Many people made buying a new home one of their New Year’s resolutions. Unfortunately, the market for mortgages is changing in 2014 and it may be more difficult to secure a loan. Here are some changes that you will need to prepare for and tips to help you get the loan you need.
Look for a Loan Before the QE Taper
The Federal Reserve has announced that it finally plans to begin tapering its quantitative easing program this year. This means that interest rates are going to start increasing in the near future.
Anyone that is interested in buying a new home should start looking at mortgage rates right away. Interest rates have already increased by 1.2% since the same period last year. They are still only slightly over 4.5%, but could increase very quickly as Federal Reserve Chairman Ben Bernanke begins to scale back on the monetary stimulus program.
Prepare for More Stringent Documentation Requirements
A series of new financial regulations are going into effect this month. Banks will be required to check financial records much more stringently.
You will need to make sure that all of your financial records are in order before applying for a loan. You should always need to make sure that you have all your banking statements, tax returns, credit report and investment records before going to the bank. Banks have always looked at these financial documents, but they will be scrutinizing them much more closely this year.
One difference is that they will be looking much more closely at your deposits. You will need to be prepared to explain any withdrawals over a couple hundred dollars.
Banks will also be required to hold customers to stricter standards. They will not be allowed to lend money to customers that would be paying more than 43% of their income on mortgage payments. Most lenders already have higher debt-income requirements than this, but you will still need to be prepared to work harder to prove that you are making enough to make your payments.
Use Increasing Mortgage Rates as Bargaining Chips
Higher mortgage rates are obviously a burden for anyone buying a new home. However, there are also ways that you can also use them to your advantage.
Many existing homeowners have become reluctant to refinance their mortgages. Banks are trying to make up for their lost business from current homeowners by turning to new homebuyers. This gives you more power if you are seeking a loan for a new house. Try to be more aggressive when negotiating new rates.
Prepare for Fewer Lending Options
The Consumer Financial Protection Bureau has passed new regulations that restrict the types of loans that lenders can issue. Here are some new changes that you will need to prepare for:
- Interest only bank loans will be banned.
- Bankers can no longer offer loans with terms over 30 years.
- Most subprime loans will be taken off the market.
You will need to be prepared for these changes in the coming year. You will need to make sure that you qualify for a standard loan if you want to purchase a house.
About the author: Kalen is a millennial and finance writer who shares tips for people trying to acclimate to changes in the economy.