Mortgage Must Dos

Going through the process of applying for a mortgage is a stressful time. Just looking at the numbers can make you have second thoughts. Understanding the loan process and doing your homework before you even talk to a mortgage lender can alleviate most of the anxiety. Here are some mortgage must do's that can make all the difference:

1. Fix your credit first-request your credit report and score at least six months before you go mortgage shopping. You'll have plenty of time to get any errors corrected and pay down debt.

2. Look into first-time home buyers' programs-often sponsored by state governments, they typically offer lower interest rates than those offered by private lenders. For those with damaged credit or a low down payment, it's a good option.

3. Get pre-approved-this isn't the same thing as "pre-qualified." Pre-qualification is when a lender tells you how much money you'll probably be able to borrow based on what you tell them about your income, savings, and debt-it's pretty informal. On the other hand, pre-approval is much more formal and involves filling out forms, verifying income, pulling your credit report, etc... After everything is verified and approved, the lender will give your maximum loan amount to you in writing.

4. Don't borrow the maximum amount a lender will allow-give your budget a little wiggle room. One of the biggest mistake people make is borrowing as much as they can. The pay raise or bonus you've been counting on may never happen. Unfortunately, lenders are too willing to let you overextend; it's their business to loan as much as they can get away with, hoping you'll give up saving or vacations rather than default on a mortgage payment. Always borrow less than what you're offered so you can pay your bills, save, and have money to do other things.

5. Shop around and compare rates-Become knowledgeable about the interest rates from various lenders because they will be different. Even just a few percentage points can have a huge affect on your payment.

6. Fees-Be prepared for the flood of fees. While some may be legitimate, others may be inflated, or worse, just unnecessary. Get a copy of your closing documents in advance to challenge any questionable fees before you sit down to sign. Some can actually be eliminated or decreased.

7. Plan for closing costs-At closing, you'll be expected to pay for expenses such as taxes, title insurance, attorney's fees, and homeowner's insurance, as well as points or other fees. Sometimes closing costs can be up to 7% of the cost of the house. You don't want to be shocked, so talk to your lender to get a good estimate.

8. Don't become cash poor-scraping together every last penny you have and raiding your kids' savings accounts for your down payment won't help when something unexpected comes up. When you go through the approval process, don't rely on your entire savings. It's crucial to keep several months of living expenses available.