Mortgages For Dummies, Third Edition®

Table of Contents

Introduction

The Eric Tyson/Ray Brown Difference

Conventions Used in This Book

What You’re Not to Read

Foolish Assumptions

How This Book Is Organized

Part I: Fine-Tuning Your Finances

Part II: Locating a Loan

Part III: Landing a Lender

Part IV: Refinancing and Other Money Generators

Part V: The Part of Tens

Part VI: Appendixes

Icons Used in This Book

Where to Go from Here

Part I: Fine-Tuning Your Finances

Chapter 1: Determining Your Borrowing Power

Only You Can Determine the Mortgage Debt You Can Afford

Scrutinize Your Monthly Spending

Collect Your Spending Data

Determine Your Potential Homeownership Expenses

Making your mortgage payments

Paying property taxes

Tracking your tax write-offs

Investing in insurance

Budgeting for closing costs

Managing maintenance costs

Financing home improvements and such

Consider the Impact of a New House on Your Financial Future

Acting upon your spending analysis

Establishing financial goals

Making down-payment decisions

Chapter 2: Qualifying for a Mortgage

Getting Preapproved for a Loan

The worst case scenario

Loan prequalification usually isn’t good enough

Loan preapproval is generally the way to go

Evaluating Your Creditworthiness: The Underwriting Process

Traditional underwriting guidelines

New underwriting technology

Eyeing Predicament-Solving Strategies

Insufficient cash for a down payment

Excessive indebtedness

Insufficient income

Credit blemishes

Low appraisals

Problem properties

Chapter 3: Scoping Out Your Credit Score

Defining Credit Scores

Assessing Your Credit History

What goes into your credit report

Check your credit report

Understanding How Scores Work

FICO scores can differ between bureaus

What a FICO score considers

What FICO scores ignore

Interpreting scores

Getting your score

Managing your score

Part II: Locating a Loan

Chapter 4: Fathoming the Fundamentals

Grasping Loan Basics: Principal, Interest, Term, and Amortization

Deciphering Mortgage Lingo

So . . . what’s a mortgage?

How to scrutinize security instruments

Eyeing Classic Mortgage Jargon Duets

Fixed or adjustable loans

Government or conventional loans

Primary or secondary mortgage market

Conforming or jumbo loans

Long-term or short-term mortgages

Introducing the Punitive Ps

Prepayment penalties

Private mortgage insurance (PMI)

Chapter 5: Selecting the Best Home Purchase Loan

Three Questions to Help You Pick the Right Mortgage

How long do you plan to keep your mortgage?

How much financial risk can you accept?

How much money do you need?

Fixed-Rate Mortgages: No Surprises

Adjustable-Rate Mortgages (ARMs)

How an ARM’s interest rate is determined

How often does the interest rate adjust?

What are the limits on rate adjustments?

Does the loan have negative amortization?

Hybrid loans

Fine-Tuning Your Thought Process

Finding funds

Making the 30-year versus 15-year mortgage decision

Getting a Loan When Rates Are High

Chapter 6: Surveying Special Situation Loans

Understanding Home Equity Loans

Using home equity loans

Operating instructions

Considering tax consequences

Eyeing 100-Percent Home Equity Loans

Taking a Closer Look at Co-Op Loans

Identifying the legal structure of co-op loans

Dealing with deal-killing directors

Tracking down a loan

Grasping Balloon Loans

80-10-10 financing

Bridge loans

Construction loans

Part III: Landing a Lender

Chapter 7: Finding Your Best Lender

Going with a Mortgage Broker or Lender Direct?

Considerations when using brokers

Developing a list of brokers and lenders

Interviewing and working with mortgage brokers

Figuring out how to interview lenders

Seller Financing: The Trials and Tribulations

Considering/soliciting seller financing

Overcoming borrower problems

Negotiating loan terms

Deciding whether to provide seller financing

Chapter 8: Surfing the Internet’s Mortgage Sites

Obeying Our Safe Surfing Tips

Shop to find out about rates and programs

Quality control is often insufficient

Beware simplistic affordability calculators

Don’t reveal confidential information unless . . .

Be sure to shop offline

Beware of paid advertising masquerading as directories

Perusing Our Recommended Mortgage Web Sites

Useful government sites

Mortgage information and shopping sites

Chapter 9: Choosing Your Preferred Mortgage

Taking a Look at Loan Fees

The point and interest rate tradeoff

Annual percentage rates

Other lender fees

Avoiding Dangerous Loan Features

Prepayment penalties

Negative amortization

Comparing Lenders’ Programs

Fixed-rate mortgages interview worksheet

Adjustable-rate mortgages interview worksheet

Applying with One or More Lenders

Chapter 10: Managing Mortgage Paperwork

Pounding the Paperwork

Filling Out the Uniform Residential Loan Application

I. Type of mortgage and terms of loan

II. Property information and purpose of loan

III. Borrower information

IV. Employment information

V. Monthly income and housing expense projections

VI. Assets and liabilities

VII. Details of transaction

VIII. Declarations

IX. Acknowledgment and agreement

X. Information for government monitoring purposes

Continuation sheet

Introducing Other Typical Documents

Your right to receive a copy of the appraisal

Equal Credit Opportunity Act

Part IV: Refinancing and Other Money Generators

Chapter 11: Refinancing Your Mortgage

Refinancing Rationales

Cost-Cutting Refinances

Applying the 2-percent rule

Crunching the numbers

Restructuring Refinances

Restructuring when you need to

Getting a fixed-rate to avoid ARM phobia

Resetting ARM caps

Choosing the fast-forward mortgage

Cash-Out Refinances

Expediting Your Refi

Beating Borrower’s Remorse

Phase I borrower’s remorse

Phase II borrower’s remorse

Chapter 12: Reverse Mortgages for Retirement Income

Grasping the Reverse Mortgage Basics

Considering common objections

Who can get a reverse mortgage?

How much money can you get and when?

When do you pay the money back?

What do you owe?

How is the loan repaid?

What’s the out-of-pocket cost of getting a reverse mortgage?

What are the other reverse mortgage costs?

What’s the total annual rate?

How do reverse mortgages affect your government-sponsored benefits?

Shopping for a Reverse Mortgage

Making major choices

Examining all your options

Using the online calculator

Deciding Whether You Want a Reverse Mortgage

Resources for Finding Out More

Part V: The Part of Tens

Chapter 13: Ten (Or So) “Must-Knows” about Foreclosure

Deal with Reality

Review Your Spending and Debts

Beware of Foreclosure Scams

Consider Tapping Other Assets

Make Use of Objective Counseling

Negotiate with Your Lender

Understand Bankruptcy

Consider the Future Impact to Your Credit Report

Understand the Realities of Investing in Foreclosed Property

Chapter 14: Ten Mortgage No-Nos

Don’t Let Lenders Tell You What You Can Afford

Never Confuse Loan Prequalification with Preapproval

Avoid Loans with Prepayment Penalties

Don’t Reflexively Grab a Fixed-Rate Mortgage

Steer Clear of Toxic 100-Percent Home Equity Loans

Watch Out for Mortgage Brokers with Hidden Agendas

Shun Negative Amortization Mortgages

Don’t Let the 2-Percent Rule Bully You When Refinancing

Don’t Assume That All Reverse Mortgages Are the Same or Bad

Avoid Mortgage Life Insurance

Chapter 15: Ten Issues to Consider Before Prepaying Your Loan

Different Strokes for Different Folks

Yes, You Do Save Interest . . .

However, You Miss the Opportunity to Invest Those Extra Payments . . .

Taxes Matter, but . . .

Fund Your Retirement Savings Plan(s)

Look to See Whether Your Mortgage Has a Prepayment Penalty

Identify Whether You’re an Aggressive or Conservative Investor

Focus on the Psychological and Nonfinancial Benefits

Know How Liquid You Are

Take a Closer Look at Refinancing

Part VI: Appendixes

Appendix A: Loan Amortization Table

Appendix B: Remaining Balance Tables

Appendix C: Glossary

More Bestselling For Dummies
Titles by Eric Tyson

Investing For Dummies®

A Wall Street Journal bestseller, this book walks you through how to build wealth in stocks, real estate, and small business as well as other investments.

Personal Finance For Dummies®

Discover the best ways to establish and achieve your financial goals, reduce your spending and taxes, and make wise personal financial decisions. Wall Street Journal bestseller with more than 1 million copies sold in all editions and winner of the Benjamin Franklin best business book award.

Taxes For Dummies®

The complete, best-selling reference for completing your tax return and making tax-wise financial decisions year-round. Tyson coauthors this book with tax experts David Silverman and Margaret Munro.

Home Buying For Dummies®

America’s #1 real estate book includes coverage of online resources in addition to sound financial advice from Eric Tyson and frontline real estate insights from industry veteran Ray Brown. Also available from America’s best-selling real estate team of Tyson and Brown — House Selling For Dummies and Mortgages For Dummies®.

Real Estate Investing For Dummies®

Real estate is a proven wealth-building investment, but many people don’t know how to go about making and managing rental property investments. Real estate and property management expert Robert Griswold and Eric Tyson cover the gamut of property investment options, strategies, and techniques.

Small Business For Dummies®

Take control of your future and make the leap from employee to entrepreneur with this enterprising guide. From drafting a business plan to managing costs, you’ll profit from expert advice and real-world examples that cover every aspect of building your own business. Tyson coauthors this book with fellow entrepreneur Jim Schell.

Praise for Eric Tyson’s national bestselling personal finance guides:

“Personal Finance For Dummies is the perfect book for people who feel guilty about inadequately managing their money but are intimidated by all of the publications out there. It’s a painless way to learn how to take control.”

— National Public Radio’s Sound Money

“Smart advice for dummies . . . skip the tomes . . . and buy Personal Finance For Dummies, which rewards your candor with advice and comfort.”

— Newsweek

“Eric Tyson is doing something important — namely, helping people at all income levels to take control of their financial futures. This book is a natural outgrowth of Tyson’s vision that he has nurtured for years. Like Henry Ford, he wants to make something that was previously accessible only to the wealthy accessible to middle-income Americans.”

— James C. Collins, coauthor of the national bestseller Built to Last; Lecturer in Business, Stanford Graduate School of Business

“You don’t have to be a novice to like Mutual Funds For Dummies. Despite the book’s chatty, informal style, author Eric Tyson clearly has a mastery of his subject. He knows mutual funds, and he knows how to explain them in simple English.”

— Kiplinger’s Personal Finance Magazine

“Eric Tyson . . . seems the perfect writer for a For Dummies book. He doesn’t tell you what to do or consider doing without explaining the why’s and how’s — and the booby traps to avoid — in plain English.”

— Chicago Tribune

“Worth getting. Scores of all-purpose money-management books reach bookstores every year, but only once every couple of years does a standout personal finance primer come along. Personal Finance For Dummies, by financial counselor and columnist Eric Tyson, provides detailed, action-oriented advice on everyday financial questions. . . . Tyson’s style is readable and unintimidating.”

— Kristin Davis, Kiplinger’s Personal Finance Magazine

“For those named in the title, such as myself, Personal Finance For Dummies is a godsend. It’s bright, funny, and it can save you money, too.”

— Los Angeles Times

Mortgages For Dummies®, 3rd Edition

by Eric Tyson, MBA, and Ray Brown

Mortgages For Dummies®, 3rd Edition

Published by
Wiley Publishing, Inc.
111 River St.
Hoboken, NJ 07030-5774
www.wiley.com

Copyright © 2008 by Eric Tyson and Ray Brown

Published by Wiley Publishing, Inc., Indianapolis, Indiana

Published simultaneously in Canada

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600. Requests to the Publisher for permission should be addressed to the Legal Department, Wiley Publishing, Inc., 10475 Crosspoint Blvd., Indianapolis, IN 46256, 317-572-3447, fax 317-572-4355, or online at http://www.wiley.com/go/permissions.

Trademarks: Wiley, the Wiley Publishing logo, For Dummies, the Dummies Man logo, A Reference for the Rest of Us!, The Dummies Way, Dummies Daily, The Fun and Easy Way, Dummies.com and related trade dress are trademarks or registered trademarks of John Wiley & Sons, Inc. and/or its affiliates in the United States and other countries, and may not be used without written permission. All other trademarks are the property of their respective owners. Wiley Publishing, Inc., is not associated with any product or vendor mentioned in this book.

Limit of Liability/Disclaimer of Warranty: The publisher and the author make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specifically disclaim all warranties, including without limitation warranties of fitness for a particular purpose. No warranty may be created or extended by sales or promotional materials. The advice and strategies contained herein may not be suitable for every situation. This work is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If professional assistance is required, the services of a competent professional person should be sought. Neither the publisher nor the author shall be liable for damages arising herefrom. The fact that an organization or Website is referred to in this work as a citation and/or a potential source of further information does not mean that the author or the publisher endorses the information the organization or Website may provide or recommendations it may make. Further, readers should be aware that Internet Websites listed in this work may have changed or disappeared between when this work was written and when it is read.

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Manufactured in the United States of America

10 9 8 7 6 5 4 3 2 1

About the Authors

Eric Tyson is a syndicated personal finance writer, lecturer, and counselor. He is dedicated to teaching people to manage their personal finances better. Eric is a former management consultant to Fortune 500 financial service firms. For more than 25 years he has successfully invested in securities as well as in real estate, and has started and managed several businesses. He holds a bachelor’s degree in economics from Yale and an MBA from the Stanford Graduate School of Business.

An accomplished freelance personal finance writer, Eric is the author of five other national bestsellers in the For Dummies series: Home Buying(coauthor), Personal Finance, Investing, Mutual Funds, and Taxes (coauthor). His work has been featured and praised in hundreds of national and local publications, including Newsweek, Kiplinger’s, The Wall Street Journal, Money, Los Angeles Times, Chicago Tribune, and on Fox, NBC’s Today Show, PBS’s Nightly Business Report, CNN, The Oprah Winfrey Show, ABC, CNBC, Bloomberg Business Radio, CBS National Radio, and National Public Radio.

Eric has counseled thousands of clients on a variety of personal finance, investment, real estate, and mortgage quandaries and questions. In addition to maintaining a financial counseling practice, he is a popular speaker on important personal finance topics.

Ray Brown, coauthor of the national bestseller Home Buying For Dummies, is a veteran real estate broker with over three decades of hands-on experience. A former vice president and manager for Coldwell Banker Residential Brokerage Company and McGuire Real Estate, and founder of his own real estate firm, the Raymond Brown Company, Ray is currently a writer, radio talk show host, and public speaker on residential real estate topics.

Ray believes that most people are pretty darn smart. When they have problems, it’s usually because they don’t know the right questions to ask to get the information they need to make good decisions. This book completes Ray’s residential real estate trilogy and fulfills his dream of helping folks find their way through the often mystifying process of buying, financing, and selling their homes.

On his way to becoming a real estate guru, Ray worked as the real estate analyst for KGO-TV (ABC’s affiliate in San Francisco) and was a syndicated real estate columnist for The San Francisco Examiner. For 16 years he hosted a weekly radio program, Ray Brown on Real Estate, for KNBR. In addition to his work for ABC, Ray has appeared as a real estate expert on CNN, NBC, CBS, and in The Wall Street Journal and Time.

Ray’s most important accomplishments, however, remain Jeff and Jared, his incomparable sons, and 43 years of nearly always wedded bliss to the always wonderful Annie B. Last, but far from least, he’s delighted that Jeff’s wife, Genevieve, and his grandson, Aidan Joseph Brown, have joined the family.

Dedication

This book is hereby and irrevocably dedicated to my family and friends, as well as to my counseling clients and customers, who ultimately have taught me everything I know about how to explain financial terms and strategies so that all of us may benefit.

—Eric Tyson

This book is lovingly dedicated to Annie B., who’s too marvelous for words. Still.

—Ray Brown

Authors’ Acknowledgments

We offer our heartfelt thanks and appreciation to the many good people at Wiley, including Mike Baker for wanting to keep this book current and the best, Chad Sievers for his fine project management skills, and Sarah Faulkner for her helpful editing suggestions.

We also wish to express our deepest thanks and appreciation to our friend and colleague Ken Scholen, Director of AARP’s Reverse Mortgage Education Project for his invaluable help with the reverse mortgage chapter. Craig Watts deserves equally high accolades for the fountainhead of facts and figures he graciously contributed to the credit scoring chapter. We owe an enormous debt of gratitude to our brilliant technical reviewer, Dennis Hart, an extraordinary mortgage professional who toiled long hours to ensure that what we wrote was actual and factual. Dennis was most ably aided and abetted by Vicky Jones and Shannon Furr. Nor can we forget Chris Bruno, who provided additional expertise for which we are eternally grateful.

Ray also thanks Ray Britton, Dennis Hart, Esty Lawrie, and Russ Marinello, four exceedingly street-smart lenders who graciously taught him 99.724 percent of what he knows about the practicalities of getting loans approved. It would be wrong not to give huge thanks to Ray’s pal, Jim Fabris, for 30 years of wise counsel and unwavering support.

Publisher’s Acknowledgments

We’re proud of this book; please send us your comments through our Dummies online registration form located at www.dummies.com/register/.

Some of the people who helped bring this book to market include the following:

Acquisitions, Editorial, and Media Development

Project Editor: Chad R. Sievers
(Previous Edition: Natalie Harris)

Acquisitions Editor: Mike Baker

Senior Copy Editor: Sarah Faulkner
(Previous Edition: Jennifer Bingham)

Assistant Editor: Erin Calligan Mooney

Technical Editor: Dennis Hart

Editorial Manager: Michelle Hacker

Editorial Assistants: Joe Niesen and Jennette ElNaggar

Cover Photos: © moodboard/Corbis

Cartoons: Rich Tennant (www.the5thwave.com)

Composition Services

Project Coordinator: Kristie Rees

Layout and Graphics: Reuben W. Davis,
Melissa K. Jester, Christin Swinford, Christine Williams

Proofreaders: Laura Albert, Evelyn C. Gibson, John Greenough, Caitie Kelly

Indexer: Valerie Haynes Perry

Publishing and Editorial for Consumer Dummies

Diane Graves Steele, Vice President and Publisher, Consumer Dummies

Kristin Ferguson-Wagstaffe, Product Development Director, Consumer Dummies

Ensley Eikenburg, Associate Publisher, Travel

Kelly Regan, Editorial Director, Travel

Publishing for Technology Dummies

Andy Cummings, Vice President and Publisher, Dummies Technology/General User

Composition Services

Gerry Fahey, Vice President of Production Services

Debbie Stailey, Director of Composition Services

Introduction

Welcome to Mortgages For Dummies, 3rd Edition! What you hold in your hands is a completely revised edition. Not content to rest on our laurels, we’ve added lots of great tips and included an entirely new chapter about foreclosures.

If you own or want to own real estate, you need to understand mortgages. Whether you need a loan to buy your first home, want to refinance an existing mortgage, or are interested in tapping some of the value you’ve built up in your home over the years, you’ve found the right book.

Unfortunately for most of us, the mortgage field is jammed with jargon and fraught with fiscal pitfalls. Choose the wrong mortgage and you could end up squandering money better saved for important financial goals such as higher education for your adorable little gremlins or your very own retirement. In the worst cases, you could end up losing your home to foreclosure and in personal bankruptcy. Just look at what happened in the late 2000s when the real estate market declined in many parts of the country. Folks who overextended themselves with risky mortgages, which we strongly argue against in prior editions of this book, ended up in foreclosure.

For typical homeowners, the monthly mortgage payment is either their largest or, after income taxes, second largest expense item. When you’re shopping for a mortgage, you could easily waste many hours and suffer financial losses by not getting the best loan that you can.

Because so much is at stake, we want to help you make the best decisions possible. That’s where we come in.

The Eric Tyson/Ray Brown Difference

How is this book, you ask, different and better than competing mortgage books? Let us count the ways. Our book is:

Objective: Our goal is to make you as knowledgeable as possible before you commit to a particular mortgage. Most mortgage books are written by mortgage brokers or lenders who loathe to share the secrets of the mortgage business. Typically, they’re more interested in promoting their own business by convincing you to use a particular mortgage broker or lender. We’re not here to promote any specific brokers or lenders — we wrote this book to help you.

Holistic: When you obtain a mortgage, that decision affects your ability to save money and accomplish other important financial goals. We help you understand how best to fit your mortgage into the rest of your personal-finance puzzle. Other mortgage books don’t help you consider these bigger-picture issues of personal finance before you buy.

Jargon-free: One of the hallmarks of books intended to confuse and impress the reader, rather than to convey practical information and advice, is the use of all sorts of insider terms that make things sound more mysterious and complicated than they really are. We, on the other hand, pride ourselves on simplifying the complex. Between the two of us, we have more than six decades of practical experience explaining things to real people just like you. Eric has worked as a financial counselor, teacher, and syndicated columnist. Ray hosted a residential real estate radio program for more than 15 years, managed several large residential real estate offices, and does real estate consulting. Our combined experience can put you firmly in control of the mortgage-decision-making process.

User-friendly: You can read our book piecemeal to address your specific questions and immediate concerns. But if you want a crash course on the world of mortgages, read it cover to cover. In addition to being organized to help you quickly find the information you’re seeking, each portion of the book stands on its own.

Conventions Used in This Book

To make reading this book as easy as possible, we use the following conventions:

We italicize new terms and give you a definition for them.

Boldfaced text is applied to keywords in bulleted lists and the action part of numbered lists.

All Web sites and e-mail addresses are printed in monofont text. And if a Web site address breaks across two lines, we don’t include an extra hyphen at the end of the first line; just type it in exactly the way you see it (pretending the break doesn’t exist).

We refer to the decade from 2000 to 2009 as the 2000s. Just wanted to avoid any confusion in case you were thinking of the year 2095.

What You’re Not to Read

Although reading every word of this book can help you secure the best mortgage for your needs, we understand that you may not have the time or the inclination to read it all. If you’re short on time, use the table of contents or index to look up whatever’s most relevant for you. Feel free to skip sidebars (those gray shaded boxes) and text marked with the Technical Stuff icon; we include interesting info in both places, but your overall understanding of the topic at hand won’t be in jeopardy if you pass them by.

Foolish Assumptions

Yes, we know that making assumptions is foolish, but we just can’t help ourselves. We assume that you, dear reader, fit into one of these categories:

You’re preparing to purchase your first home.

You want to refinance your current mortgage.

You’re interested in tapping into the equity you’ve built up in your home.

How This Book Is Organized

Whether you’re a first-time homebuyer who needs to secure a mortgage or a long-time homeowner who is considering refinancing an existing mortgage, we’ve got you covered. We also thoughtfully include an entire chapter about home equity conversion plans (so-called reverse mortgages) for qualifying homeowners who want to convert part of their home’s equity into cash without having to move or repay a loan each month.

Part I: Fine-Tuning Your Finances

Before you begin filling out any mortgage application forms or pick up the phone in search of the best deal, you should understand your overall financial situation. In this part, we assist you in taking a holistic view of your personal financial status to help you assess how much you can realistically borrow given your current expenses and financial goals. If, like many homeowners, you don’t have a good handle on these things, we show you how to get a firm grasp. We also help you understand how lenders evaluate your mortgage application and how you can stack the odds in your favor of obtaining the right mortgage, on time and at the best rates in town. Fear not if your credit score is a tad less than perfect. We demystify credit scoring and reveal techniques you can use to improve your credit score and lower your mortgage’s interest rate.

Part II: Locating a Loan

The next step in the mortgage shopping process is clarifying what type of loan best fits your situation — fixed-rate, adjustable-rate, hybrid, 15-year, 30-year, home equity, bridge, conforming, or jumbo. It all adds up to a gargantuan headache if you don’t understand the terminology and which loans and options are best for you. Because of all the bells and whistles on loans today, you can choose from literally hundreds of different loan options. Don’t be overwhelmed! In this part, we help you cut through the clutter and mortgage business jargon to select the loan that’s right for you.

Part III: Landing a Lender

In this part, we explain the heart of the mortgage shopping process — interviewing prospective lenders and understanding their myriad ways of charging you money. First, we help you discern what makes one lender or mortgage better than the rest. Then, we cover how you can network to find the best lender for the type of loan you need. We provide interview questions to help you separate the best from the rest. Next we expose the do’s and don’ts of using your computer to scour the Internet for a mortgage. To make sure that you shop intelligently, we have a loan comparison worksheet that quantifies information (points, fees, prepayment penalties, private mortgage insurance [PMI], rate locks, and more) you get about various loan programs, so you can identify the best loan for you. Last but not least, we offer helpful tips and perspective on completing the various forms you’ll need to polish off to get the mortgage of your dreams.

Part IV: Refinancing and Other Money Generators

Just because you buy a home and take out a mortgage doesn’t mean that you can simply forget about the world of mortgages. To the contrary — remember that change is the only constant! Your personal circumstances will change. Ditto mortgage rates. If rates drop, you should be positioned to reap the benefits by refinancing. The decision about whether to refinance and, if you decide to, what type of loan you’ll get, can be as complicated as the one to secure the mortgage you got when you bought your home. In addition to choosing a specific loan, you’ll also have to crunch some numbers to see whether you’ll save enough money to make refinancing worth your while. Don’t worry, we help you with the math. And, if you’re retired or nearing retirement, we also explain reverse mortgages, which you can use to make your golden years even more golden.

Part V: The Part of Tens

Tucked away in this part are some additional prizes you didn’t even know you wanted! In this part, we cover such useful topics as ten things you need to know about foreclosure, ten things you absolutely must avoid doing when getting a mortgage, and ten tips for saving tax dollars and determining when and whether to accelerate the paying off of your mortgage.

Part VI: Appendixes

Want to figure out what your monthly loan payment will be or how much you’ll still owe on your mortgage a few months or years after you got it? Are you stumped by the meaning of a particular mortgage term? Well, you’ve come to the right place! In the appendixes, you can find answers to all these questions and more.

Icons Used in This Book

Sprinkled throughout this book are cute little icons to help reinforce and draw attention to key points or to flag stuff that you can skip over.

This target flags key strategies that can improve your mortgage decisions and, in some cases, save you thousands of dollars. Think of these icons as highlighting words of wisdom that we would whisper in your ear if we were close enough to do so.

Numerous pitfalls await prospective mortgage borrowers. This symbol denotes mistakes committed by those who have come before you. Heed these warnings and save yourself a lot of heartache.

This icon highlights specific tips that can result in big savings.

This icon marks stuff that you don’t really have to know but that may come in handy at cocktail parties thrown by people in the mortgage industry.

Where to Go from Here

If you’re not quite sure where to start, flip to the table of contents or index and find a subject that piques your interest. Feel free to dive in wherever you find chapters that apply to your circumstances. If you’re more conventional, begin at the beginning and trust us to guide you safely through the mortgage maze. By the time you finish the book, you’ll be a mortgage master.

Part I

Fine-Tuning Your Finances

In this part . . .

Buying (or refinancing) a home can — potentially — be a nail-biting, brain-baffling, perspiration-inducing experience. But take a deep breath and relax; we can help you prepare for this financial leap.

In this part, we help you determine how much mortgage debt you can really afford. We explain how to analyze your monthly spending, likely homeownership expenses, and financial goals.

After you have the information you need to move ahead wisely, we help you figure out how to qualify for a loan. You’ll see why getting preapproved for a mortgage gives you an advantage as a prospective homebuyer — if you find yourself in a multiple-offer situation.

Winston Churchill once said Russia was a riddle wrapped in a mystery inside an enigma. If that describes how you feel about credit scores, fear no more. We also demystify credit scores and credit reports.

Chapter 1

Determining Your Borrowing Power

In This Chapter

Understanding how much mortgage debt you can truly afford

Examining your monthly spending

Assessing your likely homeownership expenses

Considering your other financial goals

Ken was a homeowner who was induced by an advertisement to refinance. He switched adjustable-rate mortgages without understanding how long it would take him to recoup the associated financing costs (nearly 10 years, which was longer than Ken intended to keep his home).

The main reason Ken refinanced was that his previous adjustable-rate loan’s interest rate increased rapidly when the adjustment index it was tied to rose sharply. Ken switched out of a faster moving loan after rates popped up, and he wasn’t able to benefit nearly as fast when rates fell.

Mary was a first-time homebuyer. She began going to open houses on Sunday afternoons and, in a relatively short time, fell in love with a home. Unfortunately, she had to mortgage herself up to her eyeballs to get into it.

Not thrilled with her job, Mary continued to tough it out because she had that hefty mortgage to feed every month. She had to cut out travel and restaurant dinners with friends. Mary was miserable. To cheer herself up, she started charging more on her credit card. The spending hangover that hit when her next credit card statement arrived made the enjoyment short-lived.

Now, trust us when we say that Ken and Mary aren’t stupid. However, when it came to making important mortgage decisions, Ken and Mary were certainly not well informed. Mary didn’t understand what amount of mortgage debt she could truly afford. Ken didn’t understand how to make refinancing decisions.

In this chapter, we help you tackle the first vital subject to consider when the time comes to take out a mortgage — how much mortgage can you really afford? Note: We intend this chapter primarily to help people who are buying a home (first or not) determine what size mortgage fits their financial situation. If you’re in the mortgage market for purposes of refinancing, please also see Chapter 11.

Only You Can Determine the Mortgage Debt You Can Afford

Sit down and talk in person or by phone, or use a Web site to gather information and then meet face to face with any mortgage lender, mortgage broker, and you’ll be asked about your income and debts. Assuming you have a good credit history and an adequate cash down payment, the lender can quickly estimate the amount of mortgage debt you can obtain.

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!