paying the closing costs as well.” Low-down-payment mortgages, which are offered by private lenders and through government-backed Federal Housing Administration (FHA) and Veterans Administration (VA) programs, may be attractive to borrowers with ample income but insufficient savings. (For more information, see www.hud.gov and www.home loans.va.gov.)
STEP THREE: KNOW YOUR FINANCIAL PROFILE BEFORE YOUR LENDER DOES
Regardless of the type of mortgage you seek, or the size of the down payment you can make, there are certain steps you should take to get the best deal. First and foremost, get a handle on your credit profile.
You can order a copy of your credit report by visiting the Websites of the “big three” credit bureaus at www.equifax.com, www.transunion.com and www.experian.com. “Correct any inaccuracies and clear up any issues,” says Perry. “If you missed some debt payments because you were preoccupied with a family illness, for example, you can attach an explanation to your report. Many lenders will understand.” The major bureaus generally let you include a statement of up to 100 words with your report.
In general, your credit report will focus on your history of paying off debt such as credit cards and auto loans. “Problems you’ve had in the distant past won’t be counted as much as recent delinquencies,” says Perry. Take heart: after seven years, delinquent payments are no longer reported. (For bankruptcies, it’s 10 years.)
If you have a less than perfect credit history, there will likely still be a mortgage available for you, although you may have to pay a higher interest rate than borrowers with perfect credit. Subsequently, when your accounts are up to snuff, you can refinance your loan at a better rate.
That’s what Damond Johnson, 27, a loading dock worker in Indianapolis, and his wife, Catherine, 27, a college student, did. “We went looking for a house to rent in 1995,” Damond recalls, “and we were told we qualified to buy it instead. That’s what we did, but we found that the rates were high. So we refinanced it last year at a much better rate. Refinancing was simple. We just had to show pay stubs to verify current income and have a satisfactory credit report.”
The Johnsons were able to go from a $48,000 loan at 13% to a $51,000 loan at 8.5%; they put the extra $3,000 toward property taxes and home insurance. Their current payment is under $500 a month, about $40 lower than the old one. “This means a huge
savings for them,” says Michelle Hall, a home mortgage consultant with Wells Fargo Home Mortgage in Indianapolis. “Now they’ll be able to build equity in their home. They took a 30-year fixed mortgage, which protects them from having their rate change every year or so. Therefore, they have protection against rising mortgage rates. If rates drop, they’ll be able to refinance.
“What’s more,” says Damond, “with our new loan, we make one monthly payment that also includes property tax and home owner’s insurance, so it’s much more convenient.” Regarding home owner’s insurance, most lenders require private