10 tips to snag a mortgage loan in 2011

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Mortgage lenders tightened their standards after the subprime mortgage mess and that won’t change in the coming year. But there are mortgage loans to be had.

Follow these tips in 2011 to secure a mortgage loan at an interest rate and under terms that are right for you.

Have the right credit score
The best combination of interest rate and points requires a higher credit score than in the past. Before the crisis, the best mortgage loans came with credit score of 720. Then the industry went back to basics. Now the best deals often need a 740 credit score.
Protect and preserve your credit

Multiple credit inquiries will cause your credit score to fall. For that reason, some would-be borrowers are wary of shopping around for a mortgage loan. They worry that if two or more lenders pull credit reports, their scores will go down. But the effect of rate-shopping is more complicated than that.

When mortgage lenders make multiple credit inquiries within a few weeks of one another, those multiple inquiries are treated as one. Yes, it will cause the score to drop. But the hit is likely to be minor because multiple inquiries are treated as one.

One credit-scoring method treats all mortgage credit inquiries made within 45 days as one inquiry; an older, less-generous method lumps together all mortgage credit inquiries made within just 14 days.

Shop around

The interest rate is important, but there are other costs to consider, such as discount points and even the type of mortgage loan. When shopping for best rates, compare combinations of discount points and loan types.

For example, if your best guess is that you’ll live in the house for eight years before moving, compare the total fees and monthly payments that you would make under three or four different loan deals. Ask yourself how much it would cost to pay zero discount points and get a higher interest rate compared to paying discount points in exchange for lower rates? What about a 5/1 or 7/1 adjustable-rate mortgage?

You might quickly rule out some options, but at least you considered them. Bankrate.com’s mortgage calculators will help you compare.

Know your borrowing limit

Whether or not you get an FHA-insured mortgage loan, let the Federal Housing Administration be your guide to how much debt to take on.

For most borrowers, the FHA caps house payments at 31 percent of gross (pretax) monthly income. If you earn the median household income of about $4,200 per month before taxes, then your house payment — principal, interest, taxes, insurance and association dues — should be no more than 31 percent of that, or $1,302.

Some housing counselors say 28 percent to 30 percent is a safer number. The FHA limits total debt payments to 43 percent of monthly income. Total debt payments include first and second mortgages, auto loans, credit cards and child support. Some non-FHA loans let you borrow more, but you don’t have to do it.

Bankrate.com has a calculator to determine how much you can afford to borrow.

Don’t reset the calendar to 30 years

When refinancing a 30-year mortgage loan, many borrowers restart from the beginning, scheduling the payments so they pay off the loan in 30 years. You don’t have to do it that way. When you refinance a 30-year loan that you’ve had for five years, pay off the new loan in 25 years. Just ask the lender to amortize the loan for the remaining period of the old loan.

Bankrate.com’s mortgage payoff calculator can help.

Consider a no-closing-cost refi

You’re fortunate enough to have positive equity, but you don’t have a lot of cash lying around. If you think that means you can’t refinance, think again. You might be able to refinance the mortgage loan yet pay little out of pocket in a no-closing-costs refi.

The lender doesn’t eat the closing costs out of a sense of generosity. After all, we are talking about a bank. With a no-closing-cost loan, the bank charges a slightly higher rate. You end up paying closing costs over time, instead of all at once.

Small down payment? See the feds

Most lenders require borrowers to have down payments of at least 10 percent of the home’s price. In the case of refinances, lenders want borrowers to have at least 10 percent equity. That leaves out a lot of borrowers and refinancers. But there are options for people without much savings or equity.

For borrowers with good credit, the FHA requires a down payment (or equity) of 3.5 percent.

The Department of Agriculture’s rural development program guarantees mortgage loans with zero down payment. Those loans are limited to designated rural areas. The Department of Veterans Affairs offers zero-down mortgages for qualified veterans.

Small loan? Act early

This tip is based on the Dodd-Frank Wall Street Reform and Consumer Protection Act and concerns mortgage loans of a relatively small amount of less than $100,000.

New restrictions on how loan officers are paid go into effect April 1, 2011. The law forbids lenders from basing loan officer compensation on interest rates or other loan terms. Essentially, a broker or loan officer will be able to earn more money only by lending more money. As an unintended consequence, loan officers are likely to chase bigger loans, and they won’t want to spend as much time working on smaller loans. For borrowers getting small mortgages, customer service could suffer.

Some loan officers and brokers will be conscientious and will treat customers equally, regardless of loan size. But keep the regulation in mind.

Make an extra payment any time of the year

You’ve heard that making an extra mortgage payment at the end of each year will shorten the repayment time. That’s true. But the extra payment doesn’t have to come at year’s end. An extra payment is effective any time of the year — the important thing is to pay it consistently.

If money is tight during holiday season, maybe it would feel less painful to make the extra payment after receiving a tax refund, or after an annual bonus, or at some other time of year.

Bankrate’s mortgage calculator lets you see how many years you’ll reduce the payoff time by making consistent extra payments.

Behind on your house payments? See a counselor

Delinquent homeowners who receive HUD-certified foreclosure counseling are more likely to keep their houses and not lose them to foreclosure, according to a study commissioned by NeighborWorks America, a national network of more than 240 community development and affordable housing organizations, based in Washington, D.C. When late borrowers get counseling, they are more likely to get a mortgage modification and their payments are reduced more.