Get Your Credit Score Before Applying for a Home Loan

The mortgage crisis of 2007-2008 is the direct result of millions of consumer getting talked into mortgage loans that they did not need and could not afford.

If you have difficulty paying your property taxes or making the necessary repairs to your home, high-pressure salesmen may try to fast-talk you into a bad loan with many unnecessary fees and hidden charges. Don't fall for them

First of all get your CREDIT SCORE and make a realistic assessment of your credit worthiness.

Did you know that the three main credit reporting agencies in the United States are bound by law to provide you with a FREE report of your credit, once a year? But the report is not automatic and you have to ask for it. Here is their contact information:

Equifax: (800) 685-1111, www.equifax.com;
Experian: (888) 397-3742, www.experian.com/consumer; and
TransUnion: (800) 916-8800, www.transunion.com/index.jsp.

Your credit will range between 300 to 850. The higher the score, the better is your credit rating and better terms you can get for your loan.

A credit rating under 500 spells trouble. That's when you will be forced to accept stiff terms by the private mortgage lenders since most banks will try to avoid lenders with credit score that low.

If your credit score is 700 and above, you should be able to get a mortgage loan with acceptable terms.

Should you pay off your credit cards with home equity loan?

The next time your credit lender suggests you take out a home equity loan to pay off your credit card debt, think twice before quickly jumping on the offer.

Why?

Because if your cash flow is limited and you end up defaulting on your credit card debt, a credit card company cannot foreclose your property. But if you cannot pay your home loan, the mortgage company can foreclose your house and take it away from you.

Thus those two different types of debts have very different results if and when disaster strikes. Consider that before taking out a home equity loan.

(This article is written for information purposes only. Before making a financial decision please consult a licensed professional.)

Do You Know What Your Closing Costs Will Be?

It's not enough to know the interest rate of your loan. You have to know what the closing costs will be also and that can add many thousands of dollars to your total cost of ownership.


Closing Costs is a general term representing all the related miscellaneous expenses associated with closing a deal like:

• Loan application fees


• Loan origination fees


• Attorney's fees


• Transfer Taxes


• Title inspection fees


• Mortgage insurance premiums


• Survey fees


• Deed preparation and recording fees


• Prepaid interest


• etc.

But there are no fixed closing costs as such. It just depends on the deal is structured, the price of the house, etc. You can negotiate some of the closing costs (like loan application and origination fees). But some others (like mortgage insurance and taxes) cannot be negotiated.


However all closing costs must comply with the Real Estate Settlement Procedures Act (RESPA). According to RESPA, the lenders must provide you with a clear statement of the cost of the loan and the closing costs so that as a consumer you can compare alternative offerings and make an intelligent decision.


The lenders are supposed to provide you with a Good Faith Estimate of the total loan-related expenses that you'll be asked to pay at the settlement table. But if your application is turned down, then they do not need to disclose such closing cost information.

Order a Home Inspection Before You Sign Anything

It's important that you do a thorough inspection of the house you're intending to buy before signing a single binding document. Even when the house is sold on an "as is" basis, the results of the inspection can provide you with arguments for a better deal.

Even if a house looks perfect from the outside it may have serious defects inside that can be detected only by a trained professional inspector.

Many banks and mortgage institutions demand you conduct a radon and termite test as well since correcting such problems can be very costly in the long run. Banks mandate such an inspection before they loan any money in case they'd need to foreclose the property. Properties with structural problems cannot be re-sold easily on the market.

Have a Licensed Professional Engineer (P.E.) report on the condition of a house's foundation and walls, sewage system, electrical system, plumbing, heating, cooling, roofing, insulation, the floors, etc. Does, for example, the existing roof need to be removed completely before re-roofing it? If so, that would be a high cost item which can be revealed during the inspection.

Signs of any prior structural alterations and water damage should also be on your inspection report. Such an inspection would be worth every penny you spend even if it reveals nothing wrong about the house.

It's better to be safe than sorry.

Credit Card Accounts - Should You Close Them or Not?

Many of the people that I talk to about improving their credit often confide in me that they've just spent the last year or more paying off some old credit cards. Now that the account is fully paid they proudly announce that they've just closed the account so that they won't be tempted to use the credit card again and rack up a bunch of bills that they can't afford.

Then they ask, "This is should really help my credit, right?"

In fact, they are both right and wrong.

When examining your credit, lenders are looking to see if you are using credit wisely. Paying off your debts is great.

If you are paying the minimum amount that you've agreed to pay on time, lenders would be very satisfied with that.

They also would like to see that you have the capacity or the ability to use credit responsibly. They can easily understand that if you have open credit cards with little or no balances on them.

CAUTION -- closing an old credit card account that was paid and is now in good standing will actually hurt your credit in the short-term since you would no longer have the ability to use credit with that account.

So, after you've paid down or paid off an old outstanding balance on a credit card, the best thing to do is to put your card away and store it in a safe place but do NOT close the account. This will demonstrate that you are wisely using your open line of credit.