What To Do First
Obtain a copy of your credit report and check for errors.
Do this prior to your lender ordering one. Mistakes are found.
Next gather all your financial data.
Lenders will want to see bank account statements, paycheck stubs, W-2 forms and tax returns for the last two years, investments and proof of any other sources of income.
Down Payment Sources
- Sell a car, boat or other property.
- Receive a tax-free gift from parents or relatives.
- Borrow against a pension plan or a life insurance policy.
- Equity share with parents or friends.
- Use your business as collateral.
If you can make only a small down payment or have credit problems, consider asking the seller to help you with the financing.
Example: Sellers can "carry back" a second mortgage to reduce the amount of the first mortgage you need.
By reducing the loan-to-value ratio of the first mortgage to 80% or less, buyers often avoid paying for private mortgage insurance when they use a seller-provided second mortgage.
Other Financing Options
If you can't qualify for a conventional loan because of income, don't give up. There are a number of special programs to get you into a home. Some cities have BMR (below market rate) housing programs that allow qualified buyers to purchase new homes substantially below market value.
Programs to Help Lower Income Families:
Community Homebuyer loan program
FHA's 203(k) program (for fixer-upper)
Mortgage Credit Certificate program (MCC)
Enhance Fannie Neighbors mortgage program
Fannie Home Style loan program (for fixer-upper)
Ask your loan agent for more information about these programs.
Comparing Programs (ask yourself):
How long will I live there?
What are the tax implications?
Can I expect earnings to increase or decrease?
Are interest rates likely to go up or down in the near future?
Questions a Borrower Should Ask
Are there any "up front" fees?
What is the annual percentage rate?
What and how much are the points?
Is there a prepayment penalty?
Is there a balloon payment?
Is the loan assumable by someone later?
How much money must I have at closing?
What is the interest rate and term of the loan?
What is the monthly payment for principal and interest?
What happens if interest rates change during the loan process?
Do not hesitate to ask questions.
Take the time to carefully examine the programs being offered.
Get a written cost estimate up front.
Interest rates are negotiable.
Costs for fees may be negotiable.
Save money by shopping around for your mortgage.
A larger down payment isn't necessarily the best way to go.
It may not be to your advantage to pay off your mortgage early.
Larger monthly mortgage payments means a larger tax deduction.
Interest rates on mortgages may be high, but the interest is tax deductible.
A short-term mortgage will build more equity for you in a shorter period of time.
Mortgage insurance may be required if the down payment is less than 20%.
A second mortgage or equity line on top of a low rate first mortgage may be cheaper than refinancing a new first mortgage.
What is the Best Loan?
You can save thousands of dollars or increase your home purchasing power by selecting the right loan.
New mortgage programs are constantly entering the market place in response to consumer needs. Take the time to understand and compare programs available to you.
With many tax deductions being eliminated, it's comforting to know that mortgage interest is still deductible. Besides the interest, you also can deduct any points paid to secure a loan on your first or second home.
Property taxes on your home are fully deductible. These can add up to a sizable savings on your income tax bill.
You may deduct a portion of your house expenses if you have a qualifying home office.
Tips to Expedite the Loan Process
Pay off credit cards before lender orders a credit report.
Don't buy a car or take out a loan prior to applying for a loan.
Don't charge expensive items on charge cards before getting a credit report.
Have verification of the down payment and an explanation of the source of money.
Getting money from relatives? A Gift letter from them will be needed.
Completely fill out the loan application, providing addresses with zip codes and all account numbers.
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