Six Mistakes to Avoid when Applying for a Mortgage Loan

It’s easy to get caught up in the elation of purchasing a new house, especially if it’s your first time as a homeowner. That sense of accomplishment, the upgrades to your lifestyle and living arrangements, even landing a sweet interest rate on your mortgage payments, are all part of the ups that come with having a home to call your own.

With all of these things to look forward to, it’s understandable to want to swiftly move through a mortgage application as fast as possible. Many times, though, potential homeowners might not realize some of the little things they inadvertently do in a hurry that can actually slow down the mortgage application process to the detriment of being approved for a home loan.

Before applying for a mortgage, consider some of these common missteps and avoidable oversights that could prolong the application review, and even get you declined by a lender.

—1. Failing to get preapproved

Colin Robertson of online publication U.S. News & World Report said it best: “Good preparation is the key to a good mortgage.”

Unfortunately, one of the most fundamental preparatory steps people fail to take is getting preapproved to check if they even qualify for mortgage financing. According to Robertson, mortgage loan preapproval is more conclusive than a basic prequalification because a bank will examine everything from your credit report to your income and assets.

Lew Sichelman of Realtor.com also said that many consumers confuse prequalification with preapproval. In the case of the former, a lender is only making a guess into how large a mortgage loan you might qualify for; in the latter, you’ve been approved based on the facts of your financial history — what you can afford comes down to hard numbers, not estimates. Overlook these differences and you might need to start the application process from square one.

—2. Changing your credit behavior

There’s a misconception that if you pay off all your bills on time, it’s OK to use up a good chunk of your credit. The fact is, using too much credit is bad for your credit score and mortgage approval, since it implies a reliance on borrowing money. That doesn’t look good to the people you want to borrow from.

Indirectly shifting around your credit, like opening or closing a credit card, can also hurt both your FICO score and mortgage application because it skews your credit utilization ratio. The same goes for simply applying for new credit along with your mortgage application.

—3. Blanking out on the “blank pages”

It’s an admirable thing, wanting to save paper and conserve trees and all. But when those empty pages of your mortgage application say “These pages left intentionally blank,” they’re blank for a reason. That doesn’t mean you can skip over them when scanning, faxing or mailing them to a lender, bank or credit union. This simple omission can invalidate your application entirely, or, at the least, hold up the process.

—4. Forgetting to read the fine print

Be careful what you wish for. Overlooking the finer details of a mortgage application could mean getting approved for a mortgage you really don’t want. Being hasty about applying for a sub-par mortgage deal is just a waste of time for you and your lender.

The same can be said about verbal agreements. Your word might be your bond, and a lender’s word might be its bond, but nothing is official until it’s in writing. Gone are the days when a handshake and a promise meant a deal was official. Failing to fill out mortgage documentation means there’s no fine print to read and could indicate a scam above anything else.

—5. Lying

There was a time when you could embellish little things like income, employment or credit score on a mortgage application. No biggie, right? Wrong — in these post-financial crisis days, banks, lenders and the law, leave no stone unturned when it comes to anything financial, right down to the errant typo.

Any information you put down on a mortgage application — from 401(k)s to IRAs, to outstanding debts, even bankruptcy filings — can all be verified right down to the decimal point. Don’t put yourself at risk of committing mortgage fraud. And never, ever lie about your taxes.

Sichelman added never to sign an incomplete mortgage application. Loan officers have been known to fill in missing information — if it’s erroneous or false, guess who’ll get the blame by the authorities? You.

—6. Leaving out the legwork

Applying for a mortgage is a chance to verify some of those personal details we’ve never been sure of. Don’t know if your credit score is 320 or 780? Check out your credit before taking out a mortgage. Forgotten some of your past employment history or haven’t tallied up the exact amount of your outstanding debt? Dig into your records to get the answers. It’ll not only save you and your loan officer the work, but you’ll have the personal satisfaction of acquainting yourself with your own finances.

Following this mortgage application checklist can improve your chances of getting approved more quickly for a low mortgage rate. But the application is just one step in a multifaceted process. Have more mortgage questions? Don’t hesitate to sit down with a loan officer, banker, or a real estate lawyer to learn the ins and outs of mortgages before you apply.

And remember, if you’ve been approved for a mortgage, secured your terms and moved in, the paper trail doesn’t end there, even when you’ve finished paying off your mortgage.

Sichelman said that many people hold “mortgage burning parties,” setting fire to their original mortgage loan documents. He wisely advised not to. Make copies of everything related to your house, and store them in a safe location. Your house and everything associated with it is an asset — letting them go up in smoke could mean lessening your chances of selling your home, or getting approved for a future mortgage.

8 Home Renovations That Will Pay You Back

When you own a home, it seems like there is almost always something you would like to do to make it more comfortable, attractive, or eco-friendly. But, home remodeling experts tell us, if you plan to sell your home at some point, put your time and effort into one of more of these renovations proven to pay you back because they increase the value of the property:

• New garage doors – Nothing says curb appeal like attractive garage doors – and you can’t beat the bang for the buck. A mid-range replacement will likely return more than 80 percent on your investment.

• A wood deck – Here’s a renovation you are likely to enjoy – and a $10,000 investment will also return about 80 percent of what you spent.

• Exterior siding – New siding will not only give your home a major facelift. It will return a strong 87 percent on project costs of about $14,000.

• Attic conversions – Adding another bedroom or playroom upstairs give a home more usable living space without increasing its footprint. The remodel investment will likely return 84 percent of a $50,000 project cost.

• Kitchen updates – No need to overhaul the entire kitchen, experts say. Upgrading the counters, and replacing cabinets and appliances will likely cost about $18,000 – and will return some 97 percent of cost. Oddly, a big-ticket total kitchen remodel costing over $100,000 may only return 63 percent of the investment.

• New windows – New, energy–efficient windows throughout your home will save you money on heating and cooling bills – and you will probably get a return of 79 percent on a $10,000 investment.

• Basement remodel – Another great way to add living space to a home is with a basement remodel. Adding insulation and flooring, and upgrading the walls and ceiling may cost as much as $60,000. But return on investment is estimated at 77 percent.

• Back-up power generator – The unpredictable weather of the past few years has led to a surge in the popularity of this relatively inexpensive home addition. An average cost of $11,000 could net you a 67 percent return on your investment.

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Healthy Demand Expected for First-Time and Move-Up Buyers‏

Fifteen years into the new millennium, we are finally seeing real potential that the market can support full buyer momentum, according to the recently released Home Data Index (HDI) Market Report from Clear Capital, with data through January 2015.

According to the data, 2015 has the promise of a transitional year where full buyer momentum in the low and mid tiers reinforces a strong housing recovery. Sustained national price growth in the low-tier segment, once driven by investor activity, is good news for first-time homebuyers. Also encouraging, the number of potential move-up buyers, once locked into underwater mortgages, has been steadily decreasing. The recent rise in home prices continues to bring more homeowners out of negative equity. With more equity to play with, mid-tier homeowners could move-up, creating more opportunity and driving healthy demand in the low and mid tiers of the market.

"We continue to observe the growing price performance gap between the top and bottom segments of the market," says Dr. Alex Villacorta, vice president of research and analytics at Clear Capital. "The rate of appreciation for top tier homes is stalling, which is a more direct reflection of waning fair market demand. While this is a concerning development, there is a silver lining. The moderating upper tier may give traditional buyers a moment to catch their breath, and entice move-up buyers to enter this segment of the market. The ripple effect of opening up inventory all the way down the price spectrum could provide opportunity and motivation across all segments, including first-time buyers, to enter the marketplace. The hope is that strength in the low and mid tiers help restore confidence in a stable housing market, and traditional homebuyers re-engage. The next phase of the housing recovery is dependent on healthy demand from this segment."

The top tier gives way, extending more opportunity to traditional buyers. While we are expecting price growth to moderate across all tiers in 2015, the top tier's quarterly growth rate fell to 0.3 percent in the fourth quarter, where it had been holding steady at around 1 percent through the first three quarters of 2014. Year-over-year, this tier experienced the lowest price growth rate of 3.6 percent among the three national tiers.

At its current pace, continued moderation in the top tier could push quarterly price growth into negative territory in 2015. January data also reveals the low tier holding on to double digit gains year-over-year at 10.2 percent and healthy quarter-over-quarter gains of 1.5 percent. This divide between a healthy low tier and stalling top tier could kick-off a domino effect. Stalling prices in the top-tier of the market could create the perception of a good deal. This instills confidence in mid-tier homeowners, motivating them to move-up to the top tier.

In turn, this opens up more opportunity for low tier homeowners to move-up to the mid-tier. Creating new opportunity in the low tier could entice potential first-time homebuyers to enter the market. This domino effect could be the catalyst for balanced demand across all sectors of the market.

Regionally, the Midwest continues to lead the pack. Year-over-year the Midwest held on to double digit gains in the low tier segment at 13.6 percent, while the top tier fell to 3.3 percent. We also observe this gap between growth in the low and top tiers on a quarterly basis, with the low tier growing at 1.7 percent and relatively flat growth in the top tier at 0.5 percent. The Midwest led the nation in the all tier segment, with quarter-over-quarter growth at 0.9 percent, narrowly edging the West at 0.7 percent. The Midwest is the only region currently seeing price appreciation in the low and mid tiers, growing concurrently above 1 percent. A moderating top tier could incentivize mid-tier homeowners in 2015 to move-up, setting up the Midwest to be the first region to realize full buyer momentum across all segments.

7 Ways You're Accidentally Improving your Credit

There’s little doubt that Americans with higher credit scores get better deals on core consumer items like mortgages, auto loans and credit cards.

In many cases, you might be getting those “good credit” benefits without even knowing it. In the credit management game, experts calls that “accidental improvement” of your credit—and yes, there’s nothing wrong with benefitting from financial moves you’re not totally aware of, as long as you do learn how to turn “accidental” into “intentional” eventually.

Part of the problem is it can sometimes be difficult to understand exactly what goes into your credit report—and how that translates into a credit score.

Hence the often-accidental nature of consumers’ credit score management, sometimes to their benefit. Here are seven examples of unintentional financial moves consumers make that can boost their credit scores.

Keeping Older Credit Cards Active

You might not realize it, but maintaining older credit cards instead of canceling them works out to your credit benefit. Why? Because creditors love consumers who don’t appear to need credit. And keeping an old credit card active, but not using it, is a good example of that mindset.

You Don’t Apply for Credit a lot

When you apply for credit and a lender reviews your credit report, you accrue an “inquiry.” If you rack up too many of these, many lenders will be wary of offering you a new line of credit. So by not applying for credit—and keeping your hard inquiries low—you’re boosting your own credit score.

You Don’t Use Preapproved Credit Cards

If you have a history of accepting preapproved credit cards, your credit score might be lowered. Why? Every time you fill out the application for a card that’s “preapproved,” the credit issuer will still pull your credit report. And that’s another inquiry.

You Don’t Accumulate High Balances on Your Credit Card

If you don’t use your credit card that often, you probably don’t have a high balance on it. That helps boost your credit; even if you’re making minimum payments, carrying a high balance hurts your credit utilization ratio—and that’s 30 percent of your credit score. Keep a low balance—better yet, pay off your bills every month—and you’ll be helping your score.

You’re Piggybacking off a Family Member’s Good Credit

Credit scoring agencies are okay with you “piggybacking” off of your mom or dad’s good credit—or any family member’s good credit, for that matter. And if you’re added as the name on an account that’s been in good standing for a while, all that positive credit will be reflected on your report.

You’ve Auto-Scheduled Your Monthly Bill Payments

Maybe you’ve scheduled auto payments for monthly bills, like your car or mortgage loan, or a utility bill. That’s a big plus for your credit as well as your household budget — you won’t be missing payments, so your credit score will stay intact.

You Check Your Credit Report Regularly

By reviewing your credit score once or twice a year, you’re helping your credit health. That’s because a good review of your recent credit history can show mistakes and errors that are hurting your score—and by fixing these, you’ll boost your score. Visit CreditRepair.com for a free copy of your TransUnion credit report and score. If you notice inaccuracies on your report, the credit repair services can help you get back on track.

Coming soon: The return of the 3% downpayment

Some Americans will soon be able to buy a home with a down payment as low as 3 percent, compared with the current minimum of 5 percent, the mortgage giants Fannie Mae and Freddie Mac say.

The new lending guidelines announced by the companies Monday are designed to help more low-income and first-time buyers afford homes. Millions of Americans lost their savings or no longer had the income needed to set aside money for a home in the aftermath of the 2008 financial crisis and the Great Recession. That has held down the sales of houses and condominiums and slowed the economic recovery.

The guidelines are designed to prevent the kind of reckless lending that fueled a housing bubble and eventually triggered the recession. Borrowers must have enough income to repay loans on a monthly basis for homes that would be their main residence. This guideline would be intended to limit financial speculation.

"These underwriting guidelines provide a responsible approach to improving access to credit while ensuring safe and sound lending practices," Mel Watt, director of the Federal Housing Finance Agency (FHFA), said in a statement. The FHFA oversees Fannie and Freddie, which have been under government control since 2008 because of the housing bust.

Watt had announced in October that Fannie and Freddie had reached an agreement with major banks to expand lending. The FHFA declined Monday to say how many borrowers might benefit from having a 3 percent down payment.

The standard down payment for mortgages insured through Fannie and Freddie has been 20 percent. That would mean that a first-time buyer would need $41,600 in cash to purchase a median-priced home of $208,300, according to the National Association of Realtors. Just 29 percent of home purchases in October went to first-time buyers, compared with a historic average of 40 percent, the Realtors reported.

The new loans would be fixed-rate mortgages of up to 30 years for primary residences, though some policies vary between the companies.

Fannie could begin underwriting the loans before the end of the year. It said the loans would be geared toward first-time buyers, require mortgage insurance payments because of the low down payment and mandate that buyers complete a financial counseling program.

Freddie intends to begin offering its mortgages as early as March 2015, saying it would be an option for low- and moderate-income borrowers. It requires that borrowers earn less than an area's median income, in addition to paying insurance and receiving counseling. Monthly payments could not exceed 43 percent of the borrower's income.

Fannie and Freddie own or guarantee about half of all U.S. mortgages, worth about $5 trillion. Along with other federal agencies, they back roughly 90 percent of new mortgages.

The two companies don't directly make loans to borrowers. They buy mortgages from lenders, package them as securities, guarantee them against default and sell them to investors. That helps make loans available.

The government took over Fannie and Freddie in September 2008, after a market meltdown compounded the losses caused by risky mortgages and threatened to shut down the entire housing sector. Combined, the firms received taxpayer aid totaling $187 billion, which has since been repaid as they have returned to profitability.

Good To Know. These rates are like Free Money. Spread the Word.

Spread the Word: Mortgage Rates Below 4%

Fixed-rate mortgages fell back near yearly lows again this week, lowering borrowing costs for home buyers and refinancers. The 30-year fixed-rate mortgage averaged 3.99 percent this week, Freddie Mac reports in its weekly mortgage market survey.

“If you are planning to buy a home in the next year, it’s better to do it sooner rather than later,” Frank Nothaft, Freddie Mac’s chief economist, said in the video commentary embedded here.

Freddie Mac reported the following national averages with mortgage rates for the week ending Nov. 20:

• 30-year fixed-rate mortgages averaged 3.99 percent, with an average 0.5 point, dropping from last week’s 4.01 percent average. The 30-year fixed-rate mortgage dipped to 3.97 percent in mid-October, its lowest average so far this year.
• 15-year fixed-rate mortgages averaged 3.17 percent, with an average 0.5 point, decreasing from last week’s 3.2 percent average. A year ago, 15-year rates averaged 3.27 percent.
• 5-year hybrid adjustable-rate mortgages averaged 3.01 percent, with an average 0.5 point, falling slightly from last week’s 3.02 percent average. A year ago, 5-year ARMs averaged 2.95 percent.
• 1-year ARMs averaged 2.44 percent, with an average 0.4 point, inching up slightly from last week’s 2.43 percent average. Last year at this time, 1-year ARMs averaged 2.61 percent.

Source: Freddie Mac

Common Mistakes That Could Hurt a Credit Score

You may already know some of the basics of maintaining a healthy credit score: pay your bills on time, don’t charge the maximum allowed on your credit card and start building a credit history early.

But as much as you focus on good credit habits, some things that may be less obvious can hurt your score. Forget to pay a parking ticket? Use a debit card to rent a car? These and other missteps can ding your score, experts say.

“They are not as common, but they are something to be aware of,” says Jonathan Roisman, a credit expert at NextAdvisor.com, an independent consumer research website.

Here’s a rundown of some common mistakes.

Unpaid parking tickets. A parking ticket alone won’t hurt your credit score.

If the fine goes unpaid, however, and is eventually sent to a collection agency, the effect on your score can be detrimental.

“Something going to collections is one of the worst things that can happen and will have one of the largest impacts on a person’s FICO score,” says Anthony Sprauve, senior consumer credit specialist at FICO. The FICO score is one of the most common credit scores that lenders use and ranges from 300 (the lowest rating) to 850 (the highest).

Not all municipalities will send unpaid parking tickets to collections, but in recent years, some cities have started doing so, including Chicago, New York City and Washington.

The good news is that today the FICO score does not consider debts in collections that total $100 or less. “Those are considered nuisance collections,” Sprauve says, and may include some parking tickets, as well as other small bills, such as library fines.

But any amount over $100 is taken into account, and the black mark remains on your credit report for up to seven years.

Even if you pay the bill after it has gone to collections, the blemish will not be erased from your report.

“It will show lenders that you made good on the debt, which helps,” Sprauve says. “But it doesn’t go away.” (Over time, the impact on your score will lessen, though, because the FICO rating system gives more weight to recent credit behavior.)

Opening new lines of credit. When you apply for a new credit card or loan, lenders will make what’s known as a “hard inquiry” on your credit report (a hard inquiry is when a lender reviews your credit report).

These inquiries can have a slightly negative effect on your score — much less than a bill that’s sent to collections — but you still want to be cautious about applying for more credit than you need.

“What the score looks for is if someone is opening a lot of new credit in a short amount of time,” Sprauve says. “Those inquiries could be an indication you’re a higher risk for debt repayment.”

Certain exceptions are made if, say, you’re applying for a mortgage or auto loan. The FICO score recognizes you may be rate shopping and will not penalize you.

But other inquiries will count against you. Be sure to know when inquiries are made too.

Rental car agencies, for example, will review your report when you rent a car with a debit card.

Closing a credit card. Finally, while you don’t want to open too many lines of credit, you also don’t want to hastily close old accounts.

The length of your credit history makes up 15 percent of your score.

An additional 30 percent of the score is determined by how much of your available credit you’re using.

If you close an old credit card, you could hurt your rating by both shortening your credit history and raising your ratio of debt to available credit.