Finding an affordable house is no longer a problem but qualifying for a mortgage can be. Here are six tips to getting a mortgage and a good rate.
1. Put your credit on ice.
The higher your credit score, the lower your rate: The best rates go to those with a 760 or more, says credit-score expert John Ulzheimer.
So keep that plastic in your wallet (and don't apply for new cards or other loans) for at least three months before you go loan shopping. One large balance -- even if it's paid off at the end of the month -- can ding your score by 20 points or more.
2. Ask for time.
Most sales contracts give you only 10 days to nab a loan or the seller can move on. Negotiate for an additional five to 10 days to give you some room to shop around.
3. Get at least six quotes.
Rates on a 30-year fixed conforming loan can vary at least as much as a quarter of a percentage point. Get quotes from national lenders at mortgagemarvel.com and find out what your local credit union or regional bank is offering as well. Inquire about fees; while lenders aren't required to give you a good-faith estimate of closing costs (which average 2 percent of the loan balance) until you actually apply, some will provide it if you ask.
4. Match the lock period to the loan.
You now need 60 days or more to close a loan, says Wharton professor and mortgage expert Jack Guttentag of mtgprofessor.com, and getting an extension on a lock will cost at least a couple of hundred dollars. Ask your lender how long it's taking to close loans like yours -- and don't lock for less.
5. Opt for an ARM.
If you know you're not going to be in a house for more than seven years, adjustable-rate mortgages can mean big savings, says Guttentag. The monthly payment on a $300,000, seven-year ARM at the recent rate of 3.23 percent is $1,302, vs. $1,455 for a 30-year fixed at 4.13 percent.
6. Talk to a broker.
Those who need a jumbo loan or have an unusual situation (say, you're self-employed) will get the best deal from a mortgage broker who has access to and experience with a lot of lenders. Find a fee-only one at upfrontmortgagebrokers.org.
Mortgage debt per person: $196,911
Median household income: $51,001 (19th highest) Credit card debt per person: $6,145 (seventh lowest)
Change in home value (2006-2010): -44.5 percent (biggest decline)
No state had a more dramatic downfall in its housing market during the recession than Nevada. In 2006, nearly 40,000 building permits were approved in the state, a nation-high average of 15.8 per 1,000 people. By 2010, the number of permits declined 80 percent and median home values dropped 44.5 percent. This has left thousands of homeowners with underwater mortgages. According to Credit Karma, Nevada residents owe an average of $196,911 on their mortgages. But unlike residents of most of the other states with high debt, many Nevada residents are not affluent enough to shoulder this burden. The state has the highest unemployment rate in the country, 13 percent, and a median income that is only 19th highest in the U.S.
Pictured: Las Vegas
Mortgage debt per person: $198,117
Median household income: $54,046 (15th highest)
Credit card debt per person: $7,533 (fifth highest)
Change in home value (2006-2010): +1.6 percent (31st smallest increase)
Colorado’s average mortgage debt of just under $200,000 is the ninth-highest in the country. The state’s average credit card debt of $7,533 per person is the fifth-highest. Residents, however, have been able to pay some of these massive debts on time, as Coloradans also boast one of the best average credit scores in the country. However, the state had the 12th-highest foreclosure rate in the country in December. While not as wealthy as some of the other states with extremely high personal debt, Colorado is certainly better off than Nevada. Poverty and unemployment are both quite low in the state.
Pictured: Phoenix, Nev.
Mortgage debt per person: $211,516
Median household income: $64,032 (fourth highest)
Credit card debt per person: $7,730 (third highest)
Change in home value (2006-2010): -3.4 percent (13th biggest decline)
In 2006, Connecticut had the second fewest building permits per person issued, behind only Rhode Island. This suggests that fewer people were buying homes that they could not afford at the height of the housing bubble. Indeed, just one in every 1,145 homes were foreclosed on in the state in December, a much lower figure compared to states such as Nevada and California, where the foreclosure rates in December were 1 in 177 and 1 in 254, respectively. Along with the eighth-highest mortgage debt per person in the country, Connecticut also ranks third-highest both in credit card debt and student debt. Nevertheless, the average resident’s credit score is the ninth-highest in the country, meaning state residents can pay off their debts. Connecticut has the fifth-lowest poverty rate in the country, and the fourth-highest median income.
Pictured: Waterbury, Connecticut
Mortgage debt per person: $221,873
Median household income: $60,674 (eighth highest)
Credit card debt per person: $7,298 (ninth highest)
Change in home value (2006-2010): +2 percent (21st biggest increase)
The average Virginia resident has $221,516 in mortgage debt, the seventh-greatest amount of that debt in the country. This does not include the additional $50,000 in debt the average resident has accumulated between their credit cards, car payments and student loans. However, the average household makes more than $60,000 per year, the eighth-most in the country, and so, to a certain extent, Virginians are able to afford their IOUs. The average credit score in the state of 670 is the 10th-best in the country.
Pictured: Centreville, Va.
Mortgage debt per person: $224,661
Median household income: $62,072 (sixth highest)
Credit card debt per person: $6,851 (16th highest)
Change in home value (2006 – 2010): -9.8 percent (eighth biggest decline)
Massachusetts has the fifth-highest median home value of $334,100, which explains why the average resident owes nearly $225,000 in mortgage payments. But with the state boasting the sixth-highest median income and ninth-lowest poverty, residents are generally able to pay off their debts. While the number of new building projects has not declined as much as the rest of the country, home values still declined nearly 10 percent between 2006 and 2010. This decline affected some homeowners, demonstrated by the fact that the state had the 20th-highest foreclosure rate in the country last year.
Mortgage debt per person: $225,581
Median household income: $55,681 (11th highest)
Credit card debt per person: $6,825 (17th highest)
Change in home value (2006-2010): +1.6 percent (32nd biggest gain)
While Washington has the fifth-highest mortgage debt per person in the country, state residents tend to be more frugal in their other finances. Compared to other states, Washington has only the 17th highest credit card and auto debt per capita, and has the 13th-lowest student debt. Washington’s median home value in 2010 was the ninth highest in the country. Home values actually increased 1.6 percent during the recession. As a result, foreclosures in the state are low, despite the fact that the state has the 16th-highest unemployment rate in the country and a high poverty rate of 12.5 percent.
Mortgage debt per person: $236,017
Median household income: $67,681 (second highest)
Credit card debt per person: $7,608 (fourth highest)
Change in home value (2006-2010): -7.5 percent (ninth biggest decline)
Most of the states hit hardest by the housing crash had a great deal of new buildings approved in the first half of the decade. This was the case in places like Nevada, California and Arizona. Because all of these new buildings were built at peak home prices, they had the furthest to fall when home prices collapsed. New Jersey, however, had the ninth-fewest building permits approved in 2006. Nevertheless, median home prices declined nearly $30,000, or the ninth most in the country. However, since residents have the second-highest median income in the U.S., they have been able to bear the loss in their home values. New Jersey had the ninth-fewest foreclosures in the country in December.
Pictured: Camden, N.J.
Mortgage debt per person: $242,445
Median household income: $68,854 (the highest)
Credit card debt per person: $7,226 (10th highest)
Change in home value (2006-2010): -9.9 percent (seventh biggest decline)
According to Credit Karma, the average mortgage debt per person in Maryland is nearly $250,000. This is at least partly a result of the fact that the state has the fifth-highest median home value in the U.S., as well as the highest median household income in the country. Like New Jersey, Maryland had a very small number of homes built before the recession. Also like New Jersey, home values still declined significantly. Nevertheless, wealthy Maryland residents have been able to weather the worst of this decline. The state had the 12th-fewest foreclosures in December, and the average credit score per resident is 12th best.
Pictured: East Baltimore, Md.
Mortgage debt per person: $307,508
Median household income: $63,030 (fifth highest)
Credit card debt per person: $7,527 (seventh highest)
Change in home value (2006-2010): -0.8 percent (15th biggest decline)
Hawaii has the highest median home value in the country at $525,000. This is $154,000 more than the next highest state. Needless to say, taking out a mortgage on a home in the island state is a tremendous financial commitment. But with extremely low unemployment, high median income, low poverty and the second-highest rate of health insurance coverage in the country, Hawaii homeowners can generally afford it.
Mortgage debt per person: $313,749
Median household income: $57,708 (ninth highest)
Credit card debt per person: $6,434 (30th highest)
Change in home value (2006-2010): -30.8 percent (2nd biggest decline)
While most of the residents of the states with the highest mortgage debt have been able to support the massive mortgages despite the fact that their homes have lost significant value, California is a different story. In 2006, California had the most expensive homes in the country, with a median home value of $532,000. By 2010, that value had declined by $164,000 — more than 30 percent. The effects of this massive decline in home prices had wide-reaching effects on the state economy. Unemployment in California is now the second-highest in the country, and 14.5 percent of the population lives below the poverty line. The average mortgage debt per person of $313,749 has been too much for thousands of residents. In December alone, one in every 252 homes was foreclosed upon.