30 Year Fixed Rates Will Rise Over 5%
Let’s start with the easiest of the 2014 mortgage predictions. Mortgage interest rates rose about 1% from 2012 to 2013, but where will they head in 2014? The answer is unequivocally up. The government has already come out and stated that that they will be purchasing less mortgages in the future. Since then, there has been a constant upward pressure on mortgage rates that doesn’t have an end in near sight.
Looking to avoid the rate increases? You may want to lock your rate as soon as possible. Get started by clicking here.
Alternative (Alt-A) Lending Will Return
With the introduction of the new Qualified Mortgage (QM) rules next week, borrowers will be forced to meet much stricter debt-to-income ratio requirements (43% total, whereas currently some banks will allow you to go up to 55%) when getting qualified for a home loan. These changes will create a huge niche market that will need to be filled by, you guessed it, alternative (Alt-A) lenders.
What exactly is an Alt-A lender? Alt-A banks specialize in lending to people that are close to qualifying for a conventional mortgage, but have one or two reasons why they cannot.
For example, there is an Alt-A lender that just released a program that will allow applicants to use bank statements to prove their income. This is huge for self-employed borrowers that make enough money to support the payments, but can’t prove it with tax returns because of their business deductions.
Interested in finding out more about Alt-A loans? Click here.
Home Buyers Will Need More Money Down
We’ve all been spoiled by 100% USDA financing and 3.5% down FHA loans, but 2014 will bring some unwelcome changes. First off, USDA is changing their eligible areas next week and let’s just say it’s not for the better. USDA loan eligibility is based partly on geographical location, but many areas that were previously eligible no longer will be this year, eliminating that as a viable loan option.
In addition, FHA has been talking about raising the minimum down payment requirement for about a year now. The current down payment required for an FHA home purchase is only 3.5% of the price, but FHA is contemplating bumping that up to 5%. This will have a significant impact on the number of applicants that are ultimately approved.
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Home Values Will Appreciate Regardless
Contrary to popular belief, although it does seem mortgage financing will generally be more costly in 2014, home prices will continue to rise. Just take a look at the huge number of Americans becoming eligible for mortgages this year that previously were not, due to prior bankruptcies or foreclosures.
Then, take into consideration the re-introduction of alternative lending and the rising cost of renting, and you have yourself a perfect formula for growth fueled by supply and demand.
Please keep in mind that these are 2014 mortgage predictions and you should always consult a licensed mortgage professional before making any home financing decisions.