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Best mortgage tips for 2016

Starting from January 2015, the mortgage rate didn’t increase too much. 30-year mortgage crossed the 4% mark surprisingly only 7 times in a row. Rest of the year, it remained under 4%. At the end of the year, the rate was increased by 0.30% in total and became 3.96%. Anybody knows how would be our next year?


No matter whether or not the rates increases or decreases, borrowers can avail the best chance to get the lowest rate just by educating themselves about the mortgage process.

Below given tips can help you navigate your mortgage process in the right direction in 2016:

1. Pre-approval

Sellers often prefer the buyers who approach to them after getting pre-approved by a lender. Sellers often find their deals much more attractive than the rest of the buyers. A pre-approved mortgage may also help you avoid any critical issues down the line.

With a real pre-approval, a bank loan officer or a mortgage broker will collect your credit report and submit required documents to an underwriting system. The bank will provide you more accurate loan terms after considering your credit score, debts, and income. It also gives you a helpful push to advance in the process when you finally work on the contract and close the deal faster.

2. Mortgage insurance

Many new homebuyers can’t manage to gather enough cash in their hands to make a 20% down payment. So, they normally need to pay for mortgage insurance as a part of their monthly mortgage installments. This mortgage insurance protects the lenders if a borrower fails to pay off the entire loan.

Until late 2015, Fannie Mae and Freddie Mac needed at least 10% as down payment. This situation compelled many homebuyers to look for Federal Housing Administration-insured loans. FHA have a minimum down payment of 3.5 % for new home-buyers. But, the main issue is that FHA requires premiums, which are much costlier than private mortgage insurance.

But in 2016, qualified borrowers can be able to get Fannie Mae and Freddie Mac-backed loans with as low as 3% down payments. Lenders calculate the mortgage insurance premiums by considering credit score and size of the down payment. But, private mortgage insurance premiums are normally more affordable to the borrowers than FHA mortgage premiums.

3. Credit profile

When you decide to borrow a loan for your house purchase, avoid increasing credit burden in your report. It really matters while getting a pre-approval and closing of the deal. Excessive credit creation may damage your credit score such a way that the lender may increase the interest rate and fees related to your loan. It may also happen that lenders may keep you from qualifying a mortgage.

Don't open or close any credit cards. Try to maintain sufficient balances in your existing cards so that it won't hamper your debt-to-income ratio. DTI ratio is a key factor, which helps the lender to determine mortgage interest rates. Try to keep yourself away from buying any life purchases, like - car, new LED television, new jewelry, etc. Your mortgage lender would care if you pile up some big payments over your head every month.

4. Financial papers

Keep and organize every piece of financial document in the two months till buying a new house. Financial documents may include bank statements, paystubs, details of checking and investment accounts, W-2s, tax returns (last 2 years), canceled rent checks and property tax statements, etc. Convert these documents in PDF format, it’ll be easier to mail these to your mortgage broker.

5. Money habits

In the months leading up to your home buying, if possible, keep yourself away from the finances. Don’t move your money from your savings into a certificate of deposit, or CD. It’s better if you avoid cashing your investments, such as stocks, retirement accounts, CDs, etc. Otherwise, you’ll make a huge mess for yourself as you’ll try to indicate the bank the trail of your money source. Avoid paying off debts by using your savings, as your lender might get worried about how you’ll pay off the closing costs.

6. Letters

Lenders will scrutinize every financial aspect of your life, and if they find something unusual even just a little bit, they’ll ask you for a written letter (with the reasons). That means you may have to be prepared for writing a letter with explaining every aspect they would want from you.

For an example, they may want an explanation about a latest credit report checking that happened 6 months ago, or, why your brother issued a check for $1000 on Thanksgiving, etc. Lenders may also want to know the reasons behind your sudden job change, or how many times you’ve changed your apartment, etc. Don't argue with them, explain your reasons in the letter, send them, and go forward.

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