Mortgage rates have plunged to record lows, below 4 percent.
That's great -- but only if you can actually qualify for a loan, and
that's not easy. After giving away the store during the housing boom
-- with disastrous results -- lenders have tightened their
underwriting standards, leaving many would-be home buyers out of
luck.
But there are steps a home buyers can take to find the right
mortgage, and qualify for it. Here are seven:
1. IMPROVE YOUR CREDIT SCORE:
A credit score below 620, as measured by the Minneapolis company
FICO, will knock most potential buyers out of the running for a
mortgage. And even if you can qualify for a loan, lenders reserve
their best interest rates for borrowers with the highest credit
scores -- typically 740 and above. If a bad credit score pushes up
your interest rate by even one percentage point, you could end up
paying $85,000 more over the life of a $400,000 loan, according to
Tracy Becker, president of North Shore Advisory, a Westchester
credit repair company.
To see where you stand, start by checking your credit report,
which is available free at annualcreditreport.com, preferably at
least six months before you're ready to shop for a home. You can get
a free report once every 12 months from each of the three credit
reporting companies -- Experian, TransUnion and Equifax. Make sure
there are no mistakes on the report -- for example, if you see
incorrect reports of outstanding balances or late payments, you
should dispute them with the credit reporting company.
Matthew Gratalo of Real Estate Mortgage Network in River Edge
gave an example of a client named Smith; his credit reports were
full of problems, including a foreclosure and a bankruptcy, that
belonged to another Smith.
These reports are the basis for the credit score created by FICO.
The score, which ranges from 300 to 850, is used by lenders to
determine whether you're eligible for a loan, and at what interest
rate. You can get a copy of the score for $15.95 at myfico.com.
Your credit score can be badly damaged by even seemingly minor
problems, like late payments on credit cards or a $50 unpaid medical
bill or cellphone bill that goes to a collection agency.
If your credit profile is ugly, there are ways to beautify it,
though it may take some time. One key step is to make sure to pay
your bills on time. Set up e-mail or text reminders from the credit
card company to let you know when a payment is due. Pay down your
debt as much as you can. Don't close unused credit cards, but don't
open new cards, either.
"You may not be a great buyer today, but you have the ability to
change that dramatically," said Al Engel, executive vice president
at Valley National Bancorp in Wayne.
2. DECIDE WHAT TYPE OF LOAN IS BEST FOR YOU: Fixed mortgages
offer the security of knowing your rate will never rise; since rates
are near or at record lows, there's a pretty good argument to be
made for locking them in now. On the other hand, an adjustable
offers even lower rates and might work if you expect to move within
a few years.
A 30-year loan will keep monthly payments lower, but if you can
swing it, a 15-year will have a lower interest rate and will save
you tens of thousands of dollars over the life of the mortgage. For
example, a $300,000 loan at 3.7 percent for 30 years adds up to
