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Check your credit

There are a number of steps to getting mortgage financing. A particularly important step and one many people don't give much thought to - is the credit check. As a routine part of the application process the lender will order a copy of your credit history.

By getting a copy of your credit report before you apply for a mortgage, you may be able to avoid surprises and possible delays that may occur in having to answer questions about your credit report. Because the report contains information about you, you have a right to inspect a copy of it. If you disagree with something in your credit history you have the right to challenge it and ask that the information be corrected.

Get pre-approved before you buy

A pre-approval means that a lender has reviewed your credit history, verified your assets and employment, and has approved your loan before you have found a home to purchase. As long as the home is valued for at least the purchase price, the loan should be granted..Getting pre-approved also gives you an advantage over other buyers. Your pre-approval makes it easier for you to negotiate on the price of a home, than a person who is not pre-approved.

While getting pre-qualified may sound official, it is really just getting an idea of what you can afford. Its having a person punch in a few numbers that you give them - your monthly income and your monthly debt - and getting an approximate payment calculated. From the payment, the calculator can approximate the house price range that you can afford. No information is verified. Because your assets, income or credit is not verified, a pre-qualification has little value when purchasing a home.

Use a Buyer's Agent

In the past, home buyers often assumed their real estate agent worked in their behalf. After all, the agent showed them lots of properties, called regularly to tell them about new listings, wrote the offer to purchase, and answered questions about mortgages and other issues related to the sale. Buyers felt free to give confidential information to an agent, unaware that it was the agent's duty to pass the information on to the seller.

Most states require that agents disclose their relationship as a seller agent or a buyer agent at the first substantive contact, he explained. A good agent will explain this early on, law or no law.

Using a buyer's agency, means the agent is working with your best interests (and wallet) in mind. A buyer's agent will work to negotiate the best price, ensure the property is inspected, and make sure you have the representation you need. Things you tell a buyer's agent remain confidential. Using a buyer's agent also means that you will be shown homes that are For Sale By Owner (FSBO).

It might seem like using a buyer's agency means you are going to pay more -- but that's not always the case. Although there are situations where agents charge an hourly fee, or a flat fee for the service, in most situations they are simply working for the same commission that is paid by the seller and split it with the seller's listing agent.

Learn about the Neighborhood

Often the house you find may be in a neighborhood that you're not familiar with, which is OK. It just means that you'll have to do a little more research.

If you find a house that you like, ask for a list of the neighborhood properties that sold in the last year. How does your home rank? Is it at the top of the price range? If so, it might be hard to resell. Is it average or on the low end? If so, great - as the other home prices go up in value, they will pull your home's value up as well.

Check out the schools - are they sought after? A good school district means your neighborhood will always be valued by families which is a great reassurance to purchase, not to mention the value-add if you have school-age children.

Next, contact the police station and obtain crime statistics? Are they acceptable to you? Sometimes, if they won't give them to you, it could be a cause for alarm.

Talk to the neighbors. The more people you talk to, the better sense you will get of who makes up the neighborhood and how they will effect your time spent in it.

Check out the location of the shopping, police and fire stations, schools, and air traffic overhead. These are all things that might affect your property value or quality of your life.

Get a home inspection before you buy

Buying a home is one of the most important investment decisions you will make in your lifetime. As such, it makes sound financial sense to enlist the services of a qualified home inspection company to ensure your home is as solid and secure on the inside as it is on the outside.

A home inspection will determine the structural and mechanical soundness of your home. Your home inspector will identify existing and potential problem areas, suggest practical low-cost solutions, and provide estimates regarding costs for any work required. Shortly after the inspection has taken place, a report summarizing the findings is generally provided to the potential purchaser.

By commissioning a home inspection prior to purchase, you're protecting both yourself and your investment, as well as buying a little peace-of-mind.

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Here is a typical list of the documents you need when applying for a mortgage. Your loan officer may request additional documents based upon your situation.

  • Money for the closing costs
  • Completed sales contract signed by buyers and sellers
  • Social Security numbers of all applicants
  • Complete address for the past two years (including complete name and address of landlords for past 24 months)
  • Name, address, and all income earned from all employers for past 24 months
  • Previous two years' W-2 forms
  • Most recent pay stub showing year-to-date earnings
  • Name, address, account number, monthly payment and current balance for all loans and charge accounts
  • Name, address, account number, and balance of all deposit accounts, such as checking accounts, savings accounts, stocks, bonds, etc.
  • Three months most recent statements for deposit accounts, stocks, bonds, etc.
  • If you choose to include income from child support and/or alimony, bring copies of court records of cancelled checks showing receipt of payment.

Your lender and closing attorney will also tell you what paperwork and documents you will need to present at the loan closing.

       
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The most common reason for refinancing is to save money. Saving money through refinancing can be achieved in two ways:

  1. By obtaining a lower interest rate that causes one's monthly mortgage payment to be reduced.
  2. By reducing the term of the loan, thus saving money over the life of the loan. For example, refinancing from a 30-year loan to a 15-year loan might result in higher monthly payments, but the total of the payments made during the life of the loan can be reduced significantly.

People also refinance to convert their adjustable loan to a fixed loan. The main reason behind this type of refinance is to obtain the stability and the security of a fixed loan. Fixed loans are very popular when interest rates are low, whereas adjustable loans tend to be more popular when rates are higher. When rates are low, homeowners refinance to lock in low rates. When rates are high, homeowners prefer adjustable loans to obtain lower payments.

A third reason why homeowners refinance is to consolidate debts and replace high-interest loans with a low-rate mortgage. The loans being consolidated may include second mortgages, credit lines, student loans, credit cards, etc. In many cases, debt consolidation results in tax savings, since consumers loans are not tax deductible, while a mortgage loan is tax deductible.

The answer to the question "Should I refinance?" is a complex one, since every situation is different and no two homeowners are in the exact same situation. Even the conventional wisdom of refinancing only when you can save 2% on your mortgage is not really true.

If you are refinancing to save money on your monthly payments, the following calculation is more appropriate than the rule of 2%:

  1. Calculate the total cost of the refinance: example: $2,000
  2. Calculate the monthly savings: example: $100/month
  3. Divide the result in 1 by the result in 2: in this case 2000/100 = 20 months. This shows the break-even time. If you plan to live in the house for longer than this period of time, it makes sense to refinance.

Sometimes, you do not have a choice, you are forced to refinance. This happens when you have a loan with a balloon provision, but with no conversion option. In this case it is best to refinance a few months before the balloon comes due.

Whatever you choose to do, consulting with a seasoned mortgage professional first can often save you time and money. Our Home Loan Experts make the process easy from research to closing.

       
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Potential lenders check the credit of a loan applicant before granting mortgage loans. The lender determines whether the applicant has good or bad credit. Before we discuss the components of good credit and a good credit rating score, we should first define the terms "credit" and "credit scoring."

  • Credit - The right granted by a creditor to pay in the future in order to buy or borrow in the present.
  • Credit scoring - A method, based on statistical analysis of applicant characteristics, through which lenders determine the applicant's qualification for credit. Many creditors use a credit rating score to help determine whether or not to grant credit to an applicant.

The lender relies upon credit bureaus to supply them with these credit scores. The 3 credit report agencies primarily used are Trans Union, Equifax, and Experian. According to the Federal Trade Commission Site on Consumer Issues , the credit-scoring characteristics include an applicant's bill-paying history, the number and types of accounts she/he has, the age of the accounts, and outstanding debt.Generally, someone with a good credit rating score is said to have good credit.

What is a good credit rating score? Lenders typically base their lending decision upon one of three scores. They obtain one score each from Equifax, Experian, and Trans Union and ignore the highest and lowest scores and rely upon the middle score. Most people are between 500 at worst and 850 at best. Anything over 680 is good - they will have no trouble getting a loan. Some lenders consider "good" to be as low as 620. Over 700 is considered excellent.

The lower the score, the harder it will be for applicants to find loans at fairly low interest rates. Usually lenders want to be compensated for "higher risk" loans and so charge higher mortgage interest rates.

Are factors other than credit score rating considered? Yes. While the credit scores are useful because they are based upon a combination of factors, such as whether a person makes payments on time every month and how much income a person is using to pay off debt on credit cards, student loans, and auto loans, the lender does not see just a score and judge applicants based on the score number alone.

They consider all the characteristics, as discussed below. Many creditors rely on the three "C" factors of credit when deciding whether to grant credit for mortgages. They consider the applicant's capacity, capital, and character. As it turns out, the credit scores are based on these three factors anyway. Therefore, an explanation of the three "C" factors will also explain the factors that go into a credit score. Someone who has good capacity, capital, and character has good credit and therefore a good credit rating score.

  • Capacity - Your ability to make payments on time for as long as you owe money. The amount of time you have held a steady job, your salary, and the amounts you owe to other creditors all have an impact on this decision.
  • Capital - The money in your bank accounts as well as the value of your stocks, your boat, and your house are considered capital. Most creditors like to know you have the ability to repay the loan through the sale of an asset in case you become unable to work and run out of savings.
  • Character - How good (or bad) you are at keeping your promises. In other words, your willingness to make payments for the right amount at the right time.

How are these three Cs obtained? The information is obtained from both the borrower's application form and from credit reports issued by credit bureaus. Every time you pay a bill, whether it's on time, late, or not paid at all, the transaction is recorded on a credit report. This report will show how you pay your monthly car loan payments, mortgage, rent, utility payments, etc.

How do I know if my credit and/or credit score will allow me to get the loan I want? The answer can vary based upon your situation. Our loan consultants are very experienced at analyzing borrower's credit information and providing expert advice.

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Lenders look at your credit scores when you're buying a home, purchasing a car, and to determine whether to loan you money for nearly all other credit applications. Before lending you money, creditors want to determine how much of a risk you are, how likely you are to repay the money.Credit scores help them do that, and the higher your score, the less risk they feel you'll be.

Most increases to your credit scores take place over time and require an ongoing effort from you. The only true credit score quick-fixes are to pay down debt and to successfully dispute negative information on a credit report.

Credit scoring software looks at five areas of your credit reports:

  • Your Payment History
  • Amounts You Owe
  • Length of Your Credit History
  • Types of Credit Used
  • Your New Credit

You can improve your credit scores by taking a hard look at your credit reports and charting a plan of action.

Improve Your Payment History

  • Always pay your bills on time. Late payments play a major role in driving down your score.
  • If you're already late, get current and stay that way.
  • Contact your creditors as soon as you know you will have a problem paying bills on time. Try to work out a payment arrangement with your creditors and negotiate with them to keep at least a portion of the late notations off of your credit reports.
  • Work towards developing an ongoing track record of paying on time.
  • If your situation is serious, see a legitimate, non profit credit counselor.
  • Avoid the scam artists who promise a quick reversal of your credit problems.

Manage Your Amounts Owed

  • Keep your credit card balances low. High debt-to-credit-limit ratios drive your scores down.
  • Pay off debt, don't move it around. Owing the same amounts, but having fewer open accounts, can lower your score if you max out the accounts involved.
  • Don't close unused accounts--the zero balance might help your score.
  • Don't open new accounts that you don't need as a quickie approach to altering your debt-to-credit-limit ratios. That can lower your score.

Length of Your Credit History

Time is the only thing that can improve this aspect of your scores, but you can manage it wisely.

Managing New Credit

Don't open several new accounts in a short period, especially if your credit history covers less than three years. Adding accounts too rapidly sends up a red flag that you might not be able to handle your credit responsibly. Several credit inquiries during a short period probably means you are attempting to open multiple new accounts.

Credit scoring software recognizes when you are shopping for a single loan within a short period of time (such as a home loan). If multiple inquiries are necessary, have them pulled close together.

Checking your own credit report does not affect your scores when you order the report from the credit reporting agency or an organization authorized to provide credit reports to consumers.

Try to open a few new accounts if you've had credit problems in the past. Pay them on time and don't max out your credit limits. A mixture of credit cards and installment loans can help raise your score if you manage the credit cards responsibly.

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