Continued From Home Mortgage Basics
Repairing Your Credit Score: Generally, your credit score is an estimate of your reliability as a borrower based on your credit history and the amount of debt you already have. To get a good mortgage, you need a score of 700 or higher. You can get a mortgage with a lower score, but you will probably be expected to pay a higher interest rate. Things that can destroy your credit score are late payments, bankruptcy or any debt that has gone to a collection agency. If you have any of these things, you can repair your score by making payments on time, paying off collection debts, and then paying off current accounts. This will take time. Don't fall for these services who claim they can repair your credit for only a fee. You can do everything they do and save the fee.
Home Mortgage Points: Points are basically pre-paid interest on a loan. This Home Mortgage Software can help you compute interest, points and more. Here's my thumbnail interpretation of how points work: A point is 1% of the total amount of the loan. Each point is roughly equal to 1/8% in interest. So, a mortgage with no points at 6% interest is equal to a mortgage with 2 points at 5.75%. If you plan on paying your loan off early, whether from selling the home, refinancing or making extra payments, it doesn't make sense to pay any points on a mortgage. That's because you are prepaying interest you won't have to pay. The only time paying points makes sense is if you're sure you'll take the whole term of the loan to pay it off. Otherwise, pay the full interest rate knowing you'll save that much more the earlier you pay it off. One more thing about points on home purchase mortgages. The rule of thumb is that the seller pays the points. Good luck getting a seller to do that in this market! Back when there wasn't such a frenzy to buy homes, sellers were willing to give up some of the price to get you to commit to buying. In the current (Spring 2005) Real Estate market, you'd do better figuring out whether to offer full-price or more.
Getting The Best Mortgage:
You've already learned a lot about getting a good
mortgage but this part is about getting the best one. Most people are
intimidated and fearful that the big mortgage company will tell them they can't
have the money. If your credit score is over 700 you have no reason to
worry about this. I'm assuming you know your score due to the number of
people online offering to get it for you. In fact, writing mortgages is a
highly competitive business. They all know that someone is going to write your paper, so if you're talking to
them, they figure you are their customer to lose. If they are that hungry
for business (and they are) why not talk to more than one at the same time?
1. Find 4-5 companies you feel you can do business with. Find them from companies you've had a good relationship with, companies referred by people who's financial opinion you trust or companies that have a large presence in your area.
2. Make a written request for a 'good faith estimate' of mortgage terms and closing costs. In your request, define the terms you desire (no points or prepaid interest, no up front costs, 30 year fixed loan, etc.) and give them a way to contact you.
3. Include with your request how much you want to borrow, how much you're putting down (the more the better), the expected appraised value of the home, your monthly net income and what other monthly debt payments you make.
4. Once you have all their estimates, you can take the best one or you can discuss it with the others and see if they can beat it. When you finally pick your mortgage company, while you got through the process with them, if, for any reason, they significantly miss the estimate they gave you, be willing to call them on it and tell them the deal is off unless they make it right. They have a lot riding on this deal...their income and reputation.
Things to Watch for in a Home Mortgage: Make sure there are no penalties for paying the loan off early. They should be able to show you where it says that. Make sure the terms; number and amount of payments, interest, points, closing costs, etc. are what you agreed to (closing costs will vary somewhat). Some tell you to have a lawyer review the paperwork, but you usually won't have the time. Everyone involved in this process is tightly regulated, so they don't want to mess up any more than you. If you do feel you need a lawyer, all parties should be willing to postpone closing the loan until that has been done.
Finally, avoid the flim-flam man. You know, the one who says he can give you a loan at half what everyone else is charging. They all get their money in the same places, so all the offers should be fairly close. If someone seems to be giving you a fantastic bargain, it's usually because you haven't figured out where he gets twice that much back from you. Some other things to look out for are "fixed" Adjustable Rate Mortgages. This is usually where they have an extremely low interest rate at first, but then crank it up over time, and then have it adjustable to the market. This is just a way to get people to borrow more than they can afford. Don't do it. The slightest economic hiccup and you've lost your home.
Home mortgage Basics Conclusion: Well, hopefully, you've gotten enough to really shop for the right mortgage and get the best deal. With the many possible pitfalls and the size of the commitment for a home mortgage, it sure wouldn't hurt to have help from someone who knows everything...not me...God. I confer with God on every step of every major financial move in my life. I know He's pulled my fat out of the fire many times. If you want His help on your home mortgage decision, click on God Help Me.
Budgeting Finance Tips
Cancel Credit Christmas
Credit Card Debt Wipeout
Debt Free Living Help
Debt Elimination Plan
Home Mortgage Basics
Job Interview Preparation
Job Interview Tips Sheet
Job Search Employment
Meaning Of Success
Resume Writing Tips
Reverse Home Mortgage
Self Employment Ideas
What Career Is Right?
Family Budget Help Forum
Personal Finance Software
Personal Finance Books
Family Finance Resources
Family Life Today