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Avoid Home Loan Headaches: Do Your Homework First!

by Jon Smith, CRB, CRS, GRI

“I want to buy a house, but I don’t know much about home loans. How do I get one? Where do I go to find out more?”

I get these questions often from potential buyers who are confused--and often overwhelmed--by the home mortgage process. Getting a home loan doesn’t have to be an ordeal if you do your homework first. A qualified real estate agent can assist with a list of local lenders and information resources to make your life easier. So just ask!

I recommend that you do two things right away, even before you start house hunting:

•    Get your credit reports from the “Big Three” credit reporting agencies. Lenders will review these reports, and you need to know what they contain--and where you stand. Don’t be surprised by “red flags” when negotiating with a lender. Take action beforehand to correct or explain the negatives.

Under Federal law, you’re entitled to one free report from Experian, Equifax and TransUnion each year. Visit to learn more.

•    Get pre-qualification from one or more lenders on a possible loan amount. That way you’ll have a good “guesstimate” of the loan amount you would qualify for--and how much house you can afford. Once you’ve chosen a lender, you can even get pre-approved for a loan. Knowing your mortgage limit up front will be a tremendous help in your search for the right home.

So how do you find out about mortgage loan basics and the best way to work with lenders? One resource I like is Looking for the Best Mortgage, a free, easy-to-understand booklet you can download from the U.S. Department of Housing and Urban Development. You’ll get a “shop, compare, negotiate” strategy:

•    How to get loan information from more than one lender
•    How to get rate and fee information that you can compare
•    How to get your “best deal”

This publication also includes a glossary of common mortgage loan terms and a handy worksheet you can use when talking with lenders. The worksheet is great. You’ll find yourself saying, “I didn’t even think of that!” And that’s why it’s such a valuable resource: It keeps you organized and on point.

Bottom line: Do your homework. Learn what you need to know about your home mortgage options up front--and get approved quickly for your new home when you’re ready to buy.

Want to know more about home mortgages? Just ask your real estate agent. We’re always happy to help!

Is an FHA-Insured Mortgage Right for You?

by Jon Smith, CRB, CRS, GRI

The days of putting little money down to buy a home aren’t over.

After years of risky mortgages backed up by small down payments, most lenders aren’t underwriting mortgages without a significant sum up front and a high credit score. But a decades-old loophole can still put home buyers in a house for next to nothing. Mortgages insured by the Federal Housing Administration (FHA) allow borrowers to get approved with a down payment as small as 3.5% of the agreed selling price of the house and don’t require a high credit score.

As millions of Americans have come to realize, getting into a house for little money down has its disadvantages. Borrowers who’ve pumped little equity into their home are often more willing to walk away from it during lean times that keep them from making payments; this risk is further elevated when home values are in decline and troubled borrowers are unable to refinance or sell the home at a price that covers their losses.

Still, FHA-insured mortgages are far less risky than the subprime mortgages that lenders originated before the housing bust. FHA-insured mortgages require documentation and verifiable proof that the borrower is capable of making their monthly payments. (Most subprime mortgages didn’t require such proof.)

The looser terms of FHA-insured mortgages have helped make them more popular. Today, FHA-insured mortgages make up about 25% of the mortgage market, up from 3% in 2006, FHA commissioner David Stevens said in a speech earlier this month. In June, the FHA insured 194,000 loans – the highest monthly total in the agency’s history, according to Stevens. For fiscal year 2009, the dollar amount of FHA-insured mortgages is likely to reach 30% of mortgage originations, up from around 4% in 2005 and 2006, says Stu Feldstein, the president of SMR Research, a mortgage-data tracking firm.

“FHA-insured mortgages are one of the only games in town, especially if you can’t qualify for a traditional mortgage,” says Gibran Nicholas, the chairman of the Ann Arbor, Mich.-based CMPS Institute, which trains and certifies mortgage lenders and brokers. “Now that the subprime market is gone, FHA is filling the gap.”

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Photo of Jon Smith, CRB, CRS, SRES, SFR Real Estate
Jon Smith, CRB, CRS, SRES, SFR
Iowa Realty
3521 Beaver Ave.
Des Moines IA 50310
Fax: 515-453-6404



Licensed in the State of Iowa