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Knowledge is often defined as learning from ones mistakes. In the case of getting financing for a loan, you can use the following without having to make the mistakes yourself. 1. When it comes time to sign your life away in blood on the final mortgage documents, take the time to read them. Specifically, take a close look at the math being used. It is often wrong!!! 2. Many people get pre-qualified for a mortgage and then go home shopping. This is an utter waste of time. A pre-qualification determination from a lender means nothing. Get pre-approved instead. 3. Interest only loans are a fairly recent creation that lower your monthly payment by having you only pay the interest due without any principal. Be careful with these. If the property does not appreciate, you gain nothing. 4. If you intend to buy a home in the next six months, you need to do mortgage planning. Get a copy of your credit report and make sure it is accurate. Start paying down debt so your debt to income ratio is good. 5. If you pay points on your mortgage, try not to wrap it into the mortgage. If you write a separate check from your personal account, you can deduct the full points on your taxes. 6. Should you go with a fixed or adjustable rate mortgage? In general, go with fixed when rates are low and an adjustable when rates are high. 7. When you apply for a mortgage, your credit score is a key factor. A FICO score of 740 or above is considered great credit, 700 to 739 is good, 680 to 699 is okay and anything below is bad. 8. The tax code in the United States makes little sense, but it is helpful with refinancing. If you refinance your home, you do not have to pay any capital gains tax. This is true even if you refinance for more than the home is worth. 9. These days, most mortgages come with teaser rates. They are really low rates that run for the first couple years of the loan then go up to normal rates. Make sure you can afford the payments associated with the normal rates to avoid problems. 10. ARM loans are tied to something called indexes. These indexes are gauges for the cost of borrowing money. There are five different indexes. The LIBOR rate – London Interbank Offered Rate – is a popular one. Applying for a mortgage can be a bit intimidating. You financial soul is stripped bare. That being said, don’t get to stressed. Millions of borrowers are approved and you probably are more qualified than many of them.
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