Friday, April 19, 2013

8 smart moves to score the best possible mortgage : How to grab a great home loan

Provided By:

A great home loan can save you thousands of dollars over the life of your mortgage.
All it takes to land one is a little planning, plus some knowledge about the application process.

With this information, you'll score a house you know you can afford, discounted closing costs and a mortgage rate that will make you the envy of the neighborhood.

You might even get the seller to throw in some money to sweeten the deal.

Of course, you'll need to address the major factors that could damage your chances for mortgage approval before a lender ever sees your application.

But if you follow these 8 smart moves, you'll put yourself in position to land the best possible home loan.

 A good credit score can lead the way to lower mortgage rates and more choices for loans. Lenders offer the best rates to borrowers with credit scores higher than 760.

The Fair Isaac Corporation calculates your FICO credit score based on the information in your credit reports from the three major credit bureaus. Its website ( includes a table that shows how credit scores affect mortgage rates.

Credit reports often include wrong or outdated information about your credit or payment history, and those errors could lower your credit score.

That's why you should check the information kept by all three of the major credit-reporting bureaus before you apply for a loan.

To get a free credit report from Experian, TransUnion and Equifax, go to
Each report shows how to correct mistakes or submit an explanation for legitimate black marks that appear on the report.

You've probably spent months looking for the perfect home, so why not spend a few hours looking for the cheapest possible mortgage rate?

Lenders offer a surprisingly wide range of rates and fees. Finding the right loan can reduce your payments by hundreds of dollars a month and save hundreds or even thousands of dollars on up-front fees.

Our database of the best mortgage rates from scores of lenders can help you get a sense of what loans cost now.

Know that mortgage rates are about as cheap as they've ever been. So even if you score an average rate, you're getting a good deal.

Experts believe interest rates will remain below 4% on 30-year, fixed-rate home loans for most of 2013.

Even if they finish the year above 4%, they'll still be at historical lows.

It's easy to underestimate the cost of owning a home.

In addition to your mortgage payment, you'll pay property taxes, homeowners insurance, utilities, maintenance costs and possibly condo or association fees.

Use this mortgage calculator to determine how much you can afford to borrow based on your monthly income and expenses.

Add that to the amount you've set aside for a down payment, and you'll know how much you can spend on a home.

Remember, your housing costs -- including principal, interest, taxes, assessments and any other fees -- shouldn't exceed 28% of your gross or pretax income.

Banks and mortgage companies reject about half of all borrowers because they don't meet stricter demands for better credit scores, higher incomes and fewer debts.
Asking to be preapproved for a mortgage is a way to find out where you stand.

You fill out an application that asks how much you make, how much you've saved and how much you owe on everything from cars to school loans to credit cards.
The lender evaluates that information, checks your credit reports and credit scores, and replies with a letter that says you can qualify for a mortgage and how much it's willing to loan.

The process is usually free, and being preapproved boosts your credibility with real estate agents and sellers who don't want to waste their time on buyers who may not be able to get financing.
Here's our step-by-step advice on how to get preapproved.
Getting the Federal Housing Administration to guarantee your loan can be a boon for buyers having a tough time obtaining a mortgage.
You can obtain an FHA loan even if you have a smaller down payment, lower credit scores and more debt than banks and mortgage companies usually demand.
In fact, an FHA mortgage requires just a 3.5% down payment -- that's $3,500 for every $100,000 you borrow. If your FICO credit score is below 580, you'll have to come with a 10% down payment.
Most non-FHA loans require a down payment of at least 5% and often as much as 20% of the purchase price.
Rules have changed so you can borrow more money with an FHA loan than in the past.

Mortgages come with a bewildering and expensive array of expenses: loan origination fees, administrative fees, title insurance, settlement charges and so on.
You can save big by negotiating reduced fees with your lender or asking the seller to pay some of them for you.
Other ways you can save money: Pick your own surveyors, appraisers, insurers and inspection services rather than relying on the those recommended by your lender; close near the end of the month to save on prepaid interest; and make sure the costs on your Good Faith Estimate (GFE) and the settlement papers match up.

In all, those fees you'll pay once your deal is finalized can add 3% to 6% to the price of your home, depending on where you live.

Paying discount points on your mortgage is like prepaying part of the interest on your loan. You pay money up front in exchange for a lower interest rate for the life of the loan.
One point is equal to 1% of your loan. So if you're borrowing $150,000, a point would cost $1,500.
Each point you buy will knock one-eighth to one-quarter of a percentage point off your mortgage rate, which is less than points would buy a few years ago.

Buying down your interest rate makes sense only if you have extra cash available and you're likely to stay in your home long enough to recoup the up-front cost.
After all, it could take years to break even.

Our mortgage points calculator allows you to decide whether you're better off paying points to lower your interest rate or adding that money to your down payment.

One way to lower the cost of your home loan at no cost to yourself is to ask the sellers to pay the points on your mortgage.

You get a lower monthly payment and need less income to qualify for the mortgage.
Paying your points can also cost sellers less than reducing the price of their home.

Say you want to buy a $375,000 home with 20% down. A $300,000 30-year, fixed-rate mortgage at 4% means a monthly payment of $1,432.

A 5% sales price reduction costs the seller $18,750. The loan amount drops to $285,000, which decreases your monthly payment to $1,361. You'll save save $71 each month on your payment.
Paying three discount points on your mortgage costs the seller only $12,000. Your loan amount is still $300,000, but your rate could drop to 3.25%. Now your monthly payment is $1,306, a savings of $126 from the original deal.

No comments: