Credit - Article 4.

THE BASICS - WHAT TO KNOW WHEN APPLYING FOR A MORTGAGE

Borrowing money to buy a house just isn't all that difficult for many of us - just look around you at all the houses being purchased by your friends and acquaintances if you need evidence of the availability of credit. Lenders love to loan to those of us in the middle class for the purchase of our homes, for they assume that we will endeavor to pay our house payment even when we are having trouble paying other bills. This is a primary reason that interest rates charged to homebuyers is lower than the rate charged by banks for most other forms of credit. Of course, it also helps that there is Federally-backed mortgage insurance protecting banks from our default.

However, having said that, just because a mortgage, which is just the technical term for the lien a lender holds on our property until we pay off the underlying promissory note, is readily available does not mean that all borrowers are created equal. Each of us in the neighborhood is probably paying a different interest rate.

This is a more important financial issue than it might appear. Each tiny little quarter of a percent you pay in interest can make thousands of dollars of difference in how much you pay over time for your house. Each incremental increase or decrease in the interest rate you pay has a lifetime effect on how well you are doing on your path to financial independence - and how well you are doing compared to others in your age and income bracket.

There are several reasons for this:

	Interest rates fluctuate and the rate each of us is paying can vary depending upon the specific date we sign the loan paperwork - this sets the stage for all that refinancing of loans we hear about when interest rates decline
	Lenders charge different rates for different "terms" or lengths of time - if you agree to pay off the mortgage in 15 years rather than 20 years, your rate will be lower
	Many of us nowadays agree to "variable" rate loans, meaning that the interest rate charged can increase (or even decrease) annually - these can be attractive option because they tend to begin at a lower rate than fixed-rate loans, but they can backfire if we stay in the house long enough to see the rate surpass those same fixed rates
	Some borrowers take advantage of offers by the lender to "buy down" to a lower interest rate; this is accomplished by paying points, which is but a form of prepaid interest
	Lenders may offer lower rates based upon some sort of affinity - for instance, if one has sufficient funds on deposit at a bank, she may be eligible for a nominally lower rate
	And - the biggie: A share of us are able to obtain a better loan deal because we are willing to shop our business around, because we are willing to negotiate; the mortgage business is both competitive and increasingly impersonal, so I recommend that my clients obtain quotes regarding rates, fees, terms and other related items from at least two potential lenders. If the lender thinks you a fair credit risk and wants to compete for your business, then you are in a position to ask that certain fees be waived or even that the rate be lowered - remember that you are usually dealing with a commissioned salesperson, somebody who has to get you to close the loan in order to make that commission, so ask for a better deal than the one offered to you. Perhaps it once mattered that your parents used a particular bank for all their financial dealings, but this is no longer true. Heck, the lender you eventually choose will probably sell the loan to somebody else anyway….

OK - there's one last area where you can have something to "say" about the interest rate you get - and that arises when the creditor pulls your credit report, which is the topic of our next conversation.

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