Three of the Biggest Mistakes People Make When …

Three of the Biggest Mistakes People Make When Refinancing or Purchasing a Home

Mistake #1 ? Failure to Examine/Repair Credit Problems Prior To Loan Application 99.9% of potential new homeowners and borrowers have no idea what type of credit they have or how to repair any adverse credit which may exist. They fail to realize that credit is one of the key factors in acquiring a mortgage or refinancing a current mortgage. Credit problems not only slow down the process of getting a home loan, but can damage your ability to make numerous other purchases.

What is Good Credit? Good credit usually means a person has about five or six solid pieces of seasoned credit. In other words, a car loan, a current mortgage, a VISA card, etc., which are at least two years old and indicate no late payments. Of course, rarely is anyone's credit history perfect. One 30-day late payment on your credit report won't necessarily keep you out of this category. Most underwriters - those who approve your loan - are looking for trends. Isolated incidents do not carry as much weight as an established history of paying bills well past their due dates.

How Can I Repair My Credit? In most cases, a simple letter or phone call to the credit card company or business that originally gave you the credit can put you on the right track for having the "scar" removed from your report. Sometimes the company will require you to pay off the balance of your debt or send in a letter explaining why you were late with your payment. However, if you have a history of late payments, you may have to let time take its course, waiting while you build up a record of timely payments on outstanding debt.

Can High Levels Of Debt Affect My Ability To Buy A Home? Yes. And there is an easy way to determine if you have too much. Most loan programs will not allow your monthly mortgage payment (plus housing expenses) to exceed 28% of your total gross monthly income. Also, they will not allow your total monthly debt (mortgage payments, car loans, installment loans, credit cards, rental losses and alimony/child support) to exceed 36% of your total gross monthly income. (Note: these are guidelines only. Special circumstances and special programs may be able to overcome excessive ratios) If you exceed the 28% and 36% guidelines, you may want to consider paying off some of your debt in order to lower your monthly obligations before you apply. Remember, however, that some loan programs have more lenient ratios (such as FHA, VA, FNMA Community Homebuyer and Jumbos).

Mistake #2 ? Failing To Realize (In Advance) How Much Money a Lender Is Willing To Loan You Whether you are planning on refinancing or purchasing a new home, most lenders have strict guidelines on how much money they are willing to lend. The lender's decision is typically based on the loan-to-value ratio. In other words, lenders have limits on how much money you can borrow based on the value of your home.

For example, if you are refinancing, most lenders will not lend more than 90% of the appraised value of your home. So, if your house appraises for $100,000, you would be eligible for a $90,000 loan, assuming your current loan balance and closing costs equal $90,000 or more so that you are not getting cash out of the property. On the other hand, if you are planning to buy a home, most lenders will allow your loan-to-value ratio to go as high as 95-97%, or even 100% with a VA loan.

So, if you are planning on buying a new home, make sure you have at least 3% of the purchase price - your own funds, not gifts or loans - available for the downpayment, plus closing costs. Closing costs include discount points, origination fees, attorney's fees, etc. They often run anywhere between 4% and 8% of the loan amount, depending upon your location and loan amount. The larger the loan, the smaller will be the percentage of that loan required to cover closing costs.

Is It Possible For Me To Take Cash-Out When I Refinance And Pay Off Some Credit Cards? Yes, but in most cases, this means you cannot borrow more than 75% of the appraised value of your home.

What Can I Do If I Can't Come Up With A 5% Down payment? The vast majority of loan programs look to the borrower to make a down payment from his or her own funds of 5% of the value of the house. As mentioned, some will accept only 3%. Some of these still require 5% down, but will allow the remaining 2% to come from a gift from immediate family members, grants or unsecured loans from your employer, non-profit organization, government agency or first mortgage lender. In addition, if you are eligible for a VA loan, you can qualify for a 0% down payment loan (provided that you have sufficient VA eligibility)! I Am Self-Employed and Earning A Good Living, But My Tax Returns Are Complex, Usually In Some Stage Of Completion, And Difficult To Put My Hands On - Can I Get A Loan ? Yes. There are a number of "no income verification" programs available for people like yourself. Under the guidelines of these programs, most lenders will not loan you more than 80% of the appraised value of the property . They will require that you have strong credit, a substantial amount of liquid assets and have been selfemployed for a minimum of two years (with some exceptions). If you fit this criteria, there's a good chance you'll get approved for the loan you need. Mistake #3 - Failure to Find a Reputable and Experienced Mortgage Lender To Help Finance The Home. Associating yourself with a honest, high quality, and service-oriented mortgage banker is probably the most important ingredient in finding home financing. This is an important decision in your life - it is probably one of the largest financial transactions you will make. It's not something you want to treat lightly. Dealing with the right lender can mean the difference between having your loan application approved or rejected. So, how do I find the ideal person to handle my loan? This shouldn't be too difficult. There are many reputable, knowledgeable professionals. Just be sure to ask a few good questions before choosing one. We recommend asking:

1. Can you provide any references? If they do, then, call! 2. How long have you been in business? 3. How - and when - can I get in touch with you? Your loan officer should be available through many channels (phone, fax, pager, e-mail) at times that are convenient for you.

Copyright 2004 Mortgage Bankers Association. Information provided with the permission of Mortgage Bankers Association. For more information please visit .

Equal Housing Lender Mortgages are offered and originated by Mortgages are offered and originated by RBS Citizens, N.A. Citizens Bank is a brand name for RBS Citizens, N.A. and Citizens Bank of Pennsylvania. RBS Citizens, N.A. and Citizens Bank of Pennsylvania are affiliates. All loans are subject to individual approval.RBS Citizens, N. A.

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