Consumer Tips

The professionals at Spinks Financial Services can advise you about many elements of home ownership, because total costs affect your comfort level in a mortgage and your ability to qualify for mortgage programs.  First time buyers and borrowers whose credit is less than perfect may qualify for a number of programs at attractive rates with the guidance of an experienced mortgage professional.

Determine the total cost of buying a home
Make yourself a checklist using the following elements and enter the dollar value of each element.  Add any elements that are unique to your situation as well, such as real estate brokerage fees.  Your loan officer and real estate agent might be able to specify other expenses common in your area.

Closing costs
Closing costs include loan and administrative fees, impounds and prepaid interest. Impound accounts are set up in escrow to fund the monthly share of homeowner's insurance and property taxes, and are periodically replenished by the borrower in accordance with federal guidelines. Prepaid interest is payment for the interest expense between the loan funding date and the first day of the next month.  Closing costs may be as much as 5% of the loan amount.

Monthly mortgage payments
Your monthly mortgage payment consists of the famous PITI -- principal, interest, insurance and taxes.  The insurance in this equation is PMI (private mortgage insurance) rather than homeowner's insurance, and you may not need PMI if your down payment is 20% or more.

Why your credit report is so important
Lenders are in business and they evaluate your request for a mortgage in light of the risk they take by funding your mortgage.  In particular, lenders look at these aspects of your credit record:

• Delinquent Payments. If you have failed to make payments in the past, or if you have been late making payments, lenders expect you to act similarly in the future.
• Past Credit Usage.  If you are close to the limit on a credit card, you are considered a greater risk than someone who has lots of credit available.
• How Long You Have Used Credit.  The most-used scoring system assumes that you are a better risk if you have been using credit wisely for a number of years.
• How Often You Apply for New Credit.  It's not a good signal if you have applied for many new credit cards or other loans within a short period of time.  A lender evaluating your credit worthiness does not like to see a lot of new indebtedness right before you apply for a mortgage.
• Your Credit Mix.  Credit card accounts, car loans, student loans and revolving credit accounts all concern lenders when evaluating credit risk.

Other factors considered by a lender
The stability of your job and the price of the house are major factors in the equation. Your ability to make your down payment and cover closing costs also is evaluated.  If your credit score and other aspects of your file meet or exceed what the lender expects, loan approval can be almost automatic, considerably speeding up the closing process.  That is one reason why credit scores are so important in the mortgage industry -- the more they process can be objective, the faster and more efficient the process becomes.  Ultimately, that translates into less cost to you, the consumer.

At a minimum, you will need dozens of documents.  Here are some tips to help you assemble them efficiently and correctly:

Completed Loan Application

• Read through the application carefully after you complete it. Be sure you have correct names, phone numbers, addresses and account numbers in every part of the form.
• Be sure you have the right Social Security number not just on the application, but on all the paperwork you submit.
• Provide original materials whenever required.
• Be sure you and other borrower(s) sign and date your application and all other paperwork where required.

Income Documents For Hourly or Salaried Employment:

Original W-2 for the past year AND original paycheck stub showing year-to-date income (within last 60 days)

Other Accounts and Assets

• Checking and savings accounts account numbers with complete addresses of financial institutions, plus 3 months of statements, if available
• Obligations (debts other than consumer credit accounts)
• Money market account(s)
• Certificate of deposits (CDs)
• Retirement and 401Ks
• Stock and bonds
• Equity in a life insurance policy
• Vehicle information (year, model, and approximate value)
• Approximate amount of cash gift from a relative
• Official divorce decree indicating the amount of child support, alimony or separate maintenance payments, if applicable

What you can do before applying for a mortgage
A high debt load can affect your ability to qualify for a mortgage to buy your dream home. It's smart to pay down your debt before you attempt to qualify for a mortgage. Consolidating your debts into one lower interest rate loan might be a good idea.  This may make a big difference if you have high outstanding balances on several credit card accounts that each charge high interest rates.  A good rule is to expect down payment and closing cost expenses to equal 25% of the price of the house you want to buy.

Your consumer rights if denied a loan
If you are denied a loan, get a copy of your credit report to ensure that the information is accurate. Under the Fair Credit Reporting Act, you may not be charged for a copy of your credit report if you request it in writing within 30 days after being rejected for a loan. You can obtain a copy of your credit report from the lender that rejected you or request copies from the credit bureaus.

Here’s how to contact the three credit bureaus:

Spinks Financial Services offers new home loans, home equity loans, refinancing, debt consolidation, and many other specialized mortgage products for customers in the state of Alabama: Montevallo, Birmingham, Shelby County, Huntsville, Hartselle, Mobile, Montgomery, Tuscaloosa, Auburn, Dothan and the many other charming communities of Alabama.