Less than a decade ago, potential homeowners could waltz into a mortgage company with credit scores in the low to mid 500 range and qualify, usually, with no money down. This, of course, was part of the reason for the big mortgage meltdown of recent years. It wasn’t that folks with low credit scores weren’t committed to their homes as much as those with higher scores, it’s just that the ball got dropped with unscrupulous loan officers who knew they were financing a home for a family whose income couldn’t support the higher interest rate, payments, insurance and taxes in the long run. These loan officers were more interested in their pay days.
Now, the rules have changed and unfortunately, so have the processes and level of difficulty involved with qualifying for a new home. Still, there are a few things you should know as you begin the search. If you’re armed with more information, you’re going to be better prepared during your negotiations and the overall process. So here are five little tid-bits of information you may not have known before:
No loan officer can guarantee your interest rate until you near the end of the loan process. If you meet with a mortgage broker, get pre-qualified and told your interest rate will be 5%, you can be sure the odds of it remaining 5% by the time you’re finished are practically nil. This is because interest rates change on a daily basis, many factors influence in and lenders are constantly (on daily basis) adjusting their rates. LTV is important! This is your loan to value ratio. Lenders will conditionally approve applicants at “LTV”. If the LTV is 80/20, it means the lender will require 20% from you as a downpayment and will finance 80% of the value.
On the rare (very rare) occasion a homeowner sells his home for $80,000 that was appraised at $100,000, you might be able to walk away with no money down because the value of the home is $100,000 but the selling price ( or contract price) is already at 80% of the home’s value. Along with any application fees and credit report fees payable to the bank of mortgage company, you will also have to foot the bill for appraisals (usually less than $1,000), inspections (these vary greatly), attorneys fees (usually payable at the day of closing), title fees and any application fees your homeowner’s insurance carrier requires. These fees are non-refundable. This is why it’s important to choose a loan officer who is ethical and honest every step of the way. If your credit is strong enough, you can shop for better rates.
Too many times, potential homeowners take whatever the loan officer brings to the table. There are many lenders whose rates will vary, but a loan officer might not always reveal that. If you find your dream home and there is a lien against it, you can’t buy it until and unless the current homeowner clears those liens. Many people believe the lien is attached to the person, but it’s not. While it follows a person via his credit report, the lien is on actual property. The homeowner must rectify that lien before he can sell it.