Updated: 8/24/2011 4:16 PM ET|
How to impress a mortgage lender
When figuring your debt load, lenders typically factor in only the minimum payments on your credit cards and other loans.
If you have credit card debt at all, you're probably not ready to be a homeowner. Credit card debt indicates you're living beyond your means, and buying a home is likely to make that worse. Develop the discipline to pay off your cards, and you'll be in better shape to buy a home.
4. Bring some cash to the table
The 20% down payment is once again king. Put down less than that, and you'll have to buy private mortgage insurance, which will increase your monthly payments.
Many people with less than 20% are being funneled into FHA loans, which come with higher rates than conventional loans but offer you the option of putting as little as 3.5% and saving any extra accumulated cash.
Talk through the possibilities with your loan officer, as a smaller down payment could result in a higher rate but more overall financial flexibility, since you'd have more cash left over after closing to cover emergencies, maintenance and repairs.
I believe a 20% down payment is the smartest way to go, if you can swing it. But I also think it's wise to have a good pile of cash left over after you buy a home, because you're going to need it. For more on this, read "Your first home? Save for repairs"
5. Get real about the house's value
In Econ 101, you might have learned that fair market value is the price a willing and knowledgeable buyer would pay a willing and knowledgeable seller when neither is under compulsion to buy or sell.
In today's mortgage world, however, the value of a house is what the appraiser says it is, and I'm hearing a lot of complaining that appraisers have gotten pretty conservative.
Why does this matter? If the appraiser says a house is worth less than what you agreed to pay, you'll have to cough up more money for the down payment to make up the difference or go back to the negotiating table with the seller (as if it weren't torture enough the first time around).
Protect yourself as much as possible by thoroughly researching sales of comparable properties before you make your bid. Your real-estate agent should be able to help.
There are other ways your mortgage deal can go south, even if you try to get your financial and credit situations in the best possible shape.
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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Most FHA loans are looking for a credit score of 640 now. It first went up to 620 this year and now it is 640. We just went to the lender on Friday. We bought the "Three Credit Scores" for my husband and myself. We were so happy they were above that now. We had a bankruptcy two years ago. We pulled our credit at the lender, our scores were off. Way off on one number. It was the high one so that was good but it was off 105 points. It had been the lower number. Then the other two numbers were below 640 now. Now we have to do some things and wait a month. So what I have learned is that the credit scores we buy are a total ripoff. I am angry!!!! How can they tell you one thing and the lender another??????
LJayP- We bought the "Three Credit Scores" for my husband and myself. We were so happy they were above that now...So what I have learned is that the credit scores we buy are a total ripoff. I am angry!!!! How can they tell you one thing and the lender another??????
As a lender we are equally disappointed to see this, but we do see it all the time. The problems is that the services you use to purchase your score make money off of giving you a score not off of giving you the correct score for your situation. The score they generate for you is a consumer debt score, think of what a department store would look at before giving you a credit account. This scoring model is much different than what you might find if you were being rated for your risk as a mortgage applicant. That is why the scores vary so much. I just wish they would tell you that. Hang in there and find a good mortgage lender who has experience in helping people rebuild credit or works with a vendor who does this and you will own a house. I know it stinks but you can do it. If you want I have more information on credit and how lenders look at it on my blog at UofHome.org.
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