Movin' On Up, Keepin' Your Mortgage Costs Down
By Ellie Kay
Fall 2006
It’s up to us to make our house a home, and buying a dream home is a goal that most families share. Here are some important dos and don’ts from mortgage experts on how to make a smart move into your new home.
Pay off your debts. You will have a much better chance of securing a favorable interest rate on your new mortgage if you pay off as many smaller debts as you can. Even if you make a smaller down payment at closing and end up with a larger mortgage, you will be better off with the relatively low mortgage interest rate than the typically high interest rates of consumer debt.
Pay your debts on time. Every 30-, 60- or 90-day delinquency on a loan or credit card is going to reduce your credit score. This is a consideration the loan officer will take into account when approving your mortgage and the amount of the loan.
Your mortgage takes priority. If you or your spouse have a new job and the means to secure multiple loans (such as a mortgage, new car and new credit cards), then secure the mortgage loan first. Whenever your credit is scored, each application for credit becomes a liability to your rating. Numerous credit inquiries can hurt your overall score, especially when filed in the months prior to the mortgage loan review process.
Save, save, save! You can increase the size of your down payment by saving as much as possible. Invest these savings in secure accounts that offer reasonable rates of return, and use automatic payroll deductions or other financial incentives to save.
Avoid big purchases. If you need a loan for a car or another large purchase, you could be prevented from qualifying for the mortgage amount you want. Lenders do not look favorably upon adding debt upon debt. Besides, the more money you spend on other loans, the less you will have available for a mortgage.
Live within your means. If you try to obtain a loan that would raise your monthly payments – from $500 to $1,500, for example – then you may experience what the industry calls “payment shock.” A lender will look at this differential and you will find yourself in one of two situations: (1) You won’t qualify for the loan, or (2) you will end up needing to cover too much loan with too little money.
Pre-qualified versus pre-approved. When you are “pre-qualified” for a loan, you are given an estimate of the loan amount for which you will qualify after you’ve submitted income, credit and debt information. The lender does not pull credit reports, check debt-to-income ratios and perform other underwriting steps. When you are “pre-approved,” however, these steps are performed and you are that much closer to obtaining a loan and locking in a rate and term.
Hidden burdens. Don’t forget the “extras” involved in home ownership, such as ongoing repairs and maintenance. If you have been a renter, you may not budget enough for this purpose. On the financial side, remember that home ownership brings the additional responsibility of greater financial accountability.
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Ellie Kay is an author, radio/TV commentator and motivational speaker at military events. Her newest book is “The Debt Diet” (Bethany House Publishers, 2005). She is the wife of a fighter pilot and mother of seven children. To receive Ellie’s free newsletter, browse money-saving tips or invite her to speak at your military base, visit www.elliekay.com.
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Are You Paying Too Much In Mortgage Fees?
Dubious fees cause some consumers to overpay to get a mortgage, says the National Mortgage Complaint Center. Here are some common mortgage overages and how to avoid them:
Inflated credit-report and courier fees. Some lenders charge up to $65 to pull your credit report, while credit reporting bureaus charge only $6 to $18 per report. Some lenders also charge as much as $100 in courier fees to ship your closing documents; most overnight express services charge about $22. Tell your lender up front that you refuse to pay more than the going rate for these services.
Document prep and administration fees. The origination fee should include these services, so ask your lender to waive these fees.
Yield spread premiums. Lenders slightly increase your interest rate to include origination and other fees so you don’t have to pay them out-of-pocket at closing. But some lenders and mortgage brokers double dip by charging both the higher rate and the fees. Ask your broker directly if the firm charges you a yield spread premium. You shouldn’t pay additional fees.
