Credit problems won’t prevent you from obtaining a mortgage, but they will increase the cost. So try to put some time between your problems and your home purchase so you can reestablish good credit. Keep in mind, however, that interest rates, home prices, or both might rise while you work to boost your credit score.
Start by thinking about your situation. Are you ready to buy a home? How much can you afford in a monthly mortgage payment? How much space do you need? What areas of town do you like? After you answer these questions, make a “To Do” list and start doing casual research. Talk to friends and family, drive through neighborhoods, and look in the “Homes” section of the newspaper.
A 15-year loan is usually made at a lower interest rate. Equity is built faster because early payments pay more principal. In a 30-year loan, more interest is paid off than principal for the first 23 years, meaning larger tax deductions. As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses.
Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It’s required primarily for borrowers making a down payment of less than 20%.
Judicial foreclosure action is a proceeding in which a mortgagee, a trustee or another lienholder on property requests a court-supervised sale of the property to cover the unpaid balance of a delinquent debt.
Nonjudicial foreclosure is the process of selling real property under a power of sale in a mortgage or deed of trust that is in default. In such a foreclosure, however, the lender is unable to obtain a deficiency judgment, which makes some title insurance companies reluctant to issue a policy.
Keep in mind that your mortgage interest and real estate taxes will be deductible. A qualified real estate professional can give you more details on other tax benefits and liabilities.
Choose your lender carefully. Look for financial stability and a reputation for customer satisfaction. Be sure to choose a company that gives helpful advice and that makes you feel comfortable. A lender that has the authority to approve and process your loan locally is preferable, since it will be easier for you to monitor the status of your application and ask questions. Plus, it’s beneficial when the lender knows home values and conditions in the local area. Do research and ask family, friends, and your real estate agent for recommendations.
If you buy a house directly from a seller, without brokers, have an attorney keep your deposit in and escrow account. Too often, money held by the seller is spent prematurely. If the sale doesn’t go though it’s important that you can recover your funds.
Always check to see if the house is in a low-lying area, in a high-risk area for natural disasters (like earthquakes, hurricanes, tornadoes, etc.), or in a hazardous materials area. Be sure the house meets building codes. Also consider local zoning laws, which could affect remodeling or making an addition in the future. Your real estate agent should be able to help you with these questions.
To ensure you won’t fall victim to loan fraud, be sure to follow all of these steps as you apply for a loan: Be sure to read and understand everything before you sign. Refuse to sign any blank documents. Do not buy property for someone else. Do not overstate your income. Do not overstate how long you have been employed. Do not overstate your assets. Accurately report your debts. Do not change your income tax returns for any reason. Tell the whole truth about gifts. Do not list fake co-borrowers on your loan application. Be truthful I about your credit problems, past and present. Be honest about your intention to occupy the house. Do not provide false supporting documents.
