June 12th, 2017 5:03 AM by Jackie A. Graves, President
Interest rates remain near
historic lows, but that may start to change before long. Meanwhile, as the cost
of rental homes pushes into the stratosphere, it’s worth considering whether
it’s time to get into the real estate market instead of renting.
If you’re thinking of buying a
house or refinancing your existing mortgage, these nine golden rules can save
you thousands of dollars as well as heartache.
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Your first move — long before
you start home shopping — is to find out where you stand with mortgage lenders
and how to improve your position.
Check your credit reports for problems or errors. This won’t
give you your credit score — which is golden rule No. 3 — but the information
in your credit reports is the basis for your score. It takes time to fix any
errors, so get going as soon as possible before applying for a mortgage.
A cleaned-up credit report can
raise your FICO Score, which ranges from 300 to 850. With a score of at least
760, you’ll enjoy the best mortgage offers and interest rates. The lower your
interest rate, the cheaper your mortgage payments will be.
For example, with a $300,000
fixed-rate mortgage, having a credit score in the highest range compared with
the lowest range could save you more than $100,000 in interest payments over
the life of the loan, according to FICO’s Loan Savings Calculator. Use it to see how
much money a stronger credit score could save you.
See current rates with our mortgage search tool. Note: Interest rates
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Now you’re ready to meet with a
mortgage lender or broker — or several — to ask for advice on how to boost your
credit score. These early chats also prepare you for mortgage shopping, letting
you see and compare lenders’ styles, knowledge and helpfulness.
Ask them what documents you’ll
need to submit when you apply. Federal mortgage rules that went into effect in
2014 protect consumers better but they can also make it a bit harder to get a
mortgage — all a response to the subprime lending crisis.
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Now we’re talking about your
credit score rather than your credit reports. Even if you’re
not ready to make a purchase, you’ll want to watch your score to monitor your
progress improving it.
Although many alternative
scores exist, FICO Scores — designed by the Fair Isaac Corp., or FICO — are
most widely used in lending and banking.
Many avenues now exist to
access your credit scores without paying a dime. Start here:
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There’s plenty you can do to
quickly raise a low credit score. See “Boost Your Credit Score Fast With These 7 Moves.”
Making an effort to raise your
score matters, especially if your score is near the top or bottom of a credit
For example, with a score of
745, you’re near the top of the 700-759 range. With effort, you might gain
enough points to move into the highest category, 760-850, giving you access to
lower interest rates.
Or suppose your score is 766. Credit scores bounce around all the time; you
don’t want yours dropping below 760, which puts you in the less desirable
700-759 category. Try to boost your score at least into the middle of the
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You’re probably itching to
start shopping for a home. That’s fun, but keep your head on straight. Shop for
the mortgage first. Looking for a home often gets emotions and fantasies all
fired up, tempting shoppers to spend more than they can afford.
Don’t let emotions hijack your
home purchase, causing you to overpay or stretch beyond your means. Take into
account the mortgage payment as well as other recurring expenses of
homeownership, such as taxes, insurance, homeowner association fees and
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Getting pre-qualified for a
loan usually involves a lender getting a cursory view of your assets and
income. It can even be done by phone or over the internet.
As a result, it merely
indicates the amount for which you are likely to be approved — after a thorough
verification of your financials.
A preapproval, by contrast,
requires a thorough investigation by the lender. As Investopedia describes the
You’ll complete an official mortgage application (and usually
pay an application fee), then supply the lender with the necessary
documentation to perform an extensive check on your financial background and
current credit rating. … From this, the lender can tell you the specific
mortgage amount for which you are approved. You’ll also have a better idea of
the interest rate you will be charged on the loan and, in some cases, you might
be able to lock in a specific rate.
By preapproving your loan, the
bank provides a conditional commitment to lend you up to a specified amount.
That can impress sellers and help you when you’re competing with other buyers
for a home.
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Now that you know what you can
afford to pay for a home, you can finally start shopping. For guidance, check
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Applying for new credit is
tricky. It can help improve your credit score in the long term. But if you open
a new credit card or take out another loan too near the time of your mortgage
application, your credit score could dip and affect your interest rate.
However, applying for mortgages
won’t have much impact. FICO says:
Looking for new credit can equate with higher risk, but most
credit scores are not affected by multiple inquiries from auto, mortgage or
student loan lenders within a short period of time. Typically, these are
treated as a single inquiry and will have little impact on the credit score.
Also, checking your own credit
score or reports will not have an adverse impact.
Buying a car or any substantial
purchase outside of your regular monthly expenses could kill your mortgage
loan. Before your loan closes, a lender makes a final credit check. New debts
could change your eligibility.
By Marilyn Lewis - To
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