September 2008
Tips for buyers
Find out what the current owner pays in property taxes and energy costs
Get preapproved for a mortgage. Preapproval was always a smart move, but now it is a must. The real-estate agents we talked to say they don’t want to take
someone home shopping who might not be able to get a mortgage in today’s tighter loan market.
Do some digging to find out where you will get the best rates. Check several lenders, including commercial banks, mortgage companies, and credit unions. Knowing only what your monthly payment or interest rate will be is not enough. Ask each lender to estimate what you’ll pay over the life of the mortgage for the same loan amount, loan term, and type of loan so you can compare properly.
Make sure you also get an estimate of the closing costs and all the additional fees you’ll owe, including loan origination or underwriting fees, broker fees, and transaction and settlement costs. Many of these fees are negotiable, so ask potential lenders if they will waive or reduce one or more of the fees or agree to a lower interest rate. Once you have found the best deal, go back to the other lenders and ask them if they can beat it.
Check your credit. Your credit score has become a bigger factor in the loan rate you get. With foreclosures expected to reach 2 million next year, lenders are examining would-be borrowers far more closely. In February and March credit standards were tightened by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Association (Freddie Mac), both of which purchase and guarantee mortgages for banks.
“It used to be that people with FICO scores of 680 and above received the best rates,” says Keith Gumbinger, vice president of HSH Associates, which tracks consumer mortgage and loan data. “Now your score has to be 720 and up to get the lowest rates.”
Every 20-point drop in a FICO score can raise your interest rate. For example, if you had applied for a $300,000, 30-year fixed loan and your score was 721, you would have paid 6.5 percent recently, for a monthly payment of $1,896. If your FICO score were 625 instead, your interest rate would have been 7.1 percent and your monthly payment $2,016. Over the 30-year life of the loan, that would be a difference of $43,161.
For tips on how to raise your score, see Credit scores.
Don’t forget the other costs. Before you make an offer, find out from the current homeowner what he or she pays for taxes, heating, cooling, and utilities. “With prices where they are today, you definitely want the most energy-efficient house you can get,” says Ron Phipps, a broker in Warwick, R.I.
Also call your homeowners insurance company (or one you’re considering) and ask what it would cost you to insure the new home. “Home insurers have tightened their belts too, and you don’t want any surprisingly high bills after you move in,” Phipps says.
While you’re at it, find out if there are any problems with the property (it’s located on a flood plain, or there’s some hazard that has caused previous injury claims). For information on flood insurance, go to www.floodsmart.gov.
Do some digging to find out where you will get the best rates. Check several lenders, including commercial banks, mortgage companies, and credit unions. Knowing only what your monthly payment or interest rate will be is not enough. Ask each lender to estimate what you’ll pay over the life of the mortgage for the same loan amount, loan term, and type of loan so you can compare properly.
Make sure you also get an estimate of the closing costs and all the additional fees you’ll owe, including loan origination or underwriting fees, broker fees, and transaction and settlement costs. Many of these fees are negotiable, so ask potential lenders if they will waive or reduce one or more of the fees or agree to a lower interest rate. Once you have found the best deal, go back to the other lenders and ask them if they can beat it.
Check your credit. Your credit score has become a bigger factor in the loan rate you get. With foreclosures expected to reach 2 million next year, lenders are examining would-be borrowers far more closely. In February and March credit standards were tightened by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Association (Freddie Mac), both of which purchase and guarantee mortgages for banks.
“It used to be that people with FICO scores of 680 and above received the best rates,” says Keith Gumbinger, vice president of HSH Associates, which tracks consumer mortgage and loan data. “Now your score has to be 720 and up to get the lowest rates.”
Every 20-point drop in a FICO score can raise your interest rate. For example, if you had applied for a $300,000, 30-year fixed loan and your score was 721, you would have paid 6.5 percent recently, for a monthly payment of $1,896. If your FICO score were 625 instead, your interest rate would have been 7.1 percent and your monthly payment $2,016. Over the 30-year life of the loan, that would be a difference of $43,161.
For tips on how to raise your score, see Credit scores.
Don’t forget the other costs. Before you make an offer, find out from the current homeowner what he or she pays for taxes, heating, cooling, and utilities. “With prices where they are today, you definitely want the most energy-efficient house you can get,” says Ron Phipps, a broker in Warwick, R.I.
Also call your homeowners insurance company (or one you’re considering) and ask what it would cost you to insure the new home. “Home insurers have tightened their belts too, and you don’t want any surprisingly high bills after you move in,” Phipps says.
While you’re at it, find out if there are any problems with the property (it’s located on a flood plain, or there’s some hazard that has caused previous injury claims). For information on flood insurance, go to www.floodsmart.gov.
