106 Mortgage Secrets All Borrowers Must Learn -- But Lenders Don't Tell

GARY W. ELDRED, PHD, has invested successfully in real estate for more than twenty years and has served on the graduate business faculty at Stanford University and the University of Virginia. He has authored many other real estate titles, including Make Money with Affordable Apartment Buildings and Commercial Properties, Second Edition; Trump University Real Estate 101; and Investing in Real Estate, Fifth Edition, all from Wiley.

Preface to the Second Edition xi

Introduction: Use OPM to Achieve All That You Really Want xiii

1 Affordability Depends on You—Not a Lender 1

Secret #1 Affordability depends on you 1

Secret #2 How you choose your property and arrange financing can add (or subtract) tens (or even hundreds) of thousands of dollars to (from) your net worth 6

Secret #3 Separate the emotional from the financial 7

Secret #4 Align self-talk with your priorities 9

Secret #5 Envision the propert(ies) you would like to own 5, 10, or 15 years from now 15

2 Increase Your Borrowing Power 17

Secret #6 10,000 lenders set their own standards 17

Secret #7 You can make your qualifying ratios look better 20

Secret #8 Lift your qualifying income 23

Secret #9 Reduce your debt 27

Secret #10 Use compensating factors to justify higher qualifying ratios 30

Secret #11 Never fib to a lender 32

Secret #12 Can’t qualify? Enlist a cosigner, co-borrower, or co-owner 34

Secret #13 Let tenants pay your mortgage 36

Secret #14 Don’t change your loan status 42

3 Slash Your Cost of Interest 43

Secret #15 Many borrowers who want a fixed-rate loan should choose 15 years, not 30 or 40 44

Secret #16 Lower interest rates mean big savings 48

Secret #17 Lower rates magnify borrowing power 49

Secret #18 ARMs sometimes offer greater borrowing power, lower costs, with risk you can manage 51

Secret #19 State and local housing finance agencies offer lower-interest mortgage loans 53

Secret #20 Assume a low-interest-rate mortgage 54

Secret #21 “Assume” a nonassumable mortgage 57

Secret #22 Save $1,000s with a Mortgage Credit Certificate (MCC) 61

Secret #23 Seek employer assistance, or seek an employer who gives assistance 62

Secret #24 Obtain a lower interest rate; pay points 63

Secret #25 Negotiate a buydown with the sellers 64

Secret #26 New homebuilders offer mortgage incentives 66

Secret #27 How to borrow jumbo amounts without paying jumbo rates 66

Secret #28 Your after-tax cost of borrowing may not be as low as you’ve been told 69

4 The Risks and Rewards of ARMs 73

Secret #29 ARMs do not necessarily present more risk than fixed-rate loans 73

Secret #30 For the short term, ARMs usually cost less 78

Secret #31 ARMs for the long run: How to lower costs and alleviate risk 80

Secret #32 You can (sort of) forecast interest rates 81

Secret #33 Low teaser rates: Bait or bargain? 84

Secret #34 Your start (teaser) rate isn’t your contract rate 86

Secret #35 There’s no one best index 88

Secret #36 Don’t ignore the margin 91

Secret #37 All caps aren’t created equal 92

Secret #38 That flashy convertible could prove a clunker 93

Secret #39 APRs tell you nothing about ARMs—and very little about fixed rates 94

5 Perfect Your Credit Profile 97

Secret #40 Emphasize all eight Cs of loan approval 98

Secret #41 Credit scores influence, but do not determine, the terms and costs of your loan 103

Secret #42 Your credit score doesn’t necessarily represent your credit strength 104

Secret #43 Discover your credit scores 105

Secret #44 Improve your credit scores 107

Secret #45 Garbage in, garbage out (GIGO) 109

Secret #46 Most credit repair firms (or deceptive tactics) can’t fix your credit or boost your credit scores 113

Secret #47 Bogus credit counselors can scam you, too 114

Secret #48 Credit counselors and debt management firms do not improve your credit record or boost your credit scores 115

Secret #49 Bankruptcy (Chapter 7) doesn’t necessarily ruin your credit 116

Secret #50 Your ex-spouse can ruin your credit (and other tales of double counting) 118

6 The Lowdown on Low Downs 121

Secret #51 You can buy with little or nothing down 121

Secret #52 No matter how much you earn, FHA may hold the key to your financing needs 122

Secret #53 Discover FHA’s best-kept Secret: The 203(k) program 126

Secret #54 Too many vets pass up VA loans 129

Secret #55 The USDA offers a prime choice for low- to moderate-income homebuyers 131

Secret #56 Community lending goes mainstream 131

Secret #57 Not-for-profit housing groups help moderate-income people own their own homes 134

Secret #58 Local governments assist with down payments 136

Secret #59 Even Fannie and Freddie accept little- or nothing-down loans 138

Secret #60 Cut the cost of PMI by learning where rates break 138

Secret #61 Before you obtain a PMI little- or nothing-down loan, understand the cost you’ll pay 139

Secret #62 Reduce the higher cost of low down payments with a second mortgage (piggyback loan) 141

Secret #63 Use pledged collateral to eliminate PMI 142

Secret #64 Search for sellers with low-equity assumables loans 144

Secret #65 Avoid PMI with a higher interest rate mortgage 144

7 Win Big Savings with Seller Financing, Foreclosures, or REOs 147

Secret #66 Sellers can nearly always beat the banks at their own game, but you must do more than ask 151

Secret #67 Ask the seller and lender to cooperate with a refiblend 153

Secret #68 Bridge the assumable gap with a seller second 154

Secret #69 Avoid the bang of a bursting balloon 155

Secret #70 Buy on the installment plan 156

Secret #71 Try it before you buy it 159

Secret #72 Buy and lease simultaneously 161

Secret #73 Beat high interest rates with wraparound financing 164

Secret #74 Don’t dillydally with due diligence 165

Secret #75 Negotiate a preforeclosure workout 168

Secret #76 Buy (carefully) at a foreclosure sale 171

Secret #77 Locate a foreclosure pro 171

Secret #78 HUD may hold the keys to your home or investment property 173

Secret #79 VA offers REO deals (with financing) to both veterans and nonveterans 175

Secret #80 Let Fannie or Freddie treat you to below-market financing 177

Secret #81 Buy and finance directly with a lender 179

8 Beware of Those Fine Print “Gotchas” 183

Secret #82 It’s a jungle out there 184

Secret #83 Tell your loan rep to take out the garbage 187

Secret #84 Don’t place blind faith in the good faith estimate 189

Secret #85 What’s the real cost of a no-cost mortgage? 191

Secret #86 Can you prepay without restriction or penalty? 193

Secret #87 An assumable loan may offer less than you’ve assumed 196

Secret #88 Appraised value doesn’t necessarily equal market value 198

Secret #89 Sometimes lenders signal appraisers to lowball their value estimates 200

Secret #90 Appraisals do not forecast the future 202

9 Achieve the Lowest Interest Rate Available 205

Secret #91 Refuse to yield to oversized yield-spread premiums (YSPs) 205

Secret #92 Red and yellow, black and white, do lenders treat them all alike? 207

Secret #93 Rate quotes: Fact or fiction? 208

Secret #94 What rate will you get at closing? 210

Secret #95 Achieve your best rate 213

Secret #96 Industry pros and government agencies need your help 215

Secret #97 How to (almost) vanquish tricks of the trade 220

10 Manage Your Property and Financing for Maximum Return 225

Secret #98 Treat your home and your financing as an investment 226

Secret #99 Monitor opportunities to refinance 233

Secret #100 Use refinancing to create other benefits 236

Secret #101 Refinance and invest the proceeds 238

Secret #102 Never buy biweekly baloney 243

Secret #103 Cancel your PMI—Get a refund from FHA 246

Secret #104 Should you negotiate out of escrow? 248

Secret #105 Just say no to home equity loans 250

Secret #106 Trouble, trouble, what to do? 254

Conclusion: You Can Live on the House 259

Index 265