BEFORE APPLYING FOR A MORTGAGE 

 As discussed in the "Prior To Buying A Home"  link, getting pre-approved for a mortgage gives you a big advantage when it comes to buying a home. You already know what price range you need to stay in when it comes to buying your home. The other big advantage is that sellers will treat you as a very valuable prospect and are a lot more willing to give you favorable terms and concessions on an offer you may make

However, not all mortgages are the same and the following recommendations  and suggestions are provided to assist you in getting the best mortgage possible while avoiding some of the most common mistatkes some home buyers make.

REVIEW AND FIX YOUR CREDIT: Before you even apply for a mortgage you should obtain copies of your credit report and FICO score from the three major credit reporting agencies.  This should be done 4-6 months in advance of buying a home. That way if there are errors you have time to dispute and correct them.

 LOOK FOR SPECIAL HOME BUYER PROGRAMS: These are programs that are typically sponsored by the state, county, or city governments. They normally offer better terms, interest rates, closing costs, and conditions than private lenders. Some of the programs may even offer mortgages for people whose credit may have been damaged. Others may assist people who are on a limited budget or who need down payment assistance.

GET PRE-APPROVED FOR A LOAN: Sometimes home buyers will confuse  being "pre-qualified with being pre-approved." Pre-qualification is a pretty casual process where a lender what you may qualify for. Pre-approval on the other hand is where you sit down with a lender and apply for the loan. You normally have to submit tax returns, pay stubs and other information which is verified by the lender. After verification you should receive a written approval on how much you are approved for.

BORROW ONLY WHAT YOU FEEL COMFORTABLE WITH:  Home byuers sometimes take out the biggest loan possible planning on future increases in income to help them make the payments. This goes back to the planning process when you first started thinking of buying a home. You should try to keep all of your debt including your mortgage payment within 33% or less but no more than 40% of your total monthly income.

SHOP FOR THE BEST RATES AND TERMS:  In today's mortgage market their are numerous progams to choose from. Home buyers should always shop around and compare rates and terms of different lenders. Compare private lenders with government programs to see which is best for you. Ask questions, get information and quotes and then shop that  information to another lender to see if they will beat it. by not shopping for the best rates and terms you may end up paying thousands more than you should for a mortgage.

JUNK FEES:  Lenders boost their profits through fees. While some are a legitimate cost of business others may be inflated or pure profit. An example of this is your credit report. The lender may be charged $15 -$25 dollars for the report but then charge you $150.00 for the same report.

The time to challenge these fees is not when you are signing the loan papers at your closing.  That is why it is important to shop around. Use a mortgage broker or call different lenders and compare their costs. Once you have done this and selected a lender, you'll be given a good faith estimate which shaould include all fess being charged. Go over the good faith estimate very carefully and challenge those fees which seem excessive.  If the lender refuses to budge on those fees, "take the estimate to another lender" and see if they can beat it.

While the "Good Faith estimate" is not set in concrete the "Hud one" is. The Hud one form is a form that you will sign at the closing table which sets out all costs associated with the sale.  Most of the time you won't see this form until the day of closing.  Insist that your lender provide you with this form at least two business days prior to closing. If the can't do that consider rescheduling the closing date.  That way you will have time to look over the total costs of your loan and challenge any mistakes and get them corrected.

CLOSING COSTS: As part of the home buying process you will incur some additional costs known as closing costs.  These are costs associated with the loan that a lender is providing to you. However, closing costs can be as little as 2% of the loan to as high as an eye opening 7%.  Closing costs typically cover a wide range of fees and pre-paids that are required to buy a home.  This is where your good faith estimate comes in. The good faith estimate will give you an idea of how much cash you may need to close the loan and finalize the sale.

COST SAVING TIPS: While closing costs are a cost of getting a loan there are several things you can do to try to reduce the cost to you.

1. Schedule your closing within 2-3 business days of the end of the month. Part of your total closing costs consists of interium interest. This is interest that is charged from the day of closing to the end of the month on your mortgage. This can possibly save hundreds of dollars.

NOTE: It is highly recommended that you avoid scheduling your closing on the last day of the month. If for some reason the closing does not take place you may have to pay a full months interium interest. This could add hundreds of dollars to your closing costs.

2. Get the seller to pay all or part of the closing costs. This can potentially save you thousands of dollars. NOTE: Some lenders limit the total that they will allow sellers to pay towards closing costs. Check with your lender about this when applying for a loan.

3. Look at new home construction. New home builders normally pay most of your closing costs with the exception of pre-paids such as property taxes, home owners insurance etc....

4. If you're putting down a significant down payment ask the lender to allow you to pay your insurance and property taxes as they are due.  This  will also save you some money on closing costs.

BUILD A RESERVE FUND: There are almost always some expenses when it comes time to move into your home. Some may even be unexpected. make sure to build a reserve fund to handle these costs.  Some lenders are now requiring home buyers to provide proof that they have the reserve to handle these expenses. However, each lender is different when it comes to this requirement.