Apply for a mortgage
| Contact T. O' Donnell
|1. Always haggle.
A mortgage or a house is just another consumer product. A few clever
words can get a sweeter deal.
2. Buy off-season. You may
be able to wangle a 'seasonal discount'.
3. Companies may offer very
low rates upfront, but hide additional costs in the small print.
4. Try to keep the term of the
mortgage as short as possible. The shorter the term the less
you pay in interest. Consider a fifteen or twenty year term.
5. Resist the urge to splurge.
Some lenders will offer up to six times your salary. They're not
doing you a favour.
6. Improve your credit rating
as much as you can.
Pay off old loans, and once they're
paid off, check your credit report.
6a. An easy way to build
up your credit score is a department store credit card; make
a few charges on it, and pay them off ASAP.
The idea is to get positive entries
on your credit report.
6b. Ensure you pay all your bills
on time (or before time); never later than the due date.
Pay off credit cards and keep their
6c. Close unneeded credit card
Close them off _slowly_, not all
at once. Keep only two credit cards. These should include your oldest
card, as that has the longest credit history.
6d. Open a savings account at
7. Don't get too caught up in
comparing APRs and various special offers; they may not reflect
what _you_ will get if you apply.
Everything depends on your financial
8. Something to look out for in
any mortgage company is how old it is.
Is it newly formed, or has it been
around for twenty years?
9. Keep your mortgage as small
Aim for easy affordability.
10. Beware of prepayment penalties.
11. Get a full, professional survey
of the property.
Find out the true value of your home.
Get more than one independent appraisal.
12. Write up a budget of your
Factor in daily, weekly, monthly
and yearly outgoings. See how much you can truly afford to put towards
13. The deal that seems too good
to be true probably is!
Shop around. Get quotes from 4
lenders. You may be able to save yourself thousands of pounds by avoiding
loans with high rates and/or high fees. A 0.5% lower rate on a £100,000
loan for 5 years will save you over £1,300 in payments. Try
your local bank or credit union, mortgage brokers and internet resources.
Don't choose lenders just because
they have the lowest rate. Consider the overall cost of your loan.
A mortgage or loan varies
The amount borrowed;
The interest rate;
The type of rate (fixed or variable);
The term (length
in years) of the loan;
Discount rate for X number of years;
Associated fees (broker, origination, prepayment etc.);
Local or national taxes;
Insurance required by the lender.
Consider the following advice from the
U.S. Department of Housing and Urban Development when applying
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
- 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
- Be truthful about your credit problems,
past and present.
- Be honest about your intention to occupy
- Do not provide false supporting documents.
Do you really need a mortgage this size?
Go for a walk. Have a long bath. Have a chat with yourself. Buying a mortgage
is like buying a second-hand car; it's just another consumer item. A bargain
may be had by exploring ways of cutting your outgoings; spending less,
trying different vendors, or deciding you don't need such a big house.
People today expect to live in the home
of their dreams immediately. They get a fat mortgage to do so, and loans
for furniture on top of that. In the old days, a couple would move into
a shack, make the best of it, and work and save to get a better life.
An old stool or a leather-upholstered armchair do the same job; they prop
up your ass.
Sadly, there are brokers who'll happily
lend you six times your annual income so you can keep up with the Joneses.
What you may not realise is that the Joneses are in hock up to their eyeballs,
and their marriage is breaking down.
It cracks me up that people with 0-2 kids
want a mansion, when two generations ago their grandparents were sleeping
six to a cottage, and they managed just fine.
Start Saving. Every pound saved
is a pound towards your deposit. A pound towards your deposit is a pound
you'll not be paying interest on. If you're not in a hurry to get your
bit of real estate, trying saving up, and maybe selling off something
you don't need. You'll reduce the size of your repayments dramatically,
and breathe a little easier.
People think they're being clever if they
get a 95-100% mortgage. It's their lender who's smiling.
Avoid Insurance. You don't need
this if you're reasonably sure you can pay back the loan without too much
trouble. The insurance is for the benefit of the lender, not you. Adding
insurance adds a fat wad to the cost of your loan. If you
have a good credit rating, you can refuse to take it on. It's a massive
extra expense. Just save up a fat deposit, and your lender should waive
It's a bit like when you buy a DVD player
in Dixons; the salesboy asks you if you want insurance with that, when
he knows a) you're already covered by a warranty, and b) The item is unlikely
to break down in the first two years. It's just a way of scr*wing more
money out of you.
People with bad credit may have no option
but to take it on, but you can always refuse it initially, and see what
Keep your mortgage
as small as possible. Aim for comfortable
You will find mortgage
lenders who will stretch your qualification ratios. They aren't doing
you a favour. The qualification ratio is the ratio of your total mortgage
payment to your total income.
The traditional ratios
mortgage payment as 28% of your income;
- The total of your
mortgage payment plus your monthly debt payments as 36% of your income.
Improve your credit-rating.
Find out what it is at Equifax,
and Trans Union. The last
two are UK and US only, respectively. Lenders may access them all. Then
do the following:
Make sure you are on the
Satisfy liens and
public judgements, such as in the County Court (CCJs).
including erasing judgements older than seven years. Paid-off debts can
be legitimately recorded up to seven years after settlement.
Add information showing
- Current employment, employer's name and address and your job title.
- Previous employment, if you've had your current job less than two years.
- Current residence, and if you own it.
- Previous residence if you've been at your current place under two years.
- Date of birth.
Close unneeded accounts.
Close them off slowly, not all at once. Keep only two credit cards, one
of which should be your oldest; it will have the longest credit
history attached to it.
Pay off credit cards.
Keep balances low, and paid off on time.
Keep your debt low;
below 75% of available credit.
Build a good payment history.
Pay your bills on time!
Open a savings account
at your bank.
When interest rates fall: Try
and leave your repayments the same as prior to the rate drop. This means
you will actually be paying more than the minimum each month. You'll repay
your loan years sooner.
The more rates fall, the sooner you will
repay your loan. You will have been paying at the higher rate, so if
rates rise again later you may not have
to change your repayment.
Don' t churn your mortgage loan.
Each time you refinance you'll likely incur closing costs and non-refundable
fees. Don't let a lender talk you into rewriting your mortgage just to
get a little cash back. Many people
find that they have added £6,500 or more to their debt in order
to obtain £3,500 in cash. An example of this is second mortgage
Don't buy a
home without full, professional survey(s). Human beings can
be perverse; happy to spend £150,000 on a house after a half-hour
viewing, but be-grudge spending £500 finding out whether it's worth
buying in the first place!
Don't take the vendors's word that
repairs have been made. If the vendor agrees to make repairs, have
your inspector verify the work's been done before closing.
Get a written (emailed of faxed) Good-Faith
Estimate. Allow for a reasonable time; 1-2 hours.
If they can't do that you may want to question using them.
The market can change in minutes. Get a written good-faith estimate
of closing costs. A Good-Faith Estimate should show you all of the
costs of your loan, including the rate. The cost of a mortgage, however,
cannot be your only criterion. Is your lender a bank or just a broker?
Do they fund the loan for you, or do they rely on others to fund your
closing? This can be a very important distinction.
you understand and are willing to pay all of the fees listed.
Origination fees are usually
about about 1% of the loan amount. Some consumers have paid (in ignorance)
as high as 17% for origination/broker fees. For a £100,000 loan,
that means paying £17,000, versus £1,000 to another company
would have provided the same loan with the same terms. If you have poor
credit, you will likely have to pay higher rates and fees, but shop around.
Beware of statements such
as "No cost to you". Some mortgage companies will add closing
costs to your loan balance rather than require you to provide cash upfront
at closing. Make sure you understand all the fees you are paying.
Taxes. Does your state or country
charge 'property transfer taxes', 'mortgage taxes', 'mortgage recording
fees' etc? These can add as much as 2% of the mortgage amount to your
Get cheaper household insurance
- Reduce your household expenses by shopping around for your buildings
and contents insurance. It's convenien to buy from your lender, but search
the market and you could save a packet.
Private Mortgage Insurance (PMI):
By taking an 80 percent first mortgage and a 10 or 15 percent second mortgage,
you can avoid paying private mortgage
insurance. PMI is usually required if you have less than a 20% deposit
i.e. your mortgage is 80% or more.
If your original mortgage required PMI
because you put less than 20% down on the property, and your new mortgage
will be 80% or less than the appraised value, you can probably drop your
PMI coverage. If you reach 20% equity in your home, you can save a lot
of money by asking your lender to drop PMI.
Don't take out a Mortgage Indemnity
Guarantee (MIG) - MIGs are now usually only charged on loans of 90%
to value. A MIG is a one-off payment made to the lender that protects
them if you fail to keep up your repayments and your home is repossessed.
If you can avoid paying for one, do, it will save you money.
Locking your rate. Get
a written statement which details the interest rate, the length of the
rate lock, and the details about the program.
Pay fortnightly instead of monthly.
Many people get paid weekly or fortnightly, so have the loan payment come
out of your account around the same time you get paid.
You'll be less likely to miss the money.
You will actually save money and pay your loan off sooner. Divide the
monthly payment by two or four and pay that each week or fortnight.
For example, on a £100,000 loan
over 25 years at 7.5% and paying weekly or fortnightly you will save 5
years and £30,000(!) in interest. BUT, this only works if your
outstanding mortgage is calculated week to week. Many lenders calculate
your repayments as yearly totals, thereby increasing their profits.
Put money into your home loan instead
of a savings account. Provided your loan has a withdrawal facility,
then, instead of using a normal savings account paying negligible interest,
put the money on your home loan.
Then when you need it, just redraw it
back from the loan. The benefit is that whilst that money is on your loan
it is saving you interest, as loan interest is calculated daily on the
Beware that most lenders have a minimum
redraw amount, and possibly a small redraw fee. However, provided
you only put medium-to-long-term savings into the loan, and therefore
only redraw infrequently, then you should do well.
Make sure your loan, or at least part
of it, is at a variable interest rate, as most lenders will not allow
redraw whilst on a fixed interest rate.
Consider a split loan.
This is where you have part variable and part fixed. It gives you stability
with the fixed rate, whilst giving you flexibility with the variable part.
Many lenders will do a split loan for
a small additional fee at the time of application.
Do a budget. Make sure you use
realistic figures. Keep all of your receipts, or keep a record, for all
of the money that you spend for a month. Use that to help you compile
the first draft.
Be prepared to review and update it regularly.
A coordinated budget allows you to get the most home
for your money without beggaring yourself, while getting rid of wasteful
Avoid 'quicksand' loans. These
contain combinations of the following attributes: short-term, high
up-front-fees, high rates, balloon payments, excessively high late fees,
prepayment penalties. Quicksand loans can swallow up any equity you
may have, and ruin your financial position.
Beware of prepayment penalties.
Many 'no fee' credit lines have a pre-payment penalty. This can
be very expensive if you are planning to refinance or sell your house
in a few years time.
There is no need to sign a loan which
contains any significant prepayment penalty, if you have good credit.
One of the smartest things someone can do with a mortgage is to prepay
on the loan.
All you need to do is contact your lender
and ask for its prepayment procedure. Then, once a year, check the loan
balance the lender sends you, to make sure the additional payments have
been accounted properly.
Be wary of promises of getting a loan
quickly. Many borrowers are told that their loans will close
within a particular time. They don't make payments on existing debts,
in anticipation of the new loan.
After several delays, they become delinquent,
with no money from the new loan. Some mortgage companies then order
new credit reports, and charge the borrowers higher fees, and a higher
rate, because of the delinquent loans, which resulted from delays caused
by the mortgage company!
Apply for a mortgage
| Contact T. O' Donnell
Don't look for a home without being
pre-approved. You will have much more negotiating power with the vendor,
and may be able to save thousands of pounds.
Verbal (oral) agreements are worthless.
When buying or selling property, always get it in writing.
Don't use a dual agent (one representing
both buyer and seller). Since the seller usually pays the commission,
the dual agent may negotiate harder for the seller than for the buyer
(you). If you're a buyer, it is usually better to have your own agent.
Find a lender who will look out for you, not the estate agent, with whom
he may have a 'mutually beneficial relationship' i.e. kickbacks.
Shop for home insurance well before
you are ready to close. If you wait until the last minute to get insurance,
you may have no time left to shop around for the best policy. A paid homeowner's
insurance policy (or a paid receipt for one) is required at closing.
Don't sign documents without reading
them. As soon as possible, before you close the deal, review the documents
you'll be signing, and make sure you understand them, so you won't have
to sign them in a hurry.
Do a break-even analysis before refinancing.
To determine the number of months you'll have to stay in the property
to recoup your costs, divide the total refinancing costs by the monthly
Find out the true value of your home.
Get more than one independent appraisal. Compare it with the prices of
similar-sized houses for sale in the same area. Be like mortgage companies
and estate agents, and use the sales (or market data) comparison approach.
Refinance your first mortgage before
you draw against your home equity credit line. Many lenders will consider
your first mortgage refinance transaction a "cash-out" refinance,
if you draw against your credit line for anything other than home improvements.
This creates stricter lending criteria, and can sometimes act as a deal-breaker.
Refinance your first mortgage before
you get a second mortgage. When you are refinancing only your first
loan, many mortgage companies look at the combined loan amounts (i.e.
the sum of the first and second loans). Check with your mortgage company
to see if having a second loan will cause your refinance to be turned
If you plan to refinance your first
mortgage in the near future, don't get a home equity credit line.
Check with your mortgage company to determine if getting a second line
will cause your refinance to be turned down. Even though they are refinancing
only the first mortgage, many mortgage companies look at the combined
loan amounts (i.e. the first loan plus the equity line).
A home equity line of credit may not
always be cheaper than a car loan, or a credit card. Compare the effective
rate of your credit line (i.e., after the tax deduction) with the rate
on a credit card or car loan.
your spending is out of control, don't
get a home equity credit line to pay off your credit cards.
Don't put your home at risk by spending large amounts on your credit
cards, after paying them off with your credit line.
Pay off small
debts before the due date. Cancel
credit-cards you are not using. Loan officers tend to count the total
line of credit - even if you owe nothing - as a liability.
They will only cloud the picture. Close credit lines that you have
no intention of using in the near future. Also look closely at the interest
rates and fees, when deciding which cards to keep.
documents. Provide your mortgage
company with documents in a timely manner. If you let your rate lock
expire, you could end up paying higher rates.
There are a number
of documents you will need, and the approval process will go much smoother
if you begin to gather them now. Examples: Tax returns from the last few
years (especially if you are self-employed), copies of pay slips, and bank statements for all accounts (current and
saving) for the past three to six months.
Remember closing costs.
In addition to your deposit/downpayment, you will need to reserve funds
for closing costs. Depending on the type of loan and your location, these
costs can range from 2-5% of the mortgage amount, which will be paid in
cash at the closing, and cannot be borrowed funds.
Consider a 15
or 20 year term. Many purchasers assume that a shorter term will make
their payments impossible. Unless you make the comparison, 'though, you
may never know if a 15 or 20 year term could have been affordable.
Try to pay off your mortgage as quickly
as possible. Use a loan or mortgage calculator with an amortization
Online loan calculator
| Online mortgage calculator HERE
Choose a lender with a clean record with
the industry watchdogs in your country. The mortgage industry
receives a great number of complaints against it. In the UK, credit brokers
of any kind must have a licence from the OFT, and if they lose it, the
OFT publishes this on their website.
Avoid giving your application to a
clerk over the phone. This is a sign of a clearing-house, and cost-cutting
measures. It takes at least two years to become a 'pro' loan officer.
Work with someone with the skill and experience to advise you, and make
sure they aren't new to the business. Look for stability,
because when a loan officer quits, their loans often are dropped.
Shop for rates when the market is
calm. Rates change from day to day, so compare lenders. The
quotes you get should all be from the same time period.
Change your interest calculation.
Daily interest calculation has been established for a while in some parts
of the world. The advantage of switching to this calculation is that,
if you make a repayment, it immediately impacts on the interest accruing
on your mortgage.
Remortgage for a smaller loan to value
(LTV) - Your property has probably increased in value since you took
out your original loan. Therefore,the LTV will have decreased as well.
See whether you can get a better deal; many lenders offer better terms
for people borrowing less than 75% LTV. Make sure you have your property
valued properly, and shop around for a lender that will cover your valuation
Check your mortgage payments are correct
- Do the mathematics. There's a one in ten chance you could be paying
more than you should.
Ensure you review your mortgage regularly
- Regular reviews, and possibly remortgaging, will ensure you pay as little
as possible in interest.
If you find yourself in a dispute
with a lender about a payment or another issue, don't send correspondence
to the same address you send your payment.
Apply for a mortgage
| Contact T. O' Donnell