Getting the Best Interest Rate on Your Home Loan?

Getting the Best Interest Rate on Your Home Loan?
A Qualified Mortgage Consultant Can Help Boost Credit Scores
By Bill Vourazeris, M-Point Mortgage Services

Crofton, MD Bill Vourazeris – Consumers interested in purchasing or refinancing a home will pay an interest rate based on current market conditions and their ability to pay back the loan. The borrower’s income and debt ratios are taken into consideration by the lender, as well as the predictability factor provided by credit scoring. It’s important to have a mortgage professional in your corner that has a keen eye for solutions to improving credit scores in an effort to get the best interest rate possible.

Interest rates associated with various loan programs are broken down into schedules based on credit score ratings. While each lender has its own guidelines, it’s safe to assume that as the consumer’s credit score goes down, interest rates will go up.

A borrower with an outstanding credit rating will get what is called an A-paper loan. This type of borrower is rewarded with a lower interest rate because they have a proven track record of using credit sensibly and paying their bills on time.

Loans designed for consumers with less-than-perfect credit – sometimes referred to as “sub-prime” – can range anywhere from A-minus, B-paper, C-paper or D-paper loans.

If you have already taken out a mortgage loan with a higher interest rate because your credit score was a little under par, you will really appreciate the value in doing a little work to improve your credit score. Refinancing from a D-paper loan to a B-paper classification can save literally thousands of dollars in financing fees over time, even though the B-paper loan is still considered sub-prime.

A qualified mortgage consultant will guide you through the nuances of the process of improving your credit score to refinance and save money. First and foremost, he or she will want to review the terms of the existing mortgage loan to determine if you have a pre-payment penalty clause written into your contract. In general terms, that means that if you sell the home or try to refinance before the pre-payment penalty expires and you have not already paid off 20 percent of the original loan amount, you will most likely have to pay a 3 percent fee back to the lender to compensate for the high risk and high costs incurred to provide that financing.

Next, you should obtain free copies of your credit reports from http://www.annualcreditreport.com/ and start working on improving the credit score six months prior to the expiration date on your existing pre-payment penalty.

There are five factors that make up the credit score and your mortgage consultant can coach you through some basic strategies to improve your credit score. This means very conservative use of credit cards, paying off debt as much as possible and not applying for additional credit cards unless you will benefit from such action. You will want to verify that negative items you have paid off are being removed from your credit report, and that good credit history is being reported to all three bureaus. You’ll also want to dispute any errors that appear on your credit reports and seek to have those removed entirely.

Once your credit score improves, it’s time to refinance at a better interest rate. Your mortgage professional should look for a program that carries no more than a two-year prepayment penalty so you can continue to refinance as your credit score increases. You can repeat this process until you reach A-paper status and secure the best interest rate available.

This is a strategy that also works well for first time home buyers who do not have enough credit history under their belt to get an A-paper loan at the time of purchase. The important thing is to work with a mortgage consultant who can give you a roadmap to follow and a strategy for success in building personal wealth.

FHA Loans May Get Tougher Soon -- Just Like Conforming Loans Did

Posted on June 24, 2008Filed under Conforming Mortgage Guidelines Read the complete post or link to it
There were two news pieces written on FHA home loans today.
Separately, they're interesting but uneventful. Together, they could be a harbinger of tougher times ahead for two groups:
Home buyers that use FHA financing
American taxpayers that fund the FHA
The first FHA story was front page in the Wall Street Journal. It shouldn't surprise anyone that FHA loans using downpayment assistance programs default at much faster rates than non-DPA loans.
The second story wasn't so obvious.
Originally run in Bloomberg, Dawn Kopecki writes that Fannie and Freddie are cherry-picking good loans, leaving spoiled fruit for the FHA's balance sheet.
I was a source for this article, quoted about Fannie and Freddie's loan-level pricing adjustments and how it's encouraging American homebuyers with below-average borrowing profiles in weak real estate markets to shack up with the FHA.
You can guess how this story could end for the taxpayer-funded FHA. Not only should the government group's loan portfolio deteriorate over the next few years, its guidelines will likely tighten and its fees may increase.
We've seen this happen before. On video.
So, consider today's FHA stories your fair warning. If you're planning to use the FHA for your next home loan, the approval process should be much easier for you today than even just a few weeks from now.
This is because -- sooner or later -- the FHA's loan problems are going to become a mainstream political issue and that's when the hammer would fall. For as little as the lenders like holding the bag on defaulted loans, the taxpayers like it even less.
(Image courtesy: Wall Street Journal Online)