Orlando Family Loses Dream Home -- This Could Happen To You!

by : Mike Payne

Buying your new home is exciting. Moving in to your new dream home is exhilarating.

Getting a mortgage to finance your dream home is not fun or exhilarating. It's a drain even with good credit and a bank full of money.

Before shopping for your new home, find a mortgage professional whom you trust - rely on him or her to help make your new dream home a reality.

Should you allow lenders to compete for your business, understand that each lender competing for your business will pull your credit reports and lower your credit scores.

Of course, your scores are not supposed to fall as a result of credit pulls when shopping for a mortgage; however, the reality is that your scores do suffer.

Rodney P. of Orlando, FL, had found his family's dream home. His wife and he received loan commitment and anxiously began packing and looking forward to their new home. A few days before closing, Rodney's mortgage broker called him with bad news. The lender retracted loan commitment, citing revised qualifications for the loan program for which Rodney and his wife had applied.

"They told us we qualified...we get all excited...and they pull the rug out from under us," Rodney stated. "Of course we're devastated. My wife is crying...my kids are crying. I'm angry that they told us yes then told us no. That's not right."

Tomorrow, qualifying conditions may get even more rigorous.

"I started the loan process with a 619 and fell to a 589 when we got rejected right before closing. All of this happened in about a month's time," said Rodney.

Once you're comfortable with your mortgage professional, get pre-approved. What can you afford and what type of home loan do you want.

Your mortgage professional will take time to listen to your needs and fears about mortgage financing.

Generally, borrowers with a middle credit score of 650 or lower are considered subprime. With some lenders, albeit fewer by the day, an acceptable middle score is ~620; however, that is fast being replaced with a middle score of 650.

Those with scores from 650 to 720 are in a mid-grade (between subprime &prime) category and are considered more favorable risks.

The best rates and terms go to "prime" borrowers with middle credit scores above 720 - these borrowers typically negotiate the best rates and terms.

Want to buy a home but can't or don't want to put down a down payment? To get 100 percent financing (that is, 100% of the cost of the home is available generally only to people with credit scores of 680 and higher).

Not long ago, mortgage professionals could offer 100% financing to borrowers with a middle credit score as low as 560 to 580.

Perhaps now more than ever, you must understand mortgages - you cannot rely on your mortgage broker or loan officer to look out for your best interests.

The general belief is that mortgage brokers shop among many lenders for the best loan deal for you. But the broker often makes more money by selling you a more expensive loan.

The reason why subprime loans - especially ARMs - make up such a large segment of the market is simple: greed.

Do you personally know your mortgage broker?

**Pull your own credit reports from the Big 3 (Equifax, TransUnion & Experian). Go to www.annualcreditreport.com and get instant access free to each of your three credit reports. (NOTE: To get your scores, you will need to buy them, but your reports are free under the FACT Act).

Carefully examine your reports for both good and bad credit accounts. If you're uncomfortable reviewing or repairing your own damaged credit, visit www.fixmyuglycredit.com.

Once you've confirmed your credit will not deny you the best loan programs, talk to your mortgage professional about qualifying for the best loan programs:

1. Can you prove two years' income?
2. Can you prove two years' same industry work experience?
3. Can you prove your down payment money?

Just in case, confirm the following considerations with your mortgage professional:

**Do you have a pre-payment penalty? If so, what type of pre-payment penalty, i.e. is it a soft or hard pre-payment penalty? A soft pre-payment penalty allows you to sell your home during the "penalty" stage with no "pre-payment penalty." A hard penalty, on the other hand, penalizes you for selling or refinancing. For how long is this penalty? How much is the penalty, i.e. a pre-payment penalty may be a dollar amount or a % of the loan amount.

**What is your APR or annual percentage rate? Your quoted rate may be 5.92% but the APR is 6.56%. What's the difference? The fees.

Your mortgage broker, who may not have your best interests in mind, earns more commission for building in prepayment penalties that may prevent you from paying the loan off early by refinancing. Many brokers also make money by charging high origination and closing fees. Often, the higher the interest rate, the bigger commission the broker gets.

**What is your broker's fee/commission? Typically, a mortgage broker makes 1 to 2 percent commission on a loan.

The government thinks that all the disclosures you sign during the loan process will reduce or eliminate fraud or your lack of understanding of the mortgage financing process. The shocking reality is that many buyers ignore the legal gibberish comprising the disclosures and trust their mortgage professionals to protect their interests and not gouge them.

Shopping for your new home is much more exciting than learning about financing options and actually getting financed - however, this is must-have education. Without your financing, your dream home may be some other family's dream home.