Timely Tips For The Best Home Loan

Recent problems in the housing market have been hard to ignore — even if you haven't directly experienced declining home values, higher interest rates on mortgages or more stringent lending standards. But what does it all mean for you, especially if you're thinking about buying a new home or refinancing an existing loan?

While it's true that the best home loan may be tougher to get than in the past, you shouldn't be discouraged; many good loan programs are still available to homeowners. The key is to be proactive — to understand your options and to put yourself in the best position to take advantage of them.

The Best Home Loan Goes To The Best Borrower

Understand first that lenders have tightened their standards for all borrowers. In general, they want to lend to applicants with a good credit record, the ability to make a reasonable downpayment, and fully-documented income to repay the loan. Lenders also are trying to better match borrowers with loans they can afford for the next 15 or 30 years, not just for the short term. So, how can mortgage borrowers find the best home loan that works for them?

Things You Can Do To Help Get The Best Home Loan

• Try to raise your credit score in the months before you apply for a mortgage. Lenders look at a person's credit score, a numerical summary of a person's credit record, when deciding on loan applications. By aiming for the best possible score, you may be able to obtain a lower-cost loan and save hundreds each year in interest.

  Protect your existing credit score by making all of your credit card and other bill payments on time. Beyond that, there are some quick things you can do to try to boost your credit score. One is to pay off much or all of what you owe on credit cards. "But don't close any credit card accounts and don't open any new ones before you get a mortgage, because either action could negatively affect your credit score," adds Mira Marshall, an FDIC Senior Policy Analyst.

  Also, review your credit reports for incomplete or erroneous information and get it corrected. By federal law, you are entitled to one free copy of your credit report every year from each of the three nationwide credit bureaus. Go to www.AnnualCreditReport.com or call toll-free 1-877-322-8228 to order free credit reports or for more information.

•  If you're thinking about buying a new house, consider modifying your strategy. Think about making a larger downpayment on a home if you can afford it and if doing so will help you qualify for a loan or significantly lower the cost of a mortgage. And if you realize that a home purchase doesn't make financial sense at this time, consider waiting or looking at less expensive properties.

• Contact several lenders and negotiate the best deal. Let them know you are comparison shopping. You may be able to negotiate the interest rate, closing costs or other terms, which could save you thousands of dollars.Include your current bank and other local lenders in your search for the best mortgage. Recent studies show that financial institutions are more likely to make lower-cost home loans on properties in communities where they have branches. However, you can also take advantage of the Internet to research mortgage products, comparison shop among hundreds of lenders, and apply for a loan from those same lenders. But remember that con artists operate on the Internet, too, so for guidance on whether a bank is legitimate, call the FDIC at 1-877-275-3342 or use Bank Find, their online directory of insured institutions, at www2.fdic.gov/idasp/main_bankfind.asp.

• Compare fixed-rate and adjustable-rate loans, even if ARMs carry a lower initial interest rate. With a fixed-rate mortgage, you pay the lender the same, fixed interest rate over the life of the loan, which usually will be 30 years but could be 15 or 20 years. With an adjustable-rate loan, your interest rate may be fixed for a certain time period but later will periodically rise or fall based on a market index. Although early payments at "teaser rates" may be lower with an ARM, the interest costs later on can go up significantly. "Frequently, the fixed-rate loan is cheaper and safer in the long run," says Janet Kincaid, FDIC Senior Consumer Affairs Officer. See xxx for more information on comparing fixed and adjustable rate loans.

• Take the time to document your sources of income as part of your mortgage application. Some lenders offer loans requiring little or no documentation of income, assets and debts — they instead rely on a personal statement of the applicant's financial resources. "These loans may be faster and more convenient, but they also may be more expensive," said FDIC attorney Richard Foley. "You should always ask for the opportunity to document your financial resources because it could mean a lower interest rate or other cost savings."

Finally, scrutinize any fee you're being asked to pay a lender, broker or any other service provider. And don't assume that every loan officer or mortgage broker will act solely in your best interest.

Credits: FDIC Consumer News