The Ultimate Checklist for Your Finance Shopping

Excerpted from The Essential Home Buyer’s Checklists by Denise L. Evans ©2006

Lenders and mortgage brokers offer a wide variety of loan programs and interest rates. You may also qualify for some government programs, or you may find a seller willing to hold the financing for you. All the options can get confusing unless you have a plan.

To prepare for your home loan, take the following steps.

• Know your credit score
• Prepare a request for proposal
• Start collecting financial information about yourself
• Learn about special assistance programs
• Stay knowledgeable about expected rate changes
• Beware of add-on fees and discount points
• Plan ahead to avoid PMI charges
• Always ask if a seller will hold the financing

Know your credit score
You’ve done your homework, and now you are ready to get your loan. Shopping for financing is more tedious than difficult, but everything you have done in preparation will make meeting with lenders go much more smoothly. If you haven’t done so already, find out your credit score. Even if it’s not terrific, it’s important to be absolutely honest about your score when shopping for financing. Remember, lenders are in a very competitive business. They are not going to remember a poor score and hold it against you if you later improve it. They want to loan you money. Beware, though, of the ones who make you think your low credit score disqualifies you from any reasonable interest rates. Your less-than-terrific score may be just enough for low interest rates. That’s why you want to shop for financing and obtain several different opinions, rather than take the chance of getting the wrong lender.

How it works in the real world: Perspective
When making buying decisions for a home and financing, don’t think solely in terms of honesty or trust. Different people will give you different advice, depending on their perspective. Remember, a surgeon usually thinks surgery will fix your health problems, a drug company thinks drugs will do the trick, and your grandmother has always cured her ails with herb tea. None of them lack integrity, but each simply gives advice from his or her own life’s experiences. Even an honest mortgage broker who specializes in finding lenders for people with poor credit may be unaware that your borderline credit score might be enough for cheaper financing. Always obtain second and third opinions.

Prepare a request for proposal
Shopping for financing is one of those really important chores that almost cries out for something in writing. The field is just too complicated and it is too difficult to remember all the ins and outs to leave it to faulty memory. In addition, lenders like to quote their terms in different ways that make it difficult to compare apples to apples. One might say, “We can offer you prime plus 2” and another might say “Our interest rate is 250 basis points over LIBOR.” Another might offer a low interest rate but high up-front fees and expenses. Do you want to figure that out? With a Request for Proposal (RFP), they have to put down all the information in terms you can understand.

Keep all of the responses in a file folder. When it’s time to make a final decision, recheck your credit score and visit with the three most promising lenders or brokers to update their quotes. If your credit score is at all marginal, apply with all three simultaneously. It will not affect your credit score if done at the same time.

Request for Proposal for Financing
Date: January 1, 2007
To: First National Mortgage Company

You are being asked to complete a written quote for financing to purchase a home in the approximate amount of $175,000. I understand that your quote is subject to underwriting, and that rates or terms may change by the time I wish to secure financing. This quote is for initial evaluation only. My current credit score is 680. I want to [choose all that apply] obtain the maximum amount possible, keep my payments as low as possible, and/or make a down payment of 20% of the price. If I can secure better terms with a better credit score, please indicate here your target score _____________, and provide a separate quote for terms at that score.

Amount financed: ________________________________________________
Current interest rate: ___________________________________________%
Adjustable or fixed rate: __________________________________________
Amortization period: _____________________________________________
Rate lock good for __________ days
How much is the fee for a rate lock? _______________________________
Balloon or rate changes when? ____________________________________
Monthly payments: ______________________________________________
Total amount for all lender fees: $ _________________________________
Additional amounts to be included in monthly payments: $___________
Is PMI insurance required, and what are the charges? ______________
Identify all anticipated third-party fees and expenses, and approximate
amount: ___________________________________________________
Why should I choose you for my borrowing needs?

Start collecting financial information about yourself
The loan application process will require a good bit of information from you. If you start collecting it now, while things are relatively calm, you’ll have a better chance of getting the best financing terms possible. Using whatever system works best for you—a file folder, a shoe box, a special drawer in the kitchen for all house-buying stuff—begin getting your information together. Depending on the lender, you’ll need some or all of the following things:

• tax returns for the last three years;
• W-2s from last year, if you haven’t filed a return yet;
• proof of sources and amounts of other income (such as alimony);
• name, contact info, account numbers, balances, and monthly payments for other lenders and credit card issuers;
• name and contact info for credit references if you have little credit history (landlords and utilities are good references);
• a monthly budget, before purchase, of all income and expenses; and,
• proof of any explanations about bad credit information in your file.

Learn about special assistance programs
Before going to a lender, find out all you can about any special assistance programs that may be available to you. Low-income housing assistance is available from a number of federal, state, and local agencies. Programs might include low interest rate loans, interest-free down payment loans, or special pricing for qualified buyers of government-owned properties.

The Department of Housing and Urban Development (HUD) sells some foreclosed homes at discounts to teachers and law enforcement personnel who live in the neighborhoods they serve. There are Native American programs, assistance for widows and orphans of armed services personnel, and incentives for moving to rural or inner-city areas. The Internet will be your best source of information. Mortgage brokers are often knowledgeable about these programs. Local HUD or USDA offices can also help with information or leads to other resources. To start, go to www.hud.gov or call 800-569-4287 for a referral to a housing counselor in your area.

Stay knowledgeable about expected rate changes
You may need to move quickly if interest rates are expected to increase dramatically in the near future. Follow the news articles on this subject, and stay in touch with lenders and mortgage brokers. It may be necessary to speed up your house hunting if there’s an anticipated rate change. On the other hand, don’t get carried away and sacrifice important inspections or other such things in the name of speed. On a $175,000 loa

As Featured in the Book

Essential Home Buyer’s Checklists

Denise L. Evans, Attorney at Law

Take the stress out of buying a home.

[More]