Buying a Home? Are You Ready?
By Ginny Mees
Where does a single girl start? Unfortunately, it is not with the fun part…looking at houses! Sometimes the plan to buy a home will take a year or more, because the most important component to buying a home is your financing options. Finding the right mortgage for you, might mean having to forego that extra vacation to Greece, or (gulp!) that new Louis Vuitton handbag! But remember right now you are paying someone else’s mortgage with your rent, and they are getting the tax benefits and will build equity in their property. The vacation will eventually be a great memory, and your purse will depreciate, but homeownership is the first step toward building independent wealth.
CREDIT: Let’s start with your credit score: there are numerous online sites which will provide you with your FICO (Fair Isaac & Company) credit score, or you can call any of these agencies to obtain a copy of your credit report:
Equifax: (800) 685-1111
TransUnion: (800) 916-8800
Experian: (800) 682-7654
This statistical data of your payment history and debt load will be utilized to underwrite (determine your risk factors for) your mortgage, and the higher the score the lower your interest rate! Like any type of report, there can be errors, so better to have it corrected prior to applying for a mortgage. In most cases the best interest rates are available to people with a FICO score of 650 or more. If yours is lower than this, it is often recommended you take some time to pay off your credit cards, make all your payments on time, and do not apply for any new loans (or co-sign anything). For your information, some loans are better being paid off after the purchase of your home, so you should discuss this with your mortgage broker.
MORTGAGE SHOPPING: During the past two years, the lending institutions have gone through traumatic upheaval, having a significant impact on the way the industry approaches lending. It has never been more important than it is now to interview 3-4 mortgage providers. These fall into two categories: the direct lender (or bank), and mortgage brokers (those who have access to numerous lenders). I am personally partial to the latter, as mortgage brokers will know the best option for you. Although banks sometimes have great offerings, the professional there is limited to the bank’s loan programs. I also believe a good mortgage broker will provide an education to their clients, as they see this relationship as long term. All mortgage brokers and lenders are required by law to provide you a Good Faith Estimate within three days.
This worksheet can help you evaluate your mortgage options, by comparing apples with apples:
In the 1950’s and 1960’s, women were often discriminated against when trying to obtain a mortgage, but now there are stringent protections in place for discrimination:
The Equal Credit Opportunity Act prohibits lenders from discriminating against credit applicants in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, age, whether all or part of the applicant’s income comes from a public assistance program, or whether the applicant has in good faith exercised a right under the Consumer Credit Protection Act.
The Fair Housing Act prohibits discrimination in residential real estate transactions on the basis of race, color, religion, sex, handicap, familial status, or national origin.
Under these laws, a consumer cannot be refused a loan based on these characteristics nor be charged more for a loan or offered less favorable terms based on such characteristics.
Obtained from www.usa.gov, the official site of the US Federal Government.
DOWN PAYMENT: In most conventional (non-government) loans the best possible rates and terms will be available with a 20% down payment. This will also allow you to avoid paying PMI (private mortgage insurance) which is required on any loans with less than a 20% down payment. You will also have closing costs, although a good real estate agent can negotiate a credit from the seller to cover the cost of your closing costs.
A couple of other financial tips:
• By paying one extra mortgage payment a year, you will reduce your 30 year mortgage to 21 years!
• Don’t forget about the $8000 credit for first time buyers who purchase before December 1, 2009.
• Ask your mortgage professional about the benefits of “buying down your interest rate” and how this can help you.
• Ask your mortgage brokers about FHA loans, and if you qualify (if so, you can get great rates with as little as a 3.5% down payment)
• Talk to your CPA to establish your increase in take home pay due to the mortgage interest not being deductible.
• Ask for first time buyers’ discounts from the Title company, the mortgage broker, etc.
• Ask people for recommendations of good mortgage brokers, or visit http://www.womenhomeowners.com and search by area to find a team of professionals for you!
• Don’t be intimidated when interviewing mortgage brokers or real estate agents …remember you are interviewing them, and you want a team of professionals looking after your best interest!
• This link provides the August, 2009 Real Estate Update for Buyers: http://tinyurl.com/poxhhg
For more information on your rights regarding lending please visit: http://www.consumer.gov.
Ginny Mees has been a REALTOR for the past eleven years in the San Francisco Bay area, and she is the Founder of the Independent Women Homeowner network: WomenHomeowners.com.
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