The housing market, and with it, the mortgage landscape, have changed dramatically over the past two years.
Rules for scoring a low-interest mortgage have become stricter, and homebuyers must be savvy and well prepared to land any home loan. Below are 10 tips to make your homebuying and refinancing odyssey more successful in 2010.
Consider an adjustable-rate mortgage.In late 2009, one in 20 borrowers was obtaining adjustable-rate mortgages. As mortgage rates rise in 2010, the proportion of ARM borrowers is expected to grow.
The most popular adjustable is the 5/1 ARM, which carries an introductory rate that lasts five years, and then can change annually thereafter. Typically, the introductory rate on 5/1 ARM is lower than the rate on a 30-year fixed. That makes the 5/1 ARM a viable option for borrowers who are sure they will sell their homes within five or six years, before the monthly payments have a chance to skyrocket.
A fixed-rate mortgage is probably the safest option for homebuying. But for people who plan to sell their homes within a few years, a hybrid ARM is worth considering.
Get your loan early in the year.The Federal Reserve plans to stop buying mortgage-backed securities by the end of March. Most mortgage experts believe that rates will rise when mortgages go off Fed support as private investors require higher rates to compensate for the risk.
Know your credit.As the mortgage world goes back to basics, good deals require high credit scores. Until recently, it took a credit score of 720 or higher to get the best combination of fees and points. Now the best homebuying deals go to borrowers with credit scores of 740 or higher.
Ask for three or four loan scenarios.Instead of focusing only on the interest rate, consider more than two combinations of discount points and loan type.
Let's say your best guess is that you'll live in the house for eight years. Compare the total fees and monthly payments that you would make under three or four different loan deals. Ask yourself how much it would cost to pay zero discount points and get a higher rate compared to paying discount points in exchange for lower rates. What about a 5/1 or 7/1 ARM?
Refinance for the remaining term.When refinancing a 30-year mortgage, too many people start from the beginning again. When you refinance a 30-year loan that you've had for five years, pay off the new loan in 25 years. Just ask the lender to amortize the loan for the remaining period of the old loan.
Know your numbers.The housing boom busted more than three years ago, and still people are tempted to take on too much debt. Let the Federal Housing Administration be your guide for homebuying.