The past few years in real estate have been unpredictable. Between high foreclosures one year to low inventory in some major markets the next, it’s hard to tell where the market is going to go.
We turned to experts in the field and found a few constants that everyone can agree upon for 2014. A few might be a surprise. If you’re looking to buy a second home or buy a first one without it turning into a bidding war, 2014 may be your year.
1. Dodd-Frank lending changes
Gird your loins if you’re looking to get a mortgage in 2014. The lending changes in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which took effect on January 10th, are an effort to prevent future housing meltdowns, and they have some tight requirements for borrowers seeking what are now called “qualified mortgages.” QMs are designed to cut the odds that borrowers will default, which in the long run is better for both consumers and banks.
One of the biggest changes is that lenders will be taking a closer looking at living expenses as well as your debt-to-income ratio, to make sure a borrower can make payments, especially if the buyer is applying for an adjustable rate mortgage. According to the new rules, borrowers cannot have a debt to income ratio over 43%. Everything from car payments to student loans will factor into this number, which means you may end up qualifying for a smaller loan than you expected.
There will also be fewer interest-only loans available, and it will be more difficult to find a loan that will last longer than 30 years. Paperwork will be key, as lenders will be asking for more of it.
2. Interest rates are most likely going up
No matter who you talk to, most experts agree that mortgage rates are going to go up, as they already have not just in the past year but in the past three months.
New Federal Reserve chief Janet Yellen is expected to continue buying blocks of mortgage-backed securities, as her predecessor Ben Bernanke did, in an effort to keep mortgage rates low. The Fed, however, has considered tapering its bond-buying activity as the economy improves, which could lead to a slight increase in interest rates. Lock in your rate early, since rates are expected to surpass 5% this year.