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July 29th, 2011

Three new home loan facts you should know

by Gina Pogol

 

1. Rates vary from lender to lender (a lot more than you think)

int rate QMarkExperts at the Mortgage Industry Advisory Corporation discovered that between different lenders, current mortgage rates vary within a range of 0.25 percent (conforming and government loans) to over 0.50 percent (jumbo and other loans). Other studies have concluded that overall, mortgage rates can vary by about 0.35 percent from one lender to another.

If you don’t collect mortgage quotes from several lenders, you simply risk paying more. How much more?

On a $300,000 home loan at 5 percent, your total payment comes to $1,610. Over the life of the loan you would pay $279,767 in interest. But if you end up paying 5.35 percent, your payment is nearly $65 more, and over the next 30 years you’ll pay an extra $23,320!

Most people know that rates vary, yet almost 40 percent of borrowers studied got only one mortgage rate quote before applying for their home loans!

2. One lousy credit score point could cost you big time

Until a couple of years ago, you didn’t have to worry about your exact credit score as long as you hadn’t littered the landscape with collections, judgments, late payments, and bounced checks to the pizza guy.

Today, just having high balances or too many inquiries can cost you, because modern mortgage pricing is driven by credit score inCredit Score 20-point increments.

It probably seems silly to you. Seriously, is a borrower with a 679 FICO really a higher risk than one with a 680 score?

But risk-based pricing is probably here to stay. Fannie Mae’s Loan Level Pricing Adjustment Matrix shows that the applicant with a 679 score is charged 0.75 percent in extra fees ($2,250 for a $300,000 new home loan!). ONE crummy point difference could cost you thousands.

Head off ugly surprises and get your free credit report. You can pay the nominal fee for your credit scores at www.annualcreditreport.com before applying. Fixing inaccurate credit accounts or paying down balances could save you a bundle.

3. FHA home loans are not only for first-time or low-income buyers

4-FHA-logoAnyone can be eligible for an FHA mortgage. There is no income restriction, and anyone buying a primary residence can be eligible, but there are limits on the amount you can borrow. FHA loans confer several advantages:

  • The required down payment is only 3.5 percent for applicants with credit scores of 580 and higher
  • The required down payment is 10 percent if your credit score is between 500 and 579
  • The loans are assumable when you sell your home. If mortgage rates increase as they are expected to, assumability can give you a big advantage over competing sellers.
  • Underwriting is flexible
  • Credit scores don’t affect your interest rate and costs

When you shop for a mortgage, ask about FHA financing as well as conventional mortgages. Keep in mind that a lender that is not FHA-approved will not offer FHA financing. So make sure that at least one of your prospective lenders is FHA-approved.

When shopping for a new home and a loan, ignorance is not bliss. Arm yourself with awareness and make your best deal.

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2 Responses to “Three new home loan facts you should know”

  1. Return of 20% Home Down Payments Looms – TheStreet.com | No Down Payment Mortgage Says: July 29th, 2011 at 2:09 pm

    [...] TribuneCurrent Mortgage Rates for Friday, July 29, 2011Mortgage Rates & Trends (blog)Three new home loan facts you should knowHSH Financial Publishers (blog)all 13 news [...]

  2. Lower the Debt Floor Says: July 31st, 2011 at 2:27 pm

    Usually the score for the 3 bureaus fluctuates within a few to 5 points monthly, or within 2-3 months. We do subscribe to one of the monthly services (accidentally) and so are notified almost each month that the score has nominally changed. So maybe just wait a few months.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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