The days of 100 percent financing with no down payment are gone thanks to a record number of foreclosures and collapse of the sub-prime mortgage industry. Now if you are looking to refinance your house you will find the standards a lot tougher unless you have a FICO score roughly above 620 and a stable income.
Most experts say that with a strong record of paying bills on time, a documented, steady income, you should be able to borrow easily and at a low rate.
However if you find that you don’t meet any of these standards and your FICO score is below 620, don’t despair. You can still get a loan. It will just be harder. You will probably need a down payment or make some tough decisions, such as scaling back your expectations and buying a less-expensive house.
It pays to shop around
Either way – whether you met all the qualifications to be considered a “prime customer” by the banks or not, the best thing you can do for yourself is shop around.
As the Federal Reserve Board pointed out shopping around for a home loan or mortgage will help you to get the best financing deal.
“A mortgage–whether it’s a home purchase, a refinancing, or a home equity loan–is a product, just like a car, so the price and terms may be negotiable,” its brochure states. “You’ll want to compare all the costs involved in obtaining a mortgage. Shopping, comparing, and negotiating may save you thousands of dollars.”
The local newspaper and the Internet are good places to start. You can usually find information both on interest rates and on points for online lenders like E-Loan and Credit and Debt. The Federal Reserve Board advised checking the newspaper daily because rates and points change daily.
The experts also advised that you negotiate and don’t be afraid because lenders and brokers offer different prices for the same loan terms to different consumers, even if those consumers have the same loan qualifications.
Understand the cost and terms
Request that the lender or broker write down all the costs associated with the loan and if they will waive or reduce one or more of its fees or agree to a lower rate or fewer points. Look out to make sure that while the lender lowers one fee, they don’t raise another fee or the points. This is when it comes in handy to have other comparisons to show the lender.
Once you are satisfied with the terms get it in writing. Obtain a written agreement with the rate you have agreed upon, how long the agreement would last, and the number of points to be paid. This is usually called a lock-in. A refundable fee maybe charged for this service.
Also it may be in your best interest to have a down payment. In fact in today’s environment, most lenders are going to require it. It shows commitment, which is reassuring to lenders.
Finally when going for a mortgage stick with the traditional 30-year, fixed rate mortgage because it’s the safest and most economical product. A 40- and 50-year loan cost too much, and ARMs are risky, especially with raising rates.
To sum up – despite the condition of today’s market, you can still get a good affordable mortgage. You are just going to have to shop around, negotiate and compromise.