Things to keep in mind when borrowing money for a home

Ready to buy that dream home. Mortgage Master shares five tips for home buyer in 2014. There are new mortgage laws that goes into effect January. 

Have all your documents prepared before your house search. Have your tax returns, recent payroll stubs, recent bank statements, W-2 form and investment accounts in your portfolio. Also make sure all your bills are up-to-date. 

Good credit is imperative if you want to get a good mortgage deal. If your credit score is not where it needs to be, there are ways to increase it. Credit Karma has good advice that works to help you better your credit. Check your credit bureau reports for changes in your credit score. Monitor your credit score right up to the closing of your home. Most lenders prefer a minimum credit score of 620. 

It is predicted that 2014 rates are expected to climb. Don’t worry too much about mortgage rates climbing rapidly though. Search for your home relatively quickly, but take time to make sure you are ready to make an important decision. Buying a home is a big deal and you want to make sure you get it right the first time. 

The Consumer Financial Protection Bureau released new mortgage rule resources for consumers called the “ability-to-pay”. Consumers are protected by “requiring mortgage lenders evaluate whether borrowers can afford to pay back the mortgage before signing them up.” 

Your debt-to-income ratio should not be too high either. If it’s high, that will effect your ability to purchase a home based on the new rules. Keep your spending to a minimum, especially your credit cards purchases and all forms of loans. 

Another form of protection involves the “Qualified Mortgage”. Such mortgages prohibit lenders from embedding risky features “that exceed 30 years, interest-only payments or payments that are less than the full amount of interest so that the home loan debt grows each month.”

These new rules are designed to ensure consumers are not encouraged by a lender or loan broker to take a mortgage they can’t afford to repay. 

Lenders use a document call Tri-Merge Credit Reports to screen borrowers. Also called a “Residential Mortgage Credit Report, this report is the most important document lenders use during loan application process. This document has the power to make or break your approval chances.

It can be disheartening to be denied a mortgage after you were pre-approved. One reason this happens is that “These days, a lot of mortgage lenders are requiring borrowers to have additional “cash reserves” in the their bank accounts before closing.”

Moreover, according to Qualified Mortgage website,”These are funds set aside to cover the first few monthly loan payments. Borrowers can be denied a mortgage after being pre-approved if the underwriter determines they have insufficient cash reserves.”

In addition, “As a borrower, you should be proactive and ask about these requirements up front. It could help prevent unpleasant surprises down the road.” 

One rule that’s a con is any money you have in your bank account must be proven or your loan maybe delayed. For example, if grandma deposited $500 in your account as a gift, it could delay your loan closing if you can’t prove where you got the money.