lock is usually good for 30, 45, or 60 days, although that time period can vary among lenders.

3) Shop Around

Buyers may have the upper hand this year. Lenders have lost a large amount of their refinance business this year as rising rates encourage fewer homeowners to refinance. That means they are turning their attention to homebuyers and may be more willing to compete for their business. Homebuyers will want to shop around for more than just the best interest rate on the loan, looking at points and closing costs as well.

4) Pay Careful Attention to Credit

The best mortgage rates often go to borrowers with credit scores of 720 or higher, Bankrate reports. While those with a credit score of 680 can still likely qualify for a loan, they may end up paying higher rates or higher closing costs.

5) Watch Your Spending

Don’t be tempted to go outfit your new home with all new furniture – on credit – before closing on the home loan. Lenders will be carefully scrutinizing your debt obligations, such as credit cards and student loans. Borrowers are advised to keep their monthly debt obligations, including mortgage and property taxes, to below 43 percent of income.

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