Introduction 1
How This Book is Different 1
Foolish Assumptions 2
Icons Used in This Book 3
Beyond the Book 3
Where to Go from Here 3
Part 1: Getting Started with Mortgages 5
Chapter 1: Determining Your Borrowing Power 7
Only You Can Determine the Mortgage Debt You Can Afford 8
Acknowledge your need to save 8
Collect your spending data 9
Determine Your Potential Homeownership Expenses 10
Making your mortgage payments 10
Paying property taxes 12
Tracking your tax write-offs 13
Investing in insurance 14
Budgeting for closing costs 14
Managing maintenance costs 17
Financing home improvements and such 17
Consider the Impact of a New House on Your Financial Future 17
Acting upon your spending analysis 21
Establishing financial goals 22
Making down-payment decisions 23
Chapter 2: Qualifying for a Mortgage 25
Getting Preapproved for a Loan 25
The worst-case scenario 26
Loan prequalification usually isn’t good enough 26
Loan preapproval is the way to go 27
Evaluating Your Creditworthiness: The Underwriting Process 28
Traditional underwriting guidelines 29
New underwriting technology 32
Eyeing Predicament-Solving Strategies 34
Insufficient cash for a down payment 34
Excessive indebtedness 38
Insufficient income 39
Credit blemishes 40
Low appraisals 41
Problem properties 45
Chapter 3: Scoping Out Your Credit Score 47
Defining Credit Scores 48
Assessing Your Credit History 48
What goes into your credit report 49
Check your credit report 50
Understanding How Scores Work 51
FICO scores can differ between bureaus 51
What a FICO score considers 52
What FICO scores ignore 60
Interpreting scores 61
Getting your score 61
Managing your score 62
Part 2: Locating a Loan 63
Chapter 4: Fathoming the Fundamentals 65
Grasping Loan Basics: Principal, Interest, Term, and Amortization 66
Deciphering Mortgage Lingo 67
So what’s a mortgage? 67
How to scrutinize security instruments 68
Eyeing Classic Mortgage Jargon Duets 70
Fixed or adjustable loans 70
Government or conventional loans 71
Primary or secondary mortgage market 72
Conforming or jumbo loans 74
Long-term or short-term mortgages 75
Introducing the Punitive Ps 76
Prepayment penalties 76
Private mortgage insurance (PMI) 78
Chapter 5: Selecting the Best Home Purchase Loan 81
Three Questions to Help You Pick the Right Mortgage 82
How long do you plan to keep your mortgage? 82
How much financial risk can you accept? 83
How much money do you need? 84
Fixed-Rate Mortgages: No Surprises 85
Adjustable-Rate Mortgages (ARMs) 87
How an ARM’s interest rate is determined 88
How often does the interest rate adjust? 92
What are the limits on rate adjustments? 92
Does the loan have negative amortization? 93
Fine-Tuning Your Thought Process 96
Finding funds 96
Making the 30-year versus 15-year mortgage decision 97
Getting a Loan When Rates Are High 98
Chapter 6: Surveying Special Situation Loans 99
Understanding Home Equity Loans 100
Using home equity loans 100
Operating instructions 101
Considering tax consequences 103
Eyeing 100 Percent Home Equity Loans 104
Taking a Closer Look at Co-Op Loans 107
Identifying the legal structure of co-op loans 107
Dealing with deal-killing directors 108
Tracking down a loan 109
Grasping Balloon Loans 110
80-10-10 financing 110
Bridge loans 114
Construction loans 115
Renovation/remodel loans 116
Part 3: Landing a Lender 117
Chapter 7: Finding Your Best Lender 119
Going with a Mortgage Broker or Direct Lender? 120
Considerations when using brokers 120
Developing a list of brokers and lenders 122
Interviewing and working with mortgage brokers 124
Figuring out how to interview lenders 125
Seller Financing: The Trials and Tribulations 127
Considering/soliciting seller financing 127
Overcoming borrower problems 128
Negotiating loan terms 128
Deciding whether to provide seller financing 129
Chapter 8: Searching for Mortgage Information Online 131
Obeying Our Safe Surfing Tips 132
Shop to find out about rates and programs 132
Quality control is often insufficient 133
Beware simplistic affordability calculators 133
Don’t reveal confidential information unless 133
Be sure to shop offline 134
Beware of paid advertising masquerading as directories 135
Perusing Our Recommended Mortgage Websites 136
Useful government sites 136
Mortgage information and shopping sites 138
Chapter 9: Choosing Your Preferred Mortgage 141
Taking a Look at Loan Fees 142
The point and interest rate tradeoff 142
Annual percentage rates 144
Other lender fees 145
Avoiding Dangerous Loan Features 147
Prepayment penalties 147
Negative amortization 148
Comparing Lenders’ Programs 149
Fixed-rate mortgages interview worksheet 149
Adjustable-rate mortgages interview worksheet 153
Applying with One or More Lenders 158
Chapter 10: Managing Mortgage Paperwork 159
Pounding the Paperwork 159
Filling Out the Uniform Residential Loan Application 162
1 Borrower information 162
2 Financial information — assets and liabilities 166
3 Financial information — real estate 167
4 Loan and property information 168
5 Declarations 170
6 Acknowledgments and agreements 170
7 Demographic information 172
Introducing Other Typical Documents 173
Your right to receive a copy of the appraisal 173
Equal Credit Opportunity Act 175
Part 4: Profiting from Smart Mortgage Strategies 177
Chapter 11: Refinancing Your Mortgage 179
Refinancing Rationales 180
Cost-Cutting Refinances 181
Applying the 2 percent rule 182
Crunching the numbers 183
Restructuring Refinances 186
Restructuring when you need to 186
Getting a fixed-rate to avoid ARM phobia 188
Resetting ARM caps 188
Choosing the fast-forward mortgage 190
Cash-Out Refinances 190
Expediting Your Refi 192
Beating Borrower’s Remorse 194
Phase I borrower’s remorse 194
Phase II borrower’s remorse 195
Chapter 12: Paying Down Your Mortgage Quicker 197
One Size Doesn’t Fit All 198
Interest savings: The benefit of paying off your mortgage quicker 198
Quantifying the missed opportunity to invest those extra payments 198
Taxes matter but less than you think 199
Deciding Whether to Repay Your Mortgage Faster 200
Does your mortgage have a prepayment penalty? 201
How liquid are your assets? 201
Have you funded retirement savings accounts? 201
How aggressive an investor are you? 202
What are your refinancing options? 203
Considering psychological and nonfinancial issues 203
Developing Your Payoff Plan 204
Chapter 13: Reverse Mortgages for Retirement Income 205
Grasping the Reverse Mortgage Basics 205
Considering common objections 207
Who can get a reverse mortgage? 208
How much money can you get and when? 209
When do you pay the money back? 210
What do you owe? 211
How is the loan repaid? 212
What’s the out-of-pocket cost of getting a reverse mortgage? 212
What are the other reverse mortgage costs? 213
What’s the total annual rate? 214
How do reverse mortgages affect your government-sponsored benefits? 215
Shopping for a Reverse Mortgage 215
Making major choices 216
Counseling 217
Deciding Whether You Want a Reverse Mortgage 217
Part 5: The Part of Tens 219
Chapter 14: Ten-Plus “Must-Knows” About Foreclosure 221
Deal with Reality 222
Review Your Spending and Debts 223
Beware of Foreclosure Scams 223
Consider Tapping Other Assets 223
Make Use of Objective Counseling 224
Negotiate with Your Lender 224
Understand Short Sales 225
Seek Legal and Tax Advice 225
Understand Bankruptcy 226
Consider the Future Impact to Your Credit Report 226
Understand the Realities of Investing in Foreclosed Property 228
Chapter 15: Ten Mortgage No-Nos 229
Don’t Let Lenders Tell You What You Can Afford 229
Never Confuse Loan Prequalification with Preapproval 230
Avoid Loans with Prepayment Penalties 231
Don’t Reflexively Grab a Fixed-Rate Mortgage 231
Steer Clear of Toxic 100 Percent Home Equity Loans 232
Watch Out for Mortgage Brokers with Hidden Agendas 233
Shun Negative Amortization Mortgages 234
Don’t Let the 2 Percent Rule Bully You When Refinancing 234
Don’t Assume That All Reverse Mortgages Are the Same or Bad 235
Avoid Mortgage Life Insurance 235
Part 6: Appendixes 237
Appendix A: Loan Amortization Table 239
Appendix B: Remaining Balance Tables 245
Appendix C: Glossary 271
Index 281
