10 Tips to Snag a Mortgage in 2011

Excerpt from 10 Tips to Snag a Mortgage in 2011
By Holden Lewis, Bankrate.com

Mortgage lenders tightened their standards after the subprime-mortgage mess, and that won't change this year. But mortgage loans can be had. Follow these 10 tips this year to secure a mortgage at an interest rate and under the terms that are right for you. Be sure to visit the website to watch videos and read more about these tips.

1. Have the right credit score.
The best combination of interest rate and points requires a higher credit score than in the past. Before the crisis, the best mortgages came with credit score of 720 or higher. Then the industry went back to basics. Now the best deals often require a 740 credit score.

2. Protect and Preserve your credit.
When mortgage lenders make multiple credit inquiries within a few weeks of one another, those multiple inquiries are treated as one. Yes, it will cause the score to drop. But the hit will likely be minor.

3. Shop Around.
The interest rate is important, but there are other costs to consider, such as discount points and even the type of mortgage loan. When shopping for best rates, compare combinations of discount points and loan types.

4. Know Your Borrowing Limit.
For most borrowers, the FHA caps mortgage payments at 31% of gross monthly income, before taxes. If you earn the median household income of about $4,200 per month before taxes, then your monthly house payment - principal, interest, taxes, insurance, and association dues - should be no more than 31% of that, or $1,302.

5. Don't Reset Your Refi Calendar to 30 Years.
When you refinance a 30-year loan that you've had for five years, pay off the new loan in 25 years. Just ask the lender to amortize the loan for the remaining period of the old loan.

6. Consider a No-Closing-Cost Refi
If you think you can't refinance, think again. You could refinance the loan yet pay little out of pocket in a no-closing-costs refi. With a no-closing-cost loan, the bank charges a slightly higher rate. You end up paying closing costs over time, instead of all at once.

7. Small Down Payment? See the Feds.
Most lenders require borrowers to have down payments of at least 10% of the home's price. In the case of refinances, lenders want borrowers to have at least 10% equity. For borrowers with good credit, the FHA requires a down payment (or equity) of 3.5%.

8. Small Loan? Act Early.
New restrictions on how loan officers are paid take effect April 1. The law forbids lenders from basing loan-officer compensation on interest rates or other loan terms. Essentially, a mortgage broker or loan officer can earn more money only by lending more money.

9. Make an Extra Payment Any Time of the Year.
Perhaps you've heard that making an extra mortgage payment at the end of each year will shorten the repayment time. That's true. But the extra payment doesn't have to come at year's end. An extra payment is effective any time of the year. The important thing is to pay it consistently.

10. Behind on your Payments? See a Counselor.
When late-paying borrowers get counseling, they are more likely to get a mortgage modification, which can reduce their payments.

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