Tips on Obtaining a Better Mortgage Deal

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Filed under: Home Buying Tips

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Due to the continuous changing that is going on in the mortgage industry, it’s important to stay up to date (or at least be working with a lender that stays up to date) if you are considering a home purchase. The Federal government backs about 90% of new home mortgages, and they continue to adjust the guidelines for the loans they insure. For example, in early April, the FHA (Federal Housing Administration) put several new mortgage rules into effect. One of the most important of these raises the cost of mortgage insurance for borrowers who take on an FHA loan.

So, how can you improve your chance on getting a better mortgage deal? Over the next two weeks, we will explain how you can accomplish this. According to a recent article by the Associated Press, here are a few tips to help you out.

1. Build a Strong Credit Score

One of the most important factors that a lender will look at to determine your creditworthiness is your credit score. Having a FICO score between 760 and 850 will give you great negotiating power over the terms of a mortgage and the total cost of the loan. However, if your credit is not in great shape, you might want to give yourself some time to build up your credit history before attempting to apply for a home loan. In addition, FHA loans will accept FICO scores below 600, but you can expect to pay a higher interest rate the lower your score is.

Remember that you are allowed a free credit report every 12 months from each of the three credit bureaus: Equifax, Experian, and TransUnion.

2. Know Your Loan Options

Making a down payment of at least 20% of the sales price will allow you to avoid paying private mortgage insurance (PMI) on conventional loans and it will also increase the chance of qualifying for a loan.

However, many people looking to buy a home cannot afford this. If you fall into this category, you may qualify for an FHA loan where you can make a down payment of as little as 3.5% of the purchase price. However, on home loans of $625,000 or more, FHA is requiring that you put down at least 5%.

In addition, FHA has changed some of its mortgage insurance requirements. If you have questions about these, I can discuss them with you in detail.

3. Consider Making a Larger Down Payment

Some experts say that borrowers who can afford to put down more than 3.5% on a home should really consider getting a loan that is not FHA-backed. This only requires you to make a 5% down payment, and even though you would still have to pay PMI, but you will not be ‘locked in’ because that mortgage insurance can be cancelled automatically when the loan-to-value hits 78%.  But before making a decision, make sure you discuss your options with an experience loan officer.

Again, with all of the changes currently going on in the mortgage industry, there is a lot of information you need to know to best prepare yourself to obtain a mortgage deal that’s right for you. I can definitely help you with any questions you may have to get you started on your way to owning a home!

 

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