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Monday, April 15, 2013

5 Things To Prepare For When Applying For A Mortgage

Buying a home. It's a task that most people have to combat at some point in their lives.  For most, becoming a homeowners means getting approved for a home loan, and it's a process that can become very stressful and confusing.

A home loan is usually your biggest investment in life, yet it's surprising how we tend to do more research before buying a car rather than when obtaining a home loan worth a couple hundred thousand of dollars.  It's important to stay up to date on changes in the mortgage world and as a consumer it could save you hundreds if not thousands of dollars over the life of your loan.

For consumers thinking of applying for a mortgage, whether you're a first time home buyer or this just another go-around, here are five tips to help you successfully apply for a mortgage and get the deal you deserve:

1. Have Credit Worthiness

One of the first things a lender will look at to determine a borrower's creditworthiness is in fact, their credit score.  Usually lenders will pull a tri-merge report and take the mid score out of all three bureaus.


Try to avoid bad borrower behavior such as late payments, foreclosures, or bankruptcy's.  High balances also take an effect into weighing down your credit score.

Most banks sell the home loans that they make to government-owned mortgage companies such as Fannie Mae and Freddie Mac, which means adhering to certain lending criteria.  Loans backed by the Federal Housing  Administration will accept FICO scores in the 600's, but expect to pay a significantly higher interest rate the lower your score.  The ideal FICO score is 720 to 850.

Consumers are entitled to a free credit report every 12 months from each of the credit bureaus: Experian, Transunion and Equifax.  You can get copies at www.annualcreditreport.com.

2. Know Your Loan Options

Obtaining a loan usually means having to put up a down payment. Consider the benefits of putting down at least 20 percent of the sales price or appraised value as it will save you from having to pay private mortgage insurance.

If 20 percent sounds a little outrageous, you might want to try qualifying for an FHA-backed loan.  FHA only requires 3.5 of the purchase price as a down payment however it requires lenders to charge extra fees to cover monthly mortgage insurance payments.

Another program is available to people who live in rural areas.   If your home is in a (United States Department of Agriculture) USDA eligible area you can qualify for a 100 percent financing loan that requires absolutely no down payment.  To check your USDA home eligibility, click here.

If you happen to be a veteran, don't forget about VA home loans that allow veterans to take advantage of special benefits and loan program options.  VA loans also require no down payment and no private mortgage insurance, making it one of the best loan options available in today's market.

3. Consider A Larger Down Payment

FHA recently released a new change that requires homeowners to keep mortgage insurance for a longer period over the life of the loan, in some cases even permanently.  Experts agree that borrowers who can afford to put down more than 3.5 percent should consider getting a conforming loan that's not backed by FHA to save on monthly costs.

Conforming loans usually only require 5 percent down payment, although that means you're still paying private mortgage insurance, just not permanently like with FHA.  On conforming loans the mortgage insurance can be canceled automatically when the loan-to-value (LTV) hits 78 percent.

4. Consider Other Fees Involved

Besides just a down payment, you'll want to set money aside for closing costs, any additional earnest money, an appraisal, and a home inspection.

Lenders charge all sorts of various fees, some of which can be negotiable while others cannot.  Make sure your loan officer reviews the numbers with you carefully and if you ever any questions don't hesitate to let them know.

5. Look For The Right Time To Buy

Rising home prices, record low interest rates, home equity up - all things you want to see when looking at news on the housing market.  Pay attention to supply and demand as well as what's happening in the economy to give you an idea of the effect on the housing sector.

On RANLife's website there are also mortgage calculators to help you decide whether to rent vs. buy and give you an idea of your new estimated monthly mortgage payment.

Did you find this article helpful? Let us know what you thought by leaving a comment below!


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