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MONEY AND FINANCE
Buying a house is one of the biggest purchases you will probably ever make. To make a wise decision about what your mortgage and financing needs are before and during the purchase of a home, you need to know the financial facts.
Mortgage Facts and Tips
The Basics
There is a big difference between being pre-qualified for a mortgage and getting a pre-approval. With the housing market moving at a breakneck speed, it's wise to get pre-approved before you begin your home search process.
- Pre-qualification is just a guesstimate of how much you could afford. It simply means that you have satisfied standard lending ratios.
- Pre-approval is just that: You are approved for a mortgage before beginning to look for a home. Getting a pre-approval can lock in a preferred interest rate and permits you to act quickly once you find that perfect home.
Ways to Qualify
Once you've calculated your estimated mortgage payment, is it still too high for you budget?
Here are other options:
- Choose an ARM, which usually has a lower initial interest rate.
- Consider a "temporary buy down," which can allow you to qualify for a substantially higher mortgage amount because it reduces payments during the early years of the loan.
- Restructure your debt by paying it off with savings or a gift. Or reduce your monthly payments through debt consolidation or refinancing.
- Add a non-occupant co-borrower to the mortgage note (usually a parent or close relative who won't live at your house, but who is equally obligated to repay the loan). Please note that a larger down payment may be required, depending on the loan type.
Cleaning Up Credit Problems
Don't be discouraged if your credit history doesn't sparkle. Lenders have a huge variety of mortgage products and special programs to help you qualify for the house you want. Let your loan officer help evaluate your credit history and provide assistance.
Here are some hints for correcting inaccuracies on your credit report:
- Request a copy of your credit report from one or all three major credit reporting agencies: Experian (formerly TRW), Equifax or TransUnion. All have 800 numbers and can tell you what they need. Sometimes there are inaccuracies on the report you can correct before getting too far into the loan process. Reports usually cost $3-$8 (depending on your state and report complexity), and take between 1-3 weeks to receive.
- For those credit issues that affect your ability to buy today, develop a budget to make your debt payments-and stick to it. It may take a year or more to clear everything up, but perseverance will pay off.
Predatory Lenders
Over the last several years, our nation has made enormous progress in expanding access to capital for previously under served borrowers. Despite this progress, however, too many families are suffering today because of a growing incidence of abusive practices in a segment of the mortgage lending market. Predatory mortgage lending practices strip borrowers of home equity and threaten families with forclosure, destabilizing the very communities that are beginning to enjoy the fruits of our nation's economic success. Don't be a victim of loan fraud!
Some Creative Financing Ideas
By PeterG. Miller
- VA Financing. If you have appropriate experience, such as two years of active duty service in the military, six years in the National Guard or reserves, or appropriate time in the Public Health Service, you may then qualify for VA financing -- loans with nothing done and no monthly mortgage insurance fees.
- FHA Loans. Open to all owner-occupants, the FHA program allows individuals to buy with 3 percent down. The up-front mortgage insurance premium (MIP) is scheduled to drop after January 1st from 2.25 percent of the loan amount to 1.5 percent -- that's $750 in savings on a $100,000 mortgage.
- Private Mortgage Insurance (PMI). You can buy with 3 to 5 percent down or less with PMI. The attraction here is the ability to buy now and not wait until a larger downpayment is available. PMI backing is used by nearly 1.5 million borrowers annually.
- State-Backed Mortgages. Loans made with guarantees from state governments come in two forms -- bond-backed mortgages that typically offer below-market interest levels and little down, and mortgage-credit certificates or "MCC" loans. MCC financing features little down, low rates, and special tax treatment for interest payments -- some interest is regarded as a tax credit while the rest is treated as a simple tax deduction. Tax credits are the equivalent of tax payments, and a very much better write-off than a tax deduction.
- 97-Percent Financing. Financing with 3 percent down is available nationwide. Such loans are made by local lenders and then bought by national mortgage buyers. Ask about Freddie Mac's "Affordable Gold 97" and "Alt 97" or the "Flexible 97" programs from Fannie Mae, as examples.
- While downpayments are an issue, in some cases so too is credit. Those with impaired credit might want to look at such programs as Neighborhood Advantage from the Bank of America and the "Creditworks" plan from the National Foundation for Credit Counseling.
- 100 Percent Financing. Freddie Mac has announced that it will buy no-money-down loans from local lenders under its Mortgage 100 program, Fannie Mae is expected to offer a similar program early next year.
- More than 100 Percent Financing. Countrywide Home Loans offers 103 percent financing with its Zero Down Plus program. GMAC has said that it will buy loans from local lenders for as much as 107 percent of the purchase price -- this means you can buy a home for $150,000 and, if qualified, obtain a loan for as much as $160,500. The additional money can be used for closing costs.
- 125 and 150 Percent Loans. Yes, amazingly, there are lenders out there who will finance the house and a whole bunch more. Such loans are generally not recommended because interest payments for loan amounts above the value secured by real estate may not be deductible -- see a tax pro for specifics. Also, if one needs to move it may take years before the equity value of the property is sufficient to repay the excess loan amount.
Online Mortgage application:
Now applying for a mortgage is easier than ever! These links allow you to send a mortgage application to CENTURY 21 Mortgage as well as CENTURY 21 Realty Group Mortgage and/or their affiliates. You will get pre-qualification information within 24 hours.
Mortgage Information—E-mail Mark Taylor mtaylor@c21rg.net
Or my friends at Fifth Third Bank:
Jason Kain 812-323-3632
Shellie Sparks 812-323-3606
Kevin Cade 812-323-3608
Calculators:
Homeownership Programs & Grants
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