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How to Earn a More Affordable Mortgage

Home ownership remains a dream for many people. But on the heels of the recession that began in late 2008, prospective home buyers are finding it far more difficult to secure a mortgage than it was in the years before the economy took a turn for the worse.

Stricter guidelines now govern both borrowers and lenders alike, and the process can quickly frustrate prospective homeowners. But strict guidelines and more diligent lenders do not mean prospective borrowers will not be able to secure a loan to finance their home purchases. It just means those borrowers might want to take every stop possible to ensure their loan applications are approved and their mortgages are affordable.

Address credit concerns before beginning the process. Poor credit is a prospective borrower’s worst enemy, and it’s an instant and glaring red flag to lenders. And thanks to inaccuracies on their credit reports, some people may have poor credit and not even know it. Before they even begin the process of applying for a home loan, would-be applicants should go over their credit reports with a fine tooth comb, ensuring there are no potentially harmful inaccuracies that may affect the ability to secure an affordable mortgage.

∫ Inaccuracies or poor credit histories can bring down individuals’ credit scores, which lenders use to determine home loan interest rates. So prospective applicants should have any errors to their credit reports corrected and/or work to improve their credit scores before applying for loans.

∫ Pay down debt. Even if an applicant’s credit score is solid, lenders may scoff at applicants with substantial amounts of debt. Credit card debt should be paid down before beginning the process, and it also may benefit applicants to pay off any additional loans, such as car notes or student loans, before applying for a home loan. The less debt an applicant has, the more attractive that applicant becomes.

∫ Avoid overusing credit cards. Using credit too frequently also can make it more difficult for prospective home buyers to secure a home loan. Credit card holders each have a maximum limit on their credit cards, and financial experts recommend using less than 20 percent of available credit to maintain a strong credit rating.

∫ Don’t bluff on loan applications. Some borrowers might be tempted to inflate their earnings on home loan applications, including counting overtime or bonuses they haven’t yet earned when listing their annual income. Borrowers can expect lenders to request documentation of any extra income, including bonuses, so applicants should avoid including additional income on their applications unless they can prove it.

∫ Applicants also must avoid hiding past issues on their applications. Banks performing their due diligence will eventually discover any past problems, so applicants should be straightforward from the start. Applicants concerned about their earnings should know that it’s acceptable to include information about assets such as retirement plans and savings even if those funds don’t figure to be used to pay the mortgage.

∫ Make a substantial down payment. Lenders look fondly on borrowers who can afford hefty down payments, feeling that such borrowers are less likely to default on their loans. In addition, the larger the down payment, the less the monthly mortgage payment will be, saving borrowers a significant amount of interest fees over the course of the loan.

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