Friday, October 13, 2006

Cool Credit Tips

Keeping a Cool Head to Protect Your Credit:

Buying or Refinancing? Get a second opinion!
If somebody tells you rates are rising to get you to sign on the dotted line--chances are they are pressuring you to sign. Rates have consistently risen and fallen (as they do) from 1/8th to half a percentage point during all the 'talk' of rises. Funny how they don't report drops! You can still get decent Fixed Rates that beat the Adjustables which may better suit your needs.

Avoid predatory lending practices by investing time to find out if the loan you are applying for is the loan you get! For more on that subject visit the Washington State Department of Finance and Industry site:

Check out your Lender:
Ask a few leading questions and note how that person responds to your needs. If they are selling rates before they hear about you and your goals....exit stage left! You need to feel the person working with you has more than one answer and isn't tying to fit you in their 'box'. A typical bank has one rate sheet with products for which you may qualify. A mortgage broker will have numberous banks to choose from and they ALL have their good and bad points so matching you and your needs is a delicate juggling act. Be prepared to work harder if you have any credit issues or you property is a little borderline on type or value for the area.

Qualifying--for what you can actually afford:
Standard lender ratios don't always relate to individual circumstances. Work with your accountant or good old Home Budget sheet and calculator to draft a home expenses budget before you decide what kind of commitment you can afford. If your banker tells you that you will 'qualify' for a certain size loan that means that your DTI (debt to income ratio) is under 40-45%. Even FHA allows 43% now. Non prime loans may allow higher DTI. The actual livabilty of this number depends entirely on you, your family, your stage of life and how you handle debt. Not every family feels OK about 45% of their income going out the door every month while single people may feel just fine about spending more of their income on a mortgage. Take an active role in determining your commitment before making an offer to buy or refinance.

Weigh up your long term goals and short term needs: These days even the government guaranteed programs are offering some pretty whiz-bang options that help you get into a home or ease the burden of increasing property values. In many cases a few years of 'interest only' while not paying down your pinciple can buy you time. In the few years you are holding the loan balance at the original sale price--your property may increase in value. If you waited to buy or refinance in 2 or 3 years the rates could easily exceed what you can afford.

Be very upfront about your situation:
While the whole process of borrowing money can be a uncomfortable, it's very important you let your lender know what is really going on so they can take everything into account and save time and heartaches. If you wait to tell them you are leaving your job to start your own company--even if you have income to cover the shift to self employment--you could be very disappointed when the underwriter calls to verify your employment and your loan is turned down the day after you sign. Loans for stated income or 'no ratios' may cost a little more but do the job without the disappointment.

Be a good borrower:
Get your documents in on time and be in communication with your realtor or seller to keep things moving. A dead loan is the one waiting for information that keeps finding it's way to the bottom of the pile. Time is money in this business.

Fish or cut bait:
If you like to shop around with lenders and fiddle with online offers your credit score will take a beating. Limit your loan shopping to a 2 week 'de-duping period' and don't make it harder for your lender to offer you the product you truly deserve! If you picked a professional to work with you then you should feel comfortable to let them do their job. If your mortgage lender or banker doesn't get back to you quickly with good ideas you can terminate your agreement (so they don't keep loan shopping on your behalf) and ask around for someone who will help you achieve your personal vision. It's really not a good idea to have more than one lender workng for you because that causes multiple inquiries on your credit at the time you need your score the highest.

Wishing you every credit sanity! 

© 2007 susan templeton