The year 2014 is expected to bring a significant transition to the mortgage industry. Here are the top 5 mortgage trends, good and bad for this year.
1. Mortgage rates likely to rise in 2014
Fannie Mae and Freddie Mac recently announced an increase in mortgage fees. Since these two accounts for more than 66% of the mortgage loans, this move is going to make mortgages more expensive in 2014. Economists and market analysts have predicted that by the end of 2014, the mortgage rate for a 30 year fixed rate may touch 5.5%.
2. Getting a loan becomes easier
With the rise in the mortgage rate, fewer borrowers will opt for mortgage refinancing. Needless to say, this will make the refinance sector more competitive leading to more benefits to borrowers. The lending standards will slacken and the buyers will qualify for the mortgage with a relatively lower credit score, loan-to-value ratio and debt-to-income ratio.
3. Mortgage hunting goes mobile
In today’s business scenario, everything is going mobile. Mortgage is no different either. More and more number of borrowers are descending to mobile devices to search and shop for lenders, mortgage plans and best rates. The trend is peculiarly prevalent in young borrowers.
4. FHA intervenes in reverse mortgage
FHA recently issued some reforms regarding the pre-criteria for approval of the reverse mortgage. According to the new reforms, the lenders will require borrower’s credit information before approving reverse mortgage. The new rule will ensure that the borrower’s lending request gets approved on the basis of his ability to handle and manage the lending agreement.
5. Home prices will rise
The U.S. economy is set to improve in 2014, leading to a significant increase in buyers’ purchasing power. Further, there has been a steady fall in the percentage of underwater homeowners. These multiple factors will translate into a significant increase in the home values. The market analysts believe that the rise in home prices can be anywhere between 3.0% and 5.0%.
6. Fall in the loan limits
FHA has introduced new rules to put a brake on the upper cap on the loan limits. The drop in the loan limit will vary from county to county. As of now, FHA has reduced the loan limits in around 650 counties throughout the U.S.
7. New Qualified Mortgage (QM) rules
Consumer Financial Protection Bureau (CFPB) recently issued new QM Rules to regulate the determination of underwriting standards. According to the new rules, lenders will now be liable to verify the borrower’s ability to repay the loan before lending him out. A lender will not be entitled to enjoy the legal protection on repayment, if he lends to a borrower with more than 43% of the debt to income ratio. These regulations are also expected to benefit the borrowers by limiting fees/prepaid interests on a mortgage to 3% of the loan’s value. The new regulations are intended to put a check on the practices that caused the infamous housing bubble in the year 2008.
A Word of Advice
As the rules become more stringent and the rate barrier gets higher, many borrowers will be tempted to switch from fixed rate mortgages to adjustable rate mortgages and others will get keen to lock in their existing rates. But experts advise that when it comes to shopping for a home, no matter how favorable or unfavorable the market seems to be, you should try not to take any decisions in haste. After all, it is the most important financial decision you are going to take in your life.