How To Get A
Safe Loan With The Best Rate
Educate yourself on the
mortgage process. Education and knowledge are your
most powerful defenses against getting less than the best and safest
- Estimate how long you expect to be in the home. A general rule is that a first time home buyer should expect to live in a property for at least five years to make it a worthwhile purchase.
- Make sure the fixed rate period is long enough. If you are thinking about getting an adjustable rate mortgage instead of a fixed mortgage, make sure that the fixed period of the ARM is at least two years longer than the maximum length of time you expect to live in a home.
Avoid unsafe types of
loans, such as: ARMs with a fixed period of less than
5 years, Home Equity Lines of Credit that have adjustable rates
which are tied to the Prime Rate, and Option ARMs.
- Do not used Stated Income or Stated Asset loans. Unless you are self-employed and earn more money than you declare, you will almost certainly get yourself in trouble with these loans. These loans are known as “Liar Loans” for a reason.
- Stay away from subprime loans, You should not buy a home if your credit is in bad shape. Going into a subprime loan with a high rate will only put you in worse shape. Get your credit repaired before buying a home.
Qualify with a principal
and interest payment. Only take an interest-only loan
if you can also qualify to pay the principal and interest payment.
If you cannot qualify for the fully-amortized payment, you are
probably borrowing too much.
- Borrow less than the maximum that you can afford. Give yourself a little cushion. You may qualify for a better rate if your qualifying financial ratios, for example, debt-to-income ratio, are not maxed out. Give yourself a little income breathing room by not maxing out your borrowing capacity. As a general rule, don’t borrower more than 90% of what you can qualify for using full-document income verification.
Save up as much money in
the bank as possible beforehand. The money you have
in the bank is your cushion and margin of safety against any
contingency while you are in the home. Also, the more money you
start with in the bank, the stronger you appear to the lender and
you may therefore qualify for a better rate.
Check your credit well
in advance of starting the home purchase process.
Having an unexpected derogatory item show up on your credit report
in the middle of the mortgage qualifying process is the surest way
to get a higher rate than you expected. This point is especially
true in today’s environment now that lenders have dramatically
tightened credit requirements. You want to begin the loan process
with the absolute best credit report you can. It can take a while to
correct credit issues, so start early and get your credit checked.
Do not buy an expensive
car if you are thinking of buying a home. Buy the car
later. If you buy an expensive car before purchasing your home, you
will dramatically reduce your purchasing power.
Use a local loan
officer that is willing to take the time and
meet with you. This is extremely important in the purchase of your
first home. You can learn a lot during a face-to-face meeting that
you could not over the telephone.
Don’t use an Internet
lender such as eLoan.com for the purchase of your
first home. Chances are that you will wind up with an inexperienced
loan officer located in a different state. This is exactly what you
do not want.
Try to use a experienced
mortgage broker instead of a direct lender. An
experienced mortgage broker can generally obtain better rates than
most direct lenders. Also, the mortgage broker has access to a wide
range of lenders. If something unexpected should come up during the
loan process, the mortgage broker can shift the loan to another
lender. A loan officer working for a direct lender does not have
Get pre-approved in
advance by the loan officer. If possible, try to get
a full underwriter approval. An experience mortgage broker would be
able to obtain this.
critical documents from the loan officer. Get the
loan officer’s agreement in advance to provide you with a copy of
the rate lock confirmation from the lender and also a copy of the
initial approval with loan conditions. There two documents will tell
you whether you are really going to get the loan promised by the
Get a 45-day rate lock.
Request that the loan officer lock the rate for at least 45 days.
The loan officer may only want to lock for 30 days because he or she
will make more money but insist on a 45-day rate lock. If a rate
lock expires in the middle of a transaction, you have to take
whatever rate is available on the market.
- Get a 45-day escrow. Request that the Realtor who representing you as a buyer’s agent put into the purchase contract a 45-day period to complete the entire transaction. The normal period is 30 days. This period should always be 45 days when a first-time purchase is involved. The little extra time allows the loan process to go smoother.