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Your Mortgage Lending Options: What to Look For and What to Avoid

You have decided to buy a new home, which is an exciting adventure.  You have probably been saving money and living on a budget for many years in order to do so, and now you are ready to take the plunge.  While you have saved a lot of money, you will still need to obtain a mortgage loan to cover the price of the home.  How do you make sure you are selecting the right mortgage loan for you?  The following are eight important tips to consider in your selection process:

TIP #1:  Know Your Credit Report
Before you apply for any type of mortgage loan, it is a good idea to obtain a copy of your credit report.  In fact, we recommend getting a copy at least six months prior to applying for a mortgage loan so you can mend any credit issues that may exist on your report.

TIP #2:  Look for First-Time Home Buyer Programs
If you are a first-time home buyer, it is in your best interest to check out the first-time home buyer programs available in the market.  In many instances, these programs are sponsored by the State or Federal government, and usually offer better rates and terms than other available mortgage loans for which first-time buyers would qualify.  Some are specifically designed for individuals with damaged or little credit, while most can assist people who have only saved a small down payment for the loan. 

TIP #3:  Get Pre-Approved for a Mortgage Loan
It is important that you get pre-approved for a mortgage loan, not just pre-qualified.  Getting pre-approved requires you to actually apply for the loan, providing tax returns, pay stubs, and other critical information.  When you pre-qualify for a mortgage loan, the lender lets you know what you can most likely be approved for based on your income, amount of debt and down payment.  Being pre-approved gives you the edge in negotiations because you are a “sure thing” when it comes to closing the deal.

TIP #4:  Borrow Only What You Can Afford
Many people make the mistake of borrowing as much money as they can get from a lender, not necessarily what they can afford.  In some instances, people will borrow the largest amount they can, thinking that their income will increase over time, making the loan payment more reasonable for them in the future.  Do not think this way!  Many mortgage experts recommend keeping your mortgage payments (including taxes and insurance costs) to approximately 25 percent of your gross income.  That way, you can borrow what you can comfortably afford and “live” in your home, not just “exist” in your home.

TIP #5:  Shop Around for the Best Deal
Too many people with good credit are sold on mortgage loans that are designed for individuals with poor credit.  Be sure to shop around for the best rates and terms available to a person with your credit score.  At USE Credit Union, we offer many different types of mortgage loans with competitive rates and terms for the first-time buyer as well as the seasoned home buyer.  Click here to learn more about all of our mortgage programs. To find out more about your FICO score, you can go to www.myfico.com.

TIP #6:  Don’t Pay Useless Fees
Many mortgage lenders will add fees to the mortgage loan process that are not necessary.  For example, you may see a document preparation fee of $150, when in actuality the computer creates the forms, not the lender.  Or, you may be charged $150 for a credit check, which may only cost them $15.  The point here is that you should shop around and ask about the points and other fees charged on a mortgage loan. Make sure you understand why the fee is being charged.  Don’t just write a check at closing for fees you really shouldn’t be charged

TIP #7:  Plan to Pay Closing Costs
The day your loan closes, you will be asked to pay several different fees, such as taxes, title insurance fees, homeowner’s prepaid insurance fees, attorney’s fees, points and other lender fees.  All of these “closing costs” should not be more than 2%-7% of the selling price of the home you’re buying.  Again, make sure you know this amount (at least an estimated amount) prior to closing on any type of mortgage loan; you do not want to be surprised at closing.

TIP #8:  Keep Cash On Hand After Closing
In most instances, after you close on your home, you will have to pay for things you did not anticipate. It is recommended to keep a fund equal to three months’ worth of expenses to draw from when needed.

Buying a home is not something that will happen overnight. Take your time and do your homework. You have the power to find the best possible mortgage loan for your specific needs. Remember, this is an expense you will be paying for many years; do it right the first time. To learn more about the mortgage loan programs available at USE Credit Union, click here. Or visit one of our branch offices

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