Getting a Mortgage
The good news: More people than ever can buy a home.
Now for the bad: It's going to take a lot of patience,
restraint and some careful planning to get there. That loan
officer sitting across the table won't look kindly on the
new boat you bought or the stack of credit card bills on the
kitchen counter. And if you've managed to put away only
$1,000 in savings by then, it'll be time to forget about the
$400,000 beach house.
To pull the purchase off, try heeding some of the guidelines
below that experts suggest. It may not always be fun, but
doing so will help you get where you want to go.
Pay your Bills and Start Saving
Number one, pay your bills on time. There is no single
element that can so dramatically impact the success of an
application as your credit history. Another thing, of
course, is savings. People should have a good disciplined
savings pattern.
Everybody comes into the real estate market with a different
perspective and level of experience. The fact that online
mortgage applications, down payment assistance, and lower
interest rates are competing for attention these days makes
it all the more difficult to get foolproof advice. But some
general rules apply to pretty much anybody when it comes to
getting the money to buy a home. So here are some of the
do's and don'ts that buyers should consider.
Five Do's:
■
Make loan and other debt payments on time, especially over
the 12 months leading up to the filing of your mortgage
application. It sounds simple, but every 30-, 60- or 90-day
delinquency on a loan or credit card is going to reduce the
credit score the lender ends up considering as part of the
loan file. That score, in turn, will determine how good a
loan you get -- if you get one at all.
■
If something has to be missed, miss the credit card payment
first, followed by the payment on any installment loan you
might have and finally, the payment for an existing
mortgage. That's because credit scoring systems look at the
performance of similar loans first when deciding what type
of score to assign. It will give the most weight to the
performance of another mortgage, then the performance of
something like an auto loan, which features fixed payments
and a fixed rate the way many mortgages do. Last, it would
evaluate the payment performance of so-called revolving
loans, like credit cards, which feature variable payments
that fluctuate with the outstanding balance.
■
Consider paying off more debt and putting down a smaller
amount at closing. The move leaves borrowers with larger
mortgages, but it will allow them to replace
non-tax-deductible, high interest rate debt with lower rate
mortgage debt that features deductible interest.
■
Get the mortgage first if multiple financial obligations are
going to pop up in the near future. Numerous credit
inquiries, such as new applications for credit cards, can
hurt a borrower's credit score, especially if they're filed
in the months prior to the mortgage review process.
■
Increase the size of the down payment you're able to make by
saving as much as possible. Don't put the savings into
something volatile, such as an individual stock. But
evaluate money market or other accounts that offer
reasonable rates of return, automatic payroll deductions or
other financial incentives to save.
While these are all good steps to follow, borrowers have to
think of what they shouldn't do as well. Resisting the
temptation to splurge or slipup in the credit arena are at
the top of the list.
Five Don'ts:
■
First, don't make any big purchases over the next few
months. Besides the obvious fact that it makes less money
available for the down payment, it might require you to get
another loan. A significant debt such as a $15,000 auto loan
will look bad to the mortgage lender's credit scoring
systems. Plus, the underwriter won't want to see that you
have added a couple of hundred dollars per month to your
monthly expenses.
■
Don't try shooting for that six-bedroom house in the
Arboretum if it's going to be too much of a stretch in your
current budget. Lenders consider what's known in the
industry as "payment shock" when approving loans. Somebody
who goes from a relatively small monthly housing payment to
a large one either won't qualify for a mortgage or will end
up having to cover too much loan with too little money.
If you've paid all your bills on time, but you've been
paying $450 in rent with a roommate and now you're going to
have a $1,650 principal and interest and insurance payment
on a house, how would you handle your monthly payment? You
have to make sure you're comfortable about that kind of a
debt load.
■
Don't get just pre-qualified for a mortgage, get
pre-approved. To get pre-qualified, a borrower need only
submit credit, income and debt information voluntarily to a
mortgage lender. That means the resulting estimate of the
maximum mortgage and home that's affordable is exactly that
-- an estimate. Before they can get pre-approved, however,
home buyers must allow their lenders to pull credit reports,
check debt-to-income ratios and perform other underwriting
steps. That puts a borrower much closer to obtaining a loan
and locking in a rate and term.
■
Don't forget what kind of money personality you have when
getting a mortgage. By taking out a 30-year fixed rate loan
rather than a 15-year mortgage and investing the money saved
on monthly payments, you might earn a higher return on your
money in the long run. But that approach won't work for
people who spend any extra cash laying around on dinner and
a movie twice a week. They can force themselves into saving
and accumulating equity faster by going with the shorter
term and higher payment.
■
Last but not least, don't forget that homeownership brings
with it many burdens. The cost of defaulting on a loan is
much greater than the penalty of missing a rent payment. Too
many black marks on the financial history and it will be 23
percent interest credit card mailers that show up in the
mailbox rather than the 9.9 percent ones your neighbor gets.
[
Back to Mortgage Basics 101 ]
[
Back to Top ]
|
