5/30/2013 6:23:00 PM ASK RAY ABOUT REAL ESTATE | Plan ahead to get best mortgage loan
By Ray Akers
Dear Ray, We’re saving to buy our first home, and we hope to purchase sometime in 2013.
What kind of mortgage loan should we get? Is there one mortgage loan that is better than others? Is there one particular type of mortgage that you recommend? Is there anything we should know before we meet with the banker?
I apologize for so many questions, but there is so much I don’t understand about mortgage loans. Help!
You are wise to be investigating mortgage loans early. Most people will devote hours and hours to searching for homes but spend only a few minutes searching for a mortgage loan. These days, it’s more important than ever to be informed about mortgage loans before you sign on the dotted line. Today, the process of obtaining a mortgage loan is increasingly complicated. It’s a mistake to assume you can become an expert in mortgages with a couple of Google searches. The data shows that most borrowers spend less than an hour researching mortgage loans, and the majority sign-up for a mortgage loan with the first mortgage representative they speak with. That may help to explain why so many borrowers got into hot water during the mortgage crisis a few years ago: by committing too quickly to a mortgage loan with terms they did not take the time to understand.
My first piece of advice is: Begin your search for the right mortgage by talking with your Realtor. Your Realtor is there to guide you from start to finish, including introducing you to reputable lenders.
The mortgage-approval process is very involved and there is an array of loan products you should investigate. Today, borrowers must undergo a more extensive credit review than in years past. For these reasons, you’ll benefit from your Realtor’s help.
Most real estate agents have several mortgage representatives on speed-dial. I usually refer my clients to an independent mortgage broker, a local community bank and a credit union.
You can rely on your Realtor to refer you to experienced lenders with whom he/she has had a positive experience. Ask your Realtor for the names of two or three mortgage representatives, and then set aside time to have a conversation with each one.
Always keep your Realtor informed, and check back with him or her before you commit to any mortgage rep.
Get ahead Here are some tips to help you prepare to get the best mortgage.
First, you’ll need to know your credit score — Having a credit score of 740 or higher will qualify you for the best-available loan programs. Talk to the bank or credit union where you do business, and ask if they can help you obtain a copy of your credit report. Consumers are entitled to one free credit report per year from each of the three credit-reporting agencies. You can also obtain your credit report on-line, for a small fee.
The main criteria lenders utilize to determine your creditworthiness is your credit score. An estimated 40 million people have errors on their credit report or conflicting information between the big three credit reporting companies (Trans Union, Equifax and Experian). Review your credit report as soon as possible so you’ll have time to correct any errors and repair your credit. (Beware of offers from companies that claim they can “fix” your credit for a fee.)
After your credit score, the most important factor is the size of your down payment. It should come as no surprise that banks like borrowers who have a larger down payment.
Making a down payment of at least 20 percent of the sales price will spare you from having to pay private mortgage insurance (PMI). The majority of first-time borrowers do not have 20-percent down, so you’re not alone.
Depending on your credit score, there are a variety of conventional mortgage loans available that require 10-percent down payment and sometimes as little as 5-percent down.
For those who have less than 5-percent down payment or a lower credit score, there is the increasingly popular FHA (Federal Housing Administration) loan. FHA requires only a 3.5-percent down payment. The FHA loan program has been around since the 1930s, and it was designed for borrowers with less money down or a negative credit history. Since the mortgage meltdown and the tightening of lending guidelines, borrowers are rediscovering FHA-backed loans.
With knowledge of your credit score and down payment, it’s time to comparison-shop. Take your time. Talk to several mortgage reps. Be honest with each one, and let them know you’re talking to several lenders and you’re not going to commit to them today.
Don’t allow yourself to be rushed into signing up with the first lender. Be polite, but firm. By letting them know you’re comparison-shopping, you will find lenders willing to negotiate some terms such as points or loans fees.
Once you’ve found the lender/loan program that’s right for you, you’re ready to commit to the process to get pre-approved for a mortgage loan. (Tip: Be honest with the lender, providing them with any information they request, and don’t conceal negative credit history.)
Improve your odds In today’s over-heated real estate market, you need to be pre-approved for a mortgage to compete with other buyers. By having your mortgage loan in place, you give your Realtor an upper hand in negotiations, improving your odds of prevailing in a bidding war. With a pre-approved mortgage, you’re ready to buy a home.
RAY AKERS has been a licensed Realtor for more than 25 years and is a lifelong Seattle resident. Send your questions to email@example.com or call (206) 722-4444.