It's Not Your Uncle Bob's Mortgage—ButIt Ain't Bad.

Oh, Uncle Bob paid off his $200,000 house (currentvalue) because he got his loan right after WorldWar II. He swears by the 30 year fixed mortgage.He'll tell you all about it time and time again overThanksgiving turkey. So let's go back and find outwhy Uncle Bob is so sure this is right for you, too.

The 30-year fixed began in the 1930's, decadesbefore the 15 year fixed was introduced. It wasn'tuntil the 70's that we saw variable interest rate loans,with hybrids, and fixed loans that adjusted. In the80's, we saw adjustable (variables) that are fixed fora period.

But Uncle Bob had one choice. The 30-year fixedwas an arranged marriage, and he had to take her.Thus, his expertise is rather limited. (No offense toyour Aunt).

Now that I've ruled out Uncle Bob's advice,(besides, he always shows up to Thanksgiving with aquestionable salad anyway,) let me save you money.In fact, let me save you a lot of money. If you readevery page of this book, you should save thousands.I've broken it down to 50 simple points, highlightedto help you find the information you're looking forto help you make the right choice.

ECONOMICS (note, this is a highlightedpoint ...)

Economists are those rare professionals who cannever be wrong (or right for that matter). It's an art,not a science, and results are subject to whomever isgiving them.

Economists have the luxury of taking their theory,contradictory to each other as they may be, andautomatically finding a home. If you're one way,you go Republican; if you're the other way, you goDemocrat. Oh, if only all professions could be sosimple.

But an economist is the epitome of the slogan, "whathave you done for me lately? An expert can be right(or at least not wrong) for years and make one badcalculation, and he's suddenly yesterday's news.An amateur can make a wild/lucky on the markstatement, and he's the new messiah over night;that's what you get in an industry without standards.

Author's note: I have a Bachelor of Arts Degree(B.A.) in Economics from U.C.L.A.

Bottom line: Economics can go either way. It canhelp you if you research enough, and it may hinderyou should you choose to ignore the mountain ofinformation. But the best of the best contradict oneanother; it's just not a place to hang your hat.

The World Is Not My Problem

You turn on Fox or CNBC only to find thefollowing: Asia's market takes a dive. Russia'sfunneling billions to private banks. Europe isganging up on itself. South America is trying to gosober. So what should you do?

Fret not. That's it. Fret not. Whatever interest ratesyou're staring at right now are all that matter. Therest of the world is out of your control (assumingyou're not one of those creeps pilfering the Russianmoney.) If you are—hey, thanks for buying my bookanyway.

There are plenty of reasons to enter the mortgagearena including buying a house, refinancing yourcurrent mortgage, consolidating several loans, orpulling cash out of you property. If Japan eats SouthAfrica, it shouldn't change your situation any timesoon.

If your main reason to act is to lower your interestrate, then you're in for a nervous stomach. Interestrates must be right (now) for you to make yourmove.

My World Is Me

Your potential economic future is the one dictatingforce behind acquiring a new mortgage. Your jobprospect, your earning potential, your retirementgoals are singularly important, and every otheroutside force is irrelevant unless it relates directly toyou.

The neighbor's dog, your mother-in-law, and thefact that airline seats seem to be getting smaller asyour cushion gets larger, are all distractions in life.Nonetheless, don't let them distract you from yourgoal.

Know where you're going so you don't end upwhere you're heading. Sales leaders have alwayschided their sales people to plan their work and thenwork their plan. Your life is much the same. If youhave a destination in mind, detours on the way togetting through can be easily dealt with. It's thosepeople who don't know where they are heading whocan easily get lost, and they do. Don't let that beyou.

Inflation-Deflation, So What?!

It comes and goes, like relatives who visit moreoften than you like. And you're never sure howlong they'll stay. It's that scary word—inflation. Ishigh inflation something you need to deal with orsomeone else's problem? Can it affect your way ofliving, or does that only happen to the big boys?

Like those relatives who eat all your food and drinkall your beer, you need to stand up to inflation. Someinflation/deflation can mess up a well-conceivedplan or even poorly conceived ones by the economicrealities that occur in the economy during thosetimes. It all boils down to one phrase which is a truthof Biblical proportions in the home-buying world.Ignore it, and you'll end up in mortgage hell. Thatphrase is as follows: you cannot have high interestrates without rising home prices. You might seetimes of home prices rising without inflation butprobably never the other way around.

Fear causes people to paint a picture of a worldwhere interest rates skyrocket while home pricesremain steady, and this leads them to conclude thatlong term fixed rates are the only safe solution. Ifyou know, however, that home prices will followinflation, and that increased home equity will causemany people to sell or refinance and pull money out,then it's easy to understand why there's no reason topay extra for a long term fixed rate. It feels safe butisn't well thought out.

When you decide to delve into economics, try touncover all the facts and set the right parameters toreach an intelligent conclusion that works for you.

What if We Lose the Tax Deductionon Our Mortgage?

This could be a real dilemma if the push to a realbalanced budget continues. The only way to plan forthis contingency is by developing a strategy to payoff your loan.

Many believe the interest rates will decrease whenand if the deductibility of said rates are eliminated.Let me remind you of the unleaded gas story.Before unleaded gas was introduced to the marketplace, the oil companies told us it would be cheaperbecause they didn't have to add the lead. Whenthe cars converted to unleaded, we were then toldprices went up because they had to remove thelead. The people in control are always looking fora way to squeeze another buck out of you, andthey almost always will. Your job is to outsmartthem. And there's only one way to do this: pay offyour mortgage. They are then left helpless. Thepoliticians will be forced to go and sue the tobaccocompanies one more time to make up the extra cash.

Throughout this book, I'll give you tips on how todo this, but there are alternative viewpoints. Whilenone maybe as good as mine, I will present themshould you not want to pay off your mortgage.One concept states that you can't borrow moneyas cheaply as you can on your home so why pay itoff?" These folks are merely talking to the big boysas most people will need the equity in their hometo supplement social security to be able to survivethe latter years. Be sure to create the equity beforeyou need it and don't count on appreciation as yoursalvation.

CREDIT

What's Good/Bad Credit on a Home Loan?

The mortgage business is both similar to andalso unlike any other business. In the "like otherbusinesses" category, what occurs in the mortgageindustry is paramount to you credit while incidencesin other industries are less relevant. The industrydiffers from others because money cannot changecertain factors such as a discount of the rate basedon a particular credit score. In other words, youcannot buy the rate down without the score.

Allow me to define a few types of credit:

1. Good credit is 12 to 24 months ofperfect mortgage payments. Bad credit isforeclosures, deeds-in-lieu and late payments."My dog ate my payment" has even less achance of working with a lender than it didwith your second grade teacher.

2. Excellent credit is a credit report devoid oflates with small credit balances in relationto higher credit limits and a small number ofrevolving accounts. Lenders like to believe,true or not, that you can afford you payments.

3. Poor credit is a report with lates on revolvingand installment accounts in the last 12-24months and late payments on your currenthome loan. The individual's credit deterioratesas lates go from 30 days to 60 or 90 days. Ifyou're getting calls from your creditor, you'relikely in the 30-day category. If you cringewhen those calls come in, you're probablyin the 60-day category. If you've ripped yourphone out of the wall, odds are you're in the90-days plus category.

Irrelevancies are paid judgments and state or federaltax liens that are paid. In most cases, bankruptciesand foreclosures that are over three to four years oldand short pays over two years can be disregarded.This is strictly a function of the lender.

Your credit can cost you money if you don'tunderstand what is good and what is bad in themortgage industry. An automobile repossession thatis over 5 years old is minor, especially if there isn'ta balance showing, but a house repossession withouta loss to the lender can be huge! Lenders are allergicto repossessions, deeds-in-lieu of foreclosures, shortpays or a straight foreclosure. It's like cat hair, a beesting, dust, milk, and peanuts all rolled into one. Ifthe allergy items are on your report, you need help.It's out there. Give it a search. In fact, right afteryou're done reading this book, make a note.

Credit Scores

Much like an in-law, everyone has a credit score,whether you want one or not. When your credit isprocessed along with the actual report, there comesone or more credit scores. These numbers, at a point,are really out of your control.

Most lenders look at your credit score indetermining your credit worthiness. The number onecredit scoring company, The Fair Isaacs Co. (FICO),developed a secret formula akin to Colonel Sanderssecret recipe of herbs and spices, and it can helpyou in processing a home loan but without all thedeadly grease. The lenders with the best rates requirea minimum FICO score and in some cases willreduce the interest on these loans for high scores. It'ssimilar to how high scoring basketball players getout of trouble where you and I can't.

Conforming loans can have a minimum, and it'sgenerally 620. A Jumbo's minimum is generally640. The current parameter of scores for the primaryborrower (the one who makes the most money) areas follows:

620—Minimum for most good lenders. You'll get aloan, but they may act like they're doing you a favoron par with France giving us the Statue of Liberty.

720—Reduced interest rate, baby! (Generally onlywith a loan to value of 60% or less).

There are a number of ways to help your score,from closing inactive revolving accounts to bringingdown your balances on open accounts. Should youlive right and pay your bills on time, life and yourcredit score should be okay.

Pro Active Repair

The easiest way to take care of bad credit is to ridyourself of the obligation and, three to six monthslater, begin a letter writing campaign to the variouscredit gathering agencies denying ever havingbeen late. The law states that the credit reportingagency must investigate each inquiry and removethe inquiry if the creditor doesn't confirm theinformation within a 30-day period. Since yourobligation has been paid, the information is nowmost likely in storage and not readily accessible.It's a lot of work to take Sally away from her jobof calling people and threatening to ruin their livesfor being late in their payments and then having tosend her down the hall to search for your records.The derogatory credit will have to be removed if notchallenged within 30 days.

Trust me, it's worth the effort; I have client's whohave saved millions by taking the time to clean uptheir credit and refinance after the fact.

Co-Signers

Co-signers are desired by FHA and can also be usedon Freddie Mac programs. A strong non-occupyingco-signer can make the package go from weak tostrong. If lack of money for down payment is yourproblem, have the co-signer gift you money andkeep them off the loan.

B.K. or Foreclosure

Bubonic Plague or Black Death? Take your pick.These are mere colds if you're getting a car loan,but a house loan turns them into killers. If you'rethe unfortunate recipient of either, consider yourselfquarantined for a while.

The best lenders won't look at you for a minimumof four years, if at all, while these blotches are onyour credit. As far as they're concerned, you'reinfectious, ugly, and chew with your mouth open.

Some of the intermediate lenders who are not asstrict but whose rates are not as good will consideryou after as little as a year but generally after twoyears; V.A. loan consideration is 2 years.

A late payment after one of these disasters sets youback even further. The best lenders will turn and runlike a vegetarian at The Outback.

Just because you made an error, your fault or an actof God, doesn't force you into servitude for life. Youcan right the ship and sail on.

LTV Makes it Right

Loan to value is the key to any lender. The lowerthe loan to value, the easier it is to make the loan.If your father-in-law is kind enough to sell you his$750,000 home for a measly $400,000, odds aregood you'll get the loan. The bank will be lickingits chops should you not make your payments, andyour father-in-law will subject you to a lifetime ofI-told-you-so's.

The old equalizer is equity. The greater the equitythere is in your home, the easier it is to get a loaneven with outstanding problems. The more equitythe less risk to the lender.

The magic number is generally a loan at 65% LTVor less. Most lenders will give you some credit thatwill lower the interest rate for loans with this muchequity in the property. They might even shake yourhand and call you "sir".

This leads me to why I like the 15 year fixed. Youcan achieve this type of equity with a 15-year loan inas little as 7 years without relying on appreciation.Should you hit the right interest rate market or arapidly appreciating real estate market, you might beable to cut into the 7 years.

Like diamonds to women, nothing rules themortgage industry like equity, and smart borrowersdon't rely on inflation to create equity. Amortizationis now king. To maximize amortization, you needto lower the interest rate and shorten the term of theloan. Once that's in place then, with luck, you mightbe able to add rising prices and watch the equitygrow. It's a jewelry store!

PURCHASES

There are millions of homes purchased everyyear, from big mansions with gated entries to tiny,leaky houses under bridges, and the overwhelmingmajority need a mortgage to close the deal. Lessthan half of the houses are purchased for 100 percentcash.

The type of mortgage that is right for you is aspersonal as your DNA, so why are the majority ofall loans 30 year fixed? That's basically a brunetteboy with no real great skills and a bland personality.

The right home mortgage fits the family like a goodson who calls his mother every weekend. The wrongone is like the kid who drops out of school, lives offyou for 35 years, and never gives you grandkids.

The Loan is Equally as Important as theHouse

How many times have I heard a borrower tell methe following: "Get me a loan—any loan! I need toclose this house!" You might as well cover yourselfin blood and dive into a pool of sharks. The housethat you so wanted will suddenly get ugly when youcan't make the payments or, at best, you're lockedinto a loan that isn't accomplishing what you need.

What if your house depreciates and so does yourequity? Or what if your five year plan to move up isgoing to take two to three times as long because youdon't have sufficient equity? Suddenly, your aunt'soffer to move in and bring her 3 kids for the priceof a little rent doesn't look so bad. Now you knowyou're in trouble.

Get the loan right from the start, and the house willwork. If you start house first and then try to let theloan take care of itself, you've parachuted into themiddle of a landmine.

Save yourself the trouble—take notes on my nextpoint.

Prequalification—A Free Look for Bothsides

In today's complex and fast moving world, realtorsalways present a prequalification letter along withtheir offer to assure the seller that the buyer isqualified to purchase the home. The problem isthat many realtors will simply call a buddy for aprequalification letter so he or she can present theoffer. It's a troublesome part of the business thathurts the buyer more than anyone.