Applying For a Mortgage in 2014? Don’t Do It Until You Read These Tips (Part 2)

You have rights as a borrower—know them.

The Consumer Financial Protection Bureau’s new regulations were created to ensure that mortgage borrowers’ rights are protected. In fact, as a borrower, you have more rights this year than any previous year, thanks to the CFPB’s reform. Knowing your rights and exercising them in situations where you are falling behind on a mortgage payment is simply smart borrowing.

Protect your credit.

A borrower’s credit rating is the most important element to acquiring a good mortgage loan and interest rate. If you are planning to apply for a mortgage at any point in 2014, invest in a credit monitoring service in which you can both watch and protect your credit rating. If your score is 720 or higher, you can rest assured that you are a prime lending candidate and will receive several great offers from which to choose. If your score is lower than 680, expect to encounter higher interest rate offers and higher closing costs.

Control your spending.

When you’re applying for a mortgage, a lender will want to know that you will have plenty of money left over at the end of the month after all of your obligations have been paid. In such, most will be looking for that magic 43% or below ratio—this means that all of your monthly payments, including the mortgage payment, should fall below 43% of your monthly income. If yours doesn’t, consider tightening  your budget.

Thinking seriously about getting an FHA loan? You might want to reconsider.

Although FHA loans are easier to get (for now, at least) for first-time home buyers, the benefits of a low down payment and easier qualification terms don’t always add up when you consider the problems with an FHA loan. For example, the mortgage insurance premiums on FHA loans are high, and will likely continue to rise this year. Always do what you can to qualify for a conventional loan and let an FHA mortgage be your worst-case alternative.