November 14th, 2016 5:17 AM by Jackie A. Graves, President
You’ve heard it before, no doubt: A mortgage probably will be
the biggest purchase you’ll ever make. Making a few simple, smart moves in the
quest for a mortgage can save you tens of thousands — even hundreds of
thousands — of dollars over the life of the loan.
these nine ways to save — from a little to a lot — on your mortgage
1. Get your FICO score (free)
Long before you apply for a mortgage or start home-shopping — as
much as a year before — take a look at your credit score. FICO is the score
used most in the mortgage industry. (There’s no need to pay to see it: Read “8 Ways to Get Your FICO Score for Free.”)
Raising your score makes you eligible for a better interest rate
on a mortgage, and it could take as long as a year to improve that
This loan savings calculator, from FICO, the
company that invented credit scoring, shows how much
you could save by improving your credit score. The calculatorshows six ranges of credit
scores, from highest (760-850) to lowest (620-639). Alongside the scores are
typical mortgage interest rates currently offered to borrowers with those
How’s that for a money-saving difference? Having one of
the highest credit scores shaves roughly $277 a month off
the mortgage payment compared with a score in the lowest bracket. The
total bill for a bottom-rung credit score is nearly $100,000 in extra
interest paid over the life of this mortgage.
Try using the calculator yourself to see the savings
differences at various credit score ranges. It’ll make you a believer.
2. Raise your credit score
Improving your credit score is
a slow process so, again, it’s good to start long before you need to borrow. “7 Fast Ways to Raise Your Credit Score” tells
3. Clean up your credit report
One way to raise a too-low credit score is to repair
any errors in your credit reports. The three major credit-reporting agencies
(Equifax, TransUnion and Experian) track Americans’ use of credit, compiling
credit histories on us all to help lenders and merchants decide whether
they should lend us money or credit and at what rate. The information
in these reports is the basis for your score. Errors are surprisingly
You have the right to one free copy annually of your credit
history from each agency. “How to Get Your Free Credit Report in 6 Easy Steps” gives
a step-by-step explanation of how to access your credit reports.
Check your credit reports for problems or errors as soon as
possible before applying for a mortgage as it takes time to
fix them and see improvement in your score.
4. Take a meeting
It’s not too early,
however, to meet with several lenders to discuss your borrowing
situation. Just don’t give them permission to pull your credit history yet: Too
many inquiries can hurt your credit score, so wait until you’re ready to apply
for a loan. Besides, your free credit score will give them a
close-enough idea of your score to help you understand how much you will be
able to borrow, what you need to do to prepare to apply, and to give you
helpful tips on improving your credit score.
Meeting with four,
five or even more lenders will help you understand the process and get
a feel for which you’d like to work with. Do the same with online lenders.
Comparison shopping for lenders can save you a good deal of money as lenders’ mortgage
offers can vary widely.
5. Keep your emotions from running the show
You are of course
going to want to start house shopping. In fact, it’s hard not to. And while
there’s no reason you can’t keep an eye on the market and see what’s
available, try not to start shopping seriously until you’ve got your financing
head-over-heels in love with a home that you can’t afford and then stretching your
finances perilously thin to buy it is one of the worst and most costly
financial mistakes you can possibly make. Just ask all the people who lost
homes in the recent housing crash because they’d got mortgages they could not
6. Get preapproved for a mortgage
Lenders will offer to
help you become “pre-qualified” for a mortgage. Go for it, if you want to,
although there’s no need for it. Just don’t misunderstand:
Pre-qualification won’t help you buy a home or get a mortgage. It just means
that a lender gave you an estimate of how much you can borrow and at
roughly what rate based on information you provided.
is a whole different ballgame. Preapproval means that you filled out the
application for a mortgage loan, gave the lender permission to pull your credit
score, and the lender has agreed to loan you a certain amount of money —
conditioned on approving the property you have
chosen. A preapproval gives you an advantage when you are
shopping for a home. In a competitive market, it may not trump a cash
offer but your preapproval letter from your lender lets sellers know that they
will not need to wait for you to apply for a mortgage that you may or may not
receive. You are already approved and can make the purchase immediately.
Get preapproved when
you are ready to shop for homes. Not all lenders issue preapproval
letters, but having one can be a nice advantage and may be worth including
among your mortgage comparison shopping criteria.
7. Don’t apply for non-mortgage credit
While you are in the
midst of applying for a mortgage and buying a home, take extreme care not to do
anything that might affect your credit score. Opening a new credit card or
credit account or getting a loan before you have signed on the dotted
line for your mortgage could affect your credit score and possibly lower your
interest rate. Wait until after you have signed your mortgage papers.
8. Comparison shop for
mortgages all you wish
You are safe, though, making multiple mortgage applications or
allowing even numerous mortgage lenders to inquire about your credit score —
called a credit “pull”– within a period of 30 days or more. FICO says:
for a mortgage, auto or student loan may cause multiple lenders to request your
credit report, even though you are only looking for one loan. To compensate for
this, FICO Scores ignore mortgage, auto and student loan inquiries made in the
30 days prior to scoring. So, if you find a loan within 30 days, the inquiries
won’t affect your scores while you’re rate shopping. In addition, FICO Scores
look on your credit report for mortgage, auto and student loan inquiries older
than 30 days. If your FICO Scores find some, your scores will consider
inquiries that fall in a typical shopping period as just one inquiry.
Also, checking your own credit score or reports will not
hurt your credit score.
9. Make no big purchases until your mortgage closes
The minute you decide
on a home you may want to start shopping for furniture and
appliances, window coverings and home improvements. Shop all you
want, but don’t put any purchased on credit — or apply for new credit — until
after your mortgage loan has closed. New purchases affect the amount of credit
you have available and can change your eligibility or the cost of your
mortgage. So hold off until your mortgage is a totally done deal.
By Marilyn Lewis - To
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