Mortgage Loan Tips & Advice
Nowadays it seems everybody has a loan offer for you, and the options can be overwhelming. With interest rates – and mortgage delinquencies – rising, it’s more important than ever to know what you’re getting into before you sign the papers. Luckily, there are a few rules that will stand you in good stead no matter what type of mortgage loan you’re looking for:
If it sounds too good to be true, it probably is
Banks and other lending institutions offer more perks than ever to prospective borrowers – adjustable rate loans, low introductory rates, flexible loan terms, hybrid loans, etc. However, while these options can be useful to savvy borrowers, they can also quickly become a nightmare. Those teaser introductory rates eventually rise, flexible payment options usually come with higher interest rates and subtle penalties, and the fine print can come back to haunt you.
Remember, lenders are primarily concerned with their own interests, not yours. For instance, a class action lawsuit has been filed in Milwaukee claiming that lenders misled borrowers, who believed their low introductory rate would last for much longer than it did. Those borrowers now face interest rates up to 13%, not the 1.95% they thought they were getting.
Only deal with reputable mortgage loan companies, and don’t believe everything you’re told. Your mortgage loan will be with you for a long time, so make sure you know exactly what you’re getting into.
Know your credit score, and know what it means
Every loan offer – from the most traditional to the newest alternative option – depends greatly on your credit score. Your credit score tells lenders how credit-worthy you are – or, in other words, how risky it will be to lend you money. A poor credit score results in fewer options for borrowers and more stringent loan terms, or even outright rejection.
Your credit score is based on your credit history – credit cards and other lines of credit, payment fidelity, credit inquiries, debt load vs. available credit, etc. Most credit scores range from 300 to 850, and good credit is considered to be anything over 620. Less than that, and your interest rates will be higher, regardless of loan type. It’s as simple as that.
If you have good credit, maintain it. If you have bad credit, fix it!
Few things are more frustrating than a low credit score that keeps you from pursuing home ownership, refinancing your current mortgage, or whatever your loan purpose may be. Luckily, poor credit can be fixed, with a little discipline and patience.
First, make sure that your credit report is accurate. Only 10% of Americans check their credit reports annually, yet 25% of credit reports contain at least one serious error, serious enough to deny credit. In these days of identity theft, it’s especially important to monitor your credit report, to ensure that the items in your credit history actually belong to you. Visit Credit Repair IC for a free credit repair consultation; each American is entitled to three free credit reports (from three different credit reporting institutions) per year. To get your actual credit score, you’ll have to pay more; or, for a free estimate of your credit score, go to www.mortgageloansic.com If you think you’ve found an error in your credit report, or evidence of identity theft, contact your credit bureau. For more information about your rights and the laws that govern credit reporting, go to the FTC’s website at www.ftc.gov/os/statutes/fcrajump.htm.
Keeping a close eye on your credit report can help you catch errors and fraudulent activities. But even if all the negative items in your credit history do belong to you, you’re not doomed to a lifetime of high interest rates and difficulty obtaining loans. This is because negative items have a shelf life, and, generally, misbehavior more than seven years old cannot be reported. Thus, establishing good credit habits now will not only help your credit score (and your credibility with lenders) in the short term, but can also result in a brand new credit score as time goes on and negative items drop off your report.
For instance, one of the simplest and most important things you can do to immediately begin raising your credit score is to pay your bills on time. Timeliness in meeting minimum monthly payments alone accounts for 35% of your credit score.
For more information on how to improve your own credit score – and how to locate legitimate credit counselors should you need a little help – go to http://www.ftc.gov/bcp/conline/pubs/credit/repair.shtm.
Know your debt-to-credit ratio
Another 30% of your credit score depends on your debt-to-credit ratio, or the amount of debt you carry compared to the amount of credit available to you (including credit card balances vs. limits, loan amounts remaining vs. original loan amounts, etc.). A good rule of thumb is to make sure your debt load is not more than 50% of your available credit; however, the lower your debt-to-credit ratio, the better. Need more info on a debt consolidation loan?
This means that closing those credit card accounts or requesting a lower credit limit in an attempt to create better spending habits is not always a good idea. Closing credit accounts and lowering limits results in lower available credit, which can actually raise your debt-to-credit ratio. Therefore, one way to improve your debt-to-credit ratio is actually to open a different line of credit or request a higher credit limit – but only if you have the discipline not to use that extra credit! Also, keep in mind that too many credit cards can scare off lenders.
Be Proactive
Don’t expect someone else to monitor your credit report for you, or catch errors for you, or notify you of negative items in your credit history. The truth is, no one’s looking out for you but you – so be proactive!
Two years ago, Congress passed a law requiring lenders to notify consumers when their credit reports contain negative items that trigger less favorable loan terms. However, such letters have yet to be sent out, and the FTC has not issued an effective date for this new policy. That’s just one example of why your best defense against bad credit – and your greatest asset in the search for the right loan – is you!
