Last year, the nation saw the housing recovery continue, with the median existing home price in November 2013 climbing to $196,300, up 9.4 percent from November 2012, according to the National Association of Realtors. But as would-be buyers look to a new year, experts say there’s much to consider that could make purchasing a home tougher — especially for those with financial challenges. Lawrence Yun, NAR chief economist, says higher mortgage interest rates, reduced inventory and new mortgage rules could cramp sales in 2014.
New mortgage regulations affect debt-to-income ratio
New mortgage regulations that take effect on Jan. 10 take away much of the autonomy lenders may have had for borrowers relative to debt ratio, says Rod Alba, vice president and senior counsel of mortgage policy for the American Bankers Association. The new regulations — created by the federal Consumer Financial Protection Bureau, established through the 2010 Dodd-Frank Act — now require mortgages to be evaluated based on the borrower’s ability to repay that loan. In order to get a “qualified mortgage,” which the CFPB deems a safe mortgage, the borrower must have a total monthly debt-to-income ratio including mortgage payments of 43 percent or less. Interest-only loans, widely available during the housing boom, are not considered a qualified mortgage, according to the CFPB.
How to prepare before buying a home
Kristie Smith, a Realtor with highly rated Indy Homes Team in Indianapolis, says in general, for those looking to buy a home in the next 12 to 24 months, adopting an austere lifestyle is critical, especially for buyers who need time to build stronger credit to meet that new debt-to-income ratio.
Prior to starting your home search, Smith recommends doing the following:
• Get a copy of your credit report. Is it accurate? Are there any surprises? If you have a lower score than expected, you have time to work on credit repair. A score of at least 720 is ideal, and a qualified mortgage lender or financial advisor can help you meet that goal.
• Be sure to pay all bills on time each month. Even one late payment can negatively affect your credit score.
• Pay off any unnecessary debt, such as a car loan, and strive to pay down credit cards to less than 50 percent of their available credit limits.
• If you currently own a home, know your mortgage balance. How does it compare with the current value of your home? Understanding how much equity you have in your home will help you plan for your next down payment on a new home.
• Save for a down payment. The most cost-effective strategy requires a 20 percent down payment, which will lower your mortgage payment and help you avoid expensive private mortgage insurance (which can add hundreds of dollars to your monthly payment).
• If you are self-employed, make sure you pay yourself. Joel Berman, a highly rated certified public accountant in Largo, Fla., says this sounds elementary, but there are many reasons a business owner may not receive a monthly paycheck. However, the new federal mortgage regulations require buyers to prove income, Berman says.
• Berman adds that for those considering buying a second home ask yourself: Can you afford a second home without renting it when not in use? The markets in traditional vacation spots, Berman says, including Florida and Arizona, are flooded with homes available for rent. So before you buy, make sure you can fund any second mortgage independent of earned income from that property.
April Partida is a Professional, Experienced and Results Oriented, Top Virginia Beach VA Realtor committed to meeting your needs.
April has distinguished herself as a leader in the Virginia Beach Virginia real estate market. April assists buyers looking for Virginia Beach VA real estate for sale and aggressively markets Virginia Beach homes for sale. April is also a Short Sales and Foreclosures Resource Specialist (SFR). Avid foreclosure and short sale expert, committed to helping families in financial hardship find options to foreclosure.
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