The mortgage industry has taken a beating over the past few years. There were a number of unscrupulous individuals who became loan officers to take advantage of an industry offering never seen before loan programs and historically low interest rates. These people preyed on the fact that many people were not well educated when it came to mortgage financing and credit scores. Unfortunately, many people are only concerned with "what will my monthly payment be" and are oblivious about what loan program they actually signed up for. They are shocked and dismayed when they get a notice from their bank that their "adjustable rate mortgage" is now adjusting upward and their new payment is significantly larger than their original payment. Many lose their homes to foreclosure because of this. The "pay-option-arm" was a ridiculous lending concept that many lenders were "pushing."
I know a handful of people who have these type of mortgages and claim they did not fully understand the terms. Sadly, a couple of them have lost their homes. Fortunately, lending has gone back to the oldwriting guidelines. The "exotic" mortgages have all but disappeared and we are back in a conservative lending market. You must trust your lending advisor to be knowledgeable, ethical and always have your best interests as their primary concern. It is exciting to become a homeowner, just make sure you ask a lot of questions and fully understand the terms of your mortgage. Again, "Knowledge is Power". Do not be intimidated because you do not understand.
Loan Officers must follow rules set forth in the Real Estate Settlement Procedures Act (RESPA). You must always insist on receiving a Good Faith Estimate immediately after making application with a lender. This document will disclose all of the fees and costs associated with your loan, whether it is a refinance or purchase. These fees and costs should be "hard" numbers, meaning they should match up fairly closely with the Final HUD Settlement Statement you will be required to sign at closing with the title company Escrow Agent.
The interest rate you are quoted is based on several contributing factors. These include, loan program, your credit (FICO) score, the loan-to-value (how much you are borrowing against the value of the property), the loan amount (typically, the smaller the loan amount, the higher the rate) , the stability of the real estate market in your particular area (there are several states that are still considered to be in a "declining market").
If you are borrowing jointly with your spouse, the lowest middle FICO score of the two will be used when calculating your interest rate. If the person with the lower score is not bringing any income to the transaction, consider leaving them off of the loan to take advantage of a more attractive interest rate. Have the loan priced both ways and make a determination which is more suitable.
There are many simple things that can be done to positively affect your credit score. If you have time on your side, consider making the effort on doing those things that will increase your score. A knowledgeable loan officer can assist you with this. Currently, the 3 credit bureau's, Experian, Transunion and Equifax use the following when calculating your score:
Payment History: 35%
Balances Carried: 30%
Credit History: 15%
Mix of Accounts: 10%
You can request a copy of your credit report from all three bureau's free once every 12 month's. If you want your score, there is a small charge. The site is http://www.annualcreditreport.com and I personally do this every year when I prepare my income taxes. These inquiries do not affect your score as you are the one inquiring.
Low credit scores can cost you higher interest rates on mortgage loans, credit cards, auto loans and even insurance premiums. It is well worth the effort to increase your score if even just to save on your insurance premiums.
Buying a home is one of the biggest decisions you will make in your life. Currently, in many states, loan officers are not required to be licensed. Make sure you are not working with somebody who just got into the lending industry recently to take advantage of historic low interest rates to make a "fast" buck. Ask a lot of questions and make informed decisions.