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**By
Stef Donev, INTEREST.COM
Shopping for a home without a good loan to
pay for it makes as much sense as playing in traffic. Without a loan
lined up first, financing could be delayed and the home could be lost to
someone else, or the interest rate may change, costing thousands of
dollars more over the life of the loan
So even though shopping for a home is more
fun than shopping for a mortgage, the mortgage comes first. Shopping
for one doesn't start at the lender's office, however. It normally
starts on the computer or phone, since that's where most people order
copies of their credit reports. if possible, the process should
start months before house hunting begins
A major factor in the equation a lender
uses to decide who gets a mortgage and what the interest rate will be is
the credit report. The better a borrower's credit and credit score,
the lower the interest rate should be.
Everyone is entitled to a free copy of
their credit report annually from each of the three major credit-reporting
companies: Equifax, Experian and TransUnion. However, borrowers
cannot get a free report by going directly to the companies or their
websites. They will attempt to sell the reports. The free
reports are available only by going to www.annualcreditreport.com or calling 1-877-322-8228.
For married persons, each spouse is
entitled to a free copy. Each report contains information on how to
report and correct any mistakes that might appear. it is important
to remember that credit-reporting agencies just accept raw information
from companies and others that issue credit. They do not check the
information. Mistakes are common. Each company has its own way
of working, and often each has some different information.
With the growth of identity theft, people
should check their credit reports on a regular basis even if they
are not planning to get a mortgage. It will show up on a credit
report if someone tries to use another person's information to obtain
credit.
Armed with a credit report, job one is to
look for mistakes that could lower the credit score. if there are
errors, follow the directions to fix them.
Most of us have perhaps a black mark or two
that is valid. Those will remain there until they are corrected.
Any late payments, missed payments, judgments, liens, repossessions or a
bankruptcy in the last seven to 10 years will appear on a borrower's
credit report and have a negative impact on credit rating.
There are two courses of action with
legitimate black marks. First, write a letter explaining the black
marks -- what happened and why it won't happen again -- and send copies to
all three credit reporting agencies. many lenders understand that
life events such as divorce and illness can temporarily affect even the
most well-meaning borrower.
Second, start paying bills on time, month
after month. in most cases, the better the "current" history is, the
better the credit score will be. These two steps could lead to a
lower interest rate. It might not be a lot lower, but every fraction
it drops saves money over the life of the mortgage.
Next, take a close look at personal
finances, both income and "outgo." What's a comfortable amount to
spend per month on mortgage payments? Lenders want to lend as much
money as they can on the most expensive home their clients can afford.
The buyer must decide what is really affordable.
You can look at "afford" in terms of how
much you can squeeze out of your budget by cutting back on all other
activities and hoping that the car will not need work, that the kid won't
need braces, and that there will be no unexpected expenses in the next few
years. Or, you can be realistic. Plan for unexpected events
and then consider what's affordable.
With credit history cleaned up as best as
possible and a reasonable budget established, find a lender. Choose
one with whom you feel comfortable. (Ask your real estate agent for
suggestions.)
Once you have your lender, get
pre-approved, NOT pre-qualified. Pre-qualified means telling the
lender income and expenses, and the lender saying if everything checks out
and there are no setbacks, the will offer "x" amount of money. When
it comes time to get the loan, they do the actual checking, and that can
take weeks or longer.
For pre-approval, the lender checks all of
those things, such as work history and credit history, everything except
the value of the property for purchase. The lender then provides a
letter saying they will approve a loan for "x" amount contingent on an
appraisal of the property for purchase.
Some real estate agents won't even deal
with customers who don't have a pre-approval letter. The letter lets
agents know they are dealing with serious buyers and how much house they
can afford. That letter also lets everyone else involved in the
process know that once the house has been chosen, and the price agreed
upon, closing the deal will probably be relatively quick and easy.
THAT'S WHEN TO START LOOKING FOR A HOUSE!
**NOTE: Stef Doney is a
Southern California freelancer who writes for Interest.com and has been
covering the mortgage industry and other consumer finance issues for
nearly a decade. Interest.com is a national publisher of mortgage
rates and information.
NOTE: This
article if furnished for informational purposes only and has not been
verified or endorsed by www.firsttimehomebuyerlv.com, Bill
Smith-REALTOR® or
his real estate Broker's office. |
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