GailLiberman and Alan Lavine
PALM BEACH GARDENS, Fla. (MarketWatch) -- You still may qualify for a mortgage, regardless of a shaky credit market. But you need to know the ropes because many lenders have tightened standards. So what should you do if you're buying a home today or you need to refinance?
Understand that some types of lenders are more apt to loan you money in today's markets than others. Plus, certain types of mortgages may be easier to get than others.
Above all, don't be discouraged. Even if your credit is too far gone, or your home appraisal falls short of what you owe, government efforts are under way to make money available to bail out cash-strapped borrowers. Read more.
The best way to qualify for a mortgage with decent terms may be to shop savings institutions, smaller commercial banks and credit unions. The key is to find a "portfolio lender." Portfolio lenders both originate and hold onto the loan. They don't sell to investors.
By contrast, mortgage brokers generally offer mortgages from a variety of lenders. Mortgage brokers typically don't finance a loan with their own money. They're intermediaries: The more people involved in a deal, the more chances that the chain could break or something could fall through the cracks. Also, be sure to consider a mortgage broker's fee, which could take the form of a higher rate or points. One point equals one percent of the loan amount.
Mortgage bankers, on the other hand, front their own money for your mortgage, but often sell loans to investors. It's investors who are demanding higher interest rates due to their higher perceived risk.
Historically, "portfolio lenders" largely have been savings institutions. But more recently, lines between these businesses have blurred. Some lenders may shift from one line of business to another as needs change.
Right now, for example, "credit unions have $170 billion of first mortgage loans on their books," says Bill Hampel, chief economist for Credit Union National Association. "Lately, they've been selling about one-third of their production, which means they hold onto two-thirds. So they're primarily portfolio lenders."
Yes, Hampel says, you can get a jumbo loan, which is mortgage of more than $417,000, from a credit union. Can't get what you want from a large credit union? You could stand a better chance with a smaller one, he suggests.
To join a credit union, you generally must fit into a specific "field of membership," and open a "share" or savings account. Find a credit union you can join at www.cuna.org. Click on "Consumer information." Read more on credit unions
Large savings institutions
Large savings institutions making mortgages include IndyMac Bank, Pasadena, Calif. and Astoria Savings, New York.
But IndyMac officials acknowledge that the days of no-down payments may be over -- at least for now. Also, except for loans it can sell to government-sponsored secondary market players, IndyMac no longer offers subprime loans, or those for less creditworthy borrowers. It has eliminated second mortgages except for some home-equity lines of credit.
High-quality borrowers, however, still may qualify for mortgage loans with a 10% down payment.
Hampel suggests that if you can't get attractive terms on a 30-year fixed-rate mortgage, you might find a 5/1 or 7/1 adjustable-rate mortgage. With those mortgages, the interest rate is fixed for five years or seven years. Then, the rate becomes subject to change annually. Borrowers usually only stay in a home for seven years anyway.
Five steps to a mortgage
Before applying for a home loan, consider taking these steps:
- Pay down credit balances. That will make you look less risky and might help your credit score, suggests Tom Quinn, vice president of scoring for Fair Isaac Corp. Minneapolis. If you have good credit, it may be possible to raise your credit score by asking existing creditors to raise your credit limits. But ask the lender not to pull your credit report to do it. Credit-report inquiries or deteriorating credit can lower credit scores.
- Get a copy of your credit report from each of the three major credit bureaus. Fix errors and get as much adverse information removed as possible. You're entitled to one free credit report annually from each credit bureau at www.annualcreditreport.com. Read six steps to correct your credit report.
- Check licenses of lenders you're considering. This may not be easy because state licensing requirements vary by state and lender. Banks and thrifts can be checked out at www.fdic.gov by clicking on "Institution Directory."
- Shop several lenders. Don't assume if you get one quote of an unusually high interest rate, all will be high. Negotiate lower rates and seek removal of unnecessary fees.
- Consider that interest rates and terms may change daily. Also, a low interest rate could mean more upfront points or added fees. Get all pricing information in writing before obtaining a written commitment for your loan. Get a commitment letter directly from the lender who's financing the mortgage, which may be different from the loan originator.
Spouses Gail Liberman and Alan Lavine are syndicated columnists. Their latest book is "Quick Steps to Financial Stability" (Que/Penguin). You can contact them at www.moneycouple.com .
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