The mortgage landscape is constantly changing. The minute you think you know what will happen next a curveball comes out of nowhere. The one constant is that buyers are going to rely on banks to finance their new home purchase. While much has been made about the difficulty in getting loans closed hundreds of purchases are being closed every day. In recent months there have been changes that could impact your purchase in 2016. If you are considering buying in the coming months here are some mortgage trends and advice you need to be aware of.
Longer average closing time. In October of this year the government rolled out a new set of loan disclosures aimed at making the closing process as easy and transparent as ever before. The new rules, called TRID, basically combine the loan estimate and one closing disclosure. While this makes the process much easier for the borrower it also adds many additional days of underwriting. The loan cannot be looked at before three days after the initial package is received. There are also electronic documents that must be signed by the borrower before the loan can move forward as well as delays in producing the closing package. With the addition of a few new forms as well as changes in underwriting policy loans are taking much longer to close. The current average is approaching 45 days. This has to be factored into your rate lock and what you plan on doing with your current residence.
Understand PMI.Anytime you put less than 20% down payment for your purchase you are subject to PMI (Private Mortgage Insurance). This is the case whether you take a conventional or FHA mortgage. While the FHA offers lower interest rates and more flexible guideline it comes with a bit of a catch. With a conventional loan you can contact your lender to waive the existing PMI payments once the property gains 20% equity. The process varies by lender but typically all that is needed is an appraisal. With an FHA loan the PMI stays for the life of the loan. What you may save with a reduced interest rate will be more than offset by the PMI payment. Before you dive into any loan product you need to know everything about it.
Rates may be rising. After years of historically low interest rates there are signs that they may be on the rise. The FED recently upped the prime rate for the first time in years. This isn’t a direct reflect on mortgage rates but is often a strong indicator. In the past few weeks rates have drifted to their highest point of the year. The fact is that rates weren’t going to stay this low forever. Even if they hit 5% on a 30 year fixed you are still looking at a great rate. It was only just over ten years ago that rates were over 8%. Trying to predict where rates will go is a difficult task but you can expect them to edge up in the coming year.
A prequalification letter from months ago may not be worth too much today. Call your local lender or mortgage broker and find ask about any changes in guidelines that could impact your approval.