9 mortgage moves for you to buy home in 2012
Getting a mortgage loan has become a challenging task in recent years. Don’t expect that to change anytime soon.
Lending standards will remain tight in 2012, but that doesn’t mean you won’t be able to snag a mortgage with an attractive rate. Savvy borrowers who understand the rules and prepare in advance will improve their chances of success.
These tips will help you stay on top of your game as you try to secure a mortgage in 2012.
Tip 1: Study your credit
Good credit is the key to snagging a mortgage in this tight lending environment. Get copies of your credit scores and credit history from the three main credit reporting bureaus. Study the reports carefully to make sure there are no errors or issues to resolve before applying.
Most lenders require a minimum credit score of 680 to comply with Fannie Mae and Freddie Mac’s guidelines. Federal Housing Administration loans, which are guaranteed by the FHA, allow for lower scores, but most lenders want to stay away from scores lower than 620.
Tip 2: Prepare before you start
There are some basic documents every lender requests when you apply for a mortgage. Don’t wait for them to ask.
Have these documents ready when you walk into the lender’s office: your last two pay stubs, W-2s, income tax returns and bank statements.
Save these documents and any additional ones the lender requests in an electronic format, so you can easily resend them if anything gets lost in the process.
Tip 3: Know how much you can afford
Don’t rely on your lender to tell you how much mortgage you qualify for and then borrow the maximum amount. Plan your budget, and leave room for unexpected expenses. That’s especially the case when you are buying a house.
Calculators can help you determine how much house you can afford and estimate your monthly mortgage payments
Tip 4: Shop around
Shopping around for a mortgage should go beyond comparing interest rates. Rates are important, but would-be borrowers must consider points, closing costs and different types of loans. Get estimates from three banks and three mortgage brokers before you decide which combination works for you.
Tip 5: Time is of the essence
Once you submit your mortgage application to the lender, the clock starts ticking. Make sure you quickly send in any documents requested during the approval process.
For buyers, a delay in closing the loan could kill the purchase and cost them their deposits. When refinancing, a delay could mean losing the interest rate the borrower originally locked in. Ask for an expected closing date, and follow up with the lender periodically until the loan closes. Keep in mind, some lenders close more quickly than others.
Tip 6: Mortgage approved? Your credit must stay put until closing
After the lender pulls your credit and says you’ve been approved, don’t assume you’ve won the battle. Most lenders will pull your credit again before the loan closes.
It’s wise to avoid any moves that may affect your credit. Don’t apply for new credit cards or credit lines. Pay your bills on time. Don’t close any accounts. Don’t finance a new car. Stay put until closing.
Tip 7: Consider a refinance with no closing costs
You don’t always have to spend money to save money when refinancing. Many lenders offer mortgages with no closing costs. No, it’s not a free ride. Lenders usually make up for those costs by charging the borrower a slightly higher interest rate. Sometimes the slight increase translates into a few extra dollars in the monthly payment, and the borrower can save thousands in closing costs.
Tip 8: Consider a shorter-term loan
Because interest rates are at or near rock bottom, short-term loans have become more affordable for many borrowers.
Those who currently have a 30-year mortgage with an interest rate of 6 percent or higher may be able to refinance into a 20-year or 15-year loan while keeping their monthly mortgage payments close to what they pay now. Consider this option even when the short-term loan means slightly higher monthly payments. This is your chance to pay off your mortgage more quickly.
Tip 9: Receive a gift? Be ready to explain it
Did your parents or in-laws give you a few thousand dollars as a gift to help out with the down payment? If so, congratulations — but make sure you can document and explain where you got the money.
FHA loans allow borrowers to receive their down payment as a gift from a relative. For conventional loans, borrowers may receive gifts, but at least a 5 percent down payment must come from their own funds.
Borrowers receiving a gift are required to present a gift letter signed by the donor, and they will need a paper trail of the money transfer. Be ready to present statements to show where the money came from when it was deposited into your account.
Unless the money is being used for the down payment, avoid receiving large cash deposits in your bank account until your mortgage closes. Any large deposits other than your paycheck will have to be explained to comply with federal regulations.
The U.S. Department of Housing and Urban Development has counseling agencies throughout the country. Homeowners can receive free foreclosure-prevention counseling from HUD-approved counselors. To find a housing counseling agency near you call (800) 569-4287 or visit the HUD website.
March 1, 2012
5:19 am #comment-1
A cierdt score of 400 is absolutely awful. It’s below the level that lenders think is a risk, it’s at the level they are sure you aren’t going to pay them back. With a score of about 650, you could get a mortgage at around 6%. On a loan of just 100,000, that’ll cost you $6,000 per year. With a score of 400, if you can get a loan at all, it’ll probably be at 11% or more. That same loan would cost you $11,000 per year. Maybe you think that’s insignificant. How about the fact that if you qualify for up to $100,000 at 400, you’d probably qualify for $250,000 with a 650 score, because the same payment buys a lot more at lower interest. Understand how much more house you get for $250k versus $100k? You’re making some really bad choices, and not listening to cierdt advice is perpetuating your condition. There are some smart cierdt counselors out there that can help you, but you come across as a know it all. Get this and get it soon: Most people who are poor don’t do what they do because they are poor, they are poor because they do the things they do. You’d better learn how to handle a cierdt card. If you can’t do that, you probably can’t handle a mortgage, either, and that’s what lenders see on your report, and that’s why most won’t lend to you at all, and the ones that will are going to rip your head off on interest. You can do that if you want to, but face the fact that it’s YOUR choices that are doing it. No one owes you a loan, they want to be sure they are going to get their money back, and a cierdt score of 400 tells them that they’d be better off planting their money in the dirt and hoping it starts to grow on a bush than hoping you’ll pay them back.edit: Okay, I jumped all over you. Now, the fact is that getting a cierdt card and handling it responsibly is how you fix your cierdt. You don’t want to do that. Fixing your cierdt is how you get a mortgage. You don’t want to face that. You’ve tried a lot of lenders and no one wants to give you a mortgage. You want someone to alter your reality without you doing what it takes to change it. Or did I miss something?