Be aware of this when applying for a mortgage

With all the extra housing inventory available, it’s a great time for someone looking to invest in real estate to buy a home.  We all know, though, that it’s becoming tougher to obtain a mortgage these days.  Mortgage brokers and banks want solid credit scores and higher down payments.  So if you are making an application for a mortgage, here’s a list of what you want to be aware of during this typical 45-day period to make sure the mortgage goes through.

1. Now is not the time to make any big purchases.  That includes high-ticket items such as cars, appliances, TVs, and furniture for your new home.  A lot of people don’t realize that when you make your purchase, you’re creating more debt for yourself (if you’re charging the item rather than paying cash) and becoming a bigger liability for the bank.  So it’s been known that the mortgage can be pulled in this instance.  Wait until after you sign the closing papers to make the next purchase.

2. It’s not a good time to switch jobs.  When applying for a loan, the lender looks to make sure you have job stability and knows what type of salary and/or bonuses and commissions you receive.  If you switch jobs in the midst of the application, they’re going to have a hard time verifying salary information, which could affect your loan.  Again, wait until after you sign the closing papers to make any career moves.

3. There could be multiple credit checks.  The lender obviously checks your credit at the loan application before they decide if they can pre-approve you.  However, now lenders are often going back to check credit scores again right before closing.  So know that you want to continue making all your payments.  Avoid applying for a new credit card or making a big purchase.  Any upset to your score could affect your mortgage.

4. Have money ready for closing costs.  Don’t take every last penny you have to use toward a down payment.  Closing costs could cost you an additional 3% out of pocket.  You’ll want to check in with your lender within a few days of closing to get a rough estimate of the amount you’ll need to bring to closing.  It’ll most likely have to be in the form of a cashier’s check made out to yourself.  Your lender can give you the exact information.

These tips will help keep the mortgage application going without any hiccups.  Of course, if you have questions or problems along the way, be sure to contact your lender.  They will be able to guide you through the process and give you other tips to make sure there are no problems prior to closing.

I can be reached via my Web site.

Fannie Mae raises fees

In an interesting move, Fannie Mae announced they are raising their fees this spring.  What’s even more interesting is that it will affect buyers who have higher credit scores.  This will make mortgages more expensive for a lot of people.

These fees are called “add-on” fees.  They’re basing the cost on your credit score and the amount you’re going to put down for a down payment.  And the cost could be anywhere from a quarter of a percentage of the loan amount to 2.75%.

An example of how this works from this Washington Post article: If you want to buy a $300,000 home and have a great credit score of over 800 with just under 25% down, you’ll be charged .25% or $750.  Previously your cost would have been $0.  Now if you have a credit score of 679 and a down payment of less than 20%, you’ll be charged 2.75% or $8,250.  And it matters what you purchase.  A condo will cost you more than a single-family residence.  You can choose to pay these fees up front or tack them on to your mortgage.  Do know that by adding it to the cost of your mortgage that you’ll be paying interest on it for the length of your loan.  So if you can find a way to pay it up front, you’ll save more money in the long run.

Fannie Mae never specifically stated the exact reason for the rate hikes.  But it’s been speculated that it softens their risks on the loan (hence the lower fees for those with better credit scores and higher down payments) as well as the money they’ve lost because of the current housing market and unpaid mortgages.

So will this prevent some people from purchasing a home?  I doubt it will have any adverse reaction on the already declining mortgage market because you’re stuck paying it no matter what.  And it’s not significant enough to make a difference, especially when buyers can purchase homes for a lot less than they could have years ago.

What’s your take on the fee increase?  Do you think it will affect the housing market?  I’d love to hear your opinions.  Please leave a comment or visit me online.

Be honest when applying for a mortgage

Another great Chicago Tribune article today on the cover of the Money & Real Estate section.  It talks about what lenders are checking when they have borrowers looking to apply for a mortgage.  There’s a lot of information in here that an average person wouldn’t know.  In fact, I learned quite a few things from this article, and I wanted to share them with my readers.

When you go to apply for a mortgage, you know that your lender will want to check your credit score or FICO score.  If you have a low score with a ton of debt, it’s very common these days to not get approved for a loan or to be quoted a high interest rate.  But did you know that lenders will now go back and check your credit score a second time?  They’ll want to do it prior to closing to make sure that you haven’t made an extravagant purchase, such as a car or a boat.  If you’ve done something like that, odds are you’ll have a hard time making a house purchase.  So if you are applying for a mortgage, make sure to hold off on paying for a house full of furniture on credit until after closing.  Don’t make any other large purchase while you’re in the loan approval process.  It can easily prevent you from getting approved.

I also found out that your online shopping can have quite an effect.  Lenders are now able to access data reservoirs that store information about your online shopping habits.  The firs thing they want to find out is that you live where you say you live.  For instance, if you’re living in your parents’ basement but you say you are renting an expensive apartment currently, they can now find out that’s not the case.  That helps determine what type of risk you are for borrowing money.

The lenders also might choose to find out what kind of online shopping you’re doing.  Do you say you’re not making very much money but somehow are able to afford designer clothing and accessories?  The lenders will know that something isn’t right and it could affect the type of loan you receive or whether you’re eligible for one at all.  They want to know what type of disposable income you have.

It’s very important that you remain honest during this process.  You don’t want to flub the truth.  You’ll be asked to provide bank statements and recent tax returns.  But don’t exaggerate on your income!  The lenders can now go to your bank directly to verify what they have received is accurate.  They’re also looking at your tax returns and talking to the IRS to make sure that your income is correct.  And don’t doubt that they contact a current employer to verify what you say you make. 

Your Social Security number will be run through an electronic database known as the Mortgage Electronic Registration Systems (MERS).  They’ll want to verify that you don’t have another mortgage you haven’t mentioned, since this database tracks more than 63 million mortgages around the country.  And it’s all legal to verify this information and check into your online shopping habits as long as it doesn’t discriminate based on race, age, religion, or other protected classes.  So it’s just a reminder to be extremely truthful during the mortgage application process.

Do you need the name of a good lender?  Are you looking to buy a home?  Please visit me online.