The credit scoring system preferred by creditors is produced by Fair, Isaac & Company Inc. Known as FICO score, the credit score number is used by creditors in determining the loan amount limit and interest rate for the borrower when obtaining mortgage loan.

Like more home buyers, you will probably need to get a home loan to purchase real estate property — a mortgage. Knowing your finances is an important step to owning your own house. You can get free credit report and credit score information from the following sources.

AnnualCreditReport.com is the official site to help consumers to obtain their free credit report. AnnualCreditReport allows you to request a free credit file disclosure, commonly called a credit report, once every 12 months from each of the nationwide consumer credit reporting companies: Equifax, Experian and TransUnion.

FTC Free Annual Credit Report

Your credit history is maintained by three different private companies called credit reporting agencies: Equifax, TransUnion and Experian.

Credit Report, Credit Score and Credit Check from Experian
Experian

Credit Report, Credit score and Credit Check from Equifax
Equifax

Credit Report, Credit score and Credit Check from TransUnion
TransUnion

myFICO FICO Credit Scores, Get a Free Credit Report Online
Get your Free credit report and Free credit score with a 30-day trial of Score Watch. Your FICO Scores and Credit Reports online.

Dispute or correct information in your credit file
Contact the nationwide consumer credit reporting company that provided the credit report.

Request a fraud alert be placed on your file
You have the right to ask that nationwide consumer credit reporting companies place fraud alerts in your file to let potential creditors and others know that you may be a victim of identity theft. You may place a fraud alert in your file by calling just one of the three nationwide consumer credit reporting companies.

Equifax: 1-877-576-5734
Experian: 1-888-397-3742
TransUnion: 1-800-680-7289

What is a Credit Score?

A credit score is a complex mathematical model that evaluates many types of information in a credit file. A credit score is used by a creditor to help determine whether a person qualifies for a particular credit card, loan, or service. Most credit scores estimate the risk a creditor incurs by lending a person money or providing them with a service. Generally, the higher the score, the less risk the person represents.

Lenders offer several types of mortgages, but the most common are fixed-rate mortgages. Other forms of mortgage loan include interest only mortgage, graduated payment mortgage, adjustable rate mortgage, negative amortization mortgage, and balloon payment mortgage.

Fixed-rate mortgage loans feature fixed rates and monthly payments, generally with terms for 15-year and 30-year.

Fixed-rate mortgage offers borrowers the advantage of not having to worry about the interest rates or monthly payments changing for the life of the loan.

15-Year Fixed and 30-Year Fixed Mortgage Comparison

30-Year Fixed Mortgage advantage: Monthly payments are lower than those on 15-year fixed loans because the interest is amortized over a longer period. Lower monthly payments free up money that borrowers can instead use in investments that yield more than their homes.

30-Year Fixed Mortgage disadvantage: Borrowers build home equity at a very slow pace since payments during the first several years pay mostly toward interest rather than principal. The overall interest cost is much higher because of the long amortization term. The interest rates are higher than on 15-year fixed loans.

15-Year Fixed Mortgage advantage: Borrowers build home equity quicker due to shorter amortization schedule. Overall interest cost is lower than 30-year or longer-term loans. The interest rates are lower than 30-year fixed loans.

15-Year Fixed Mortgage disadvantages: Monthly payments are higher than those on 30-year loans.

Principal amount: $200,000 mortgage
Interest rate: 5.00%

If we compare how much money you would pay out in interest over 30 years vs. 15 years. With a 15-year mortgage, you would save $101,826 in interest cost.

30-Year Fixed Mortgage
Rate Monthly payment: $1,073.64
Total interest paid: $186,511.57

15-Year Fixed Mortgage
Monthly payment: $1,581.59
Total interest paid: $84,685.71

Interest Cost difference: $101,825.86

Mortgage Prepayment Penalty

Fixed rate mortgages, like other types of mortgage, may offer the ability to prepay principal early without penalty. Early payments of part of the principal will reduce the total cost of the loan and will shorten the amount of time needed to pay off the loan. Some mortgages may offer a lower interest rate in exchange for the borrower accepting a prepayment penalty. In most cases, make sure that the mortgage agreement does not have a prepayment penalty.

You have high interest loans and have equity in your home, you might consider consolidating your debts with a home equity loan or line of credit. Use your home’s equity to replace credit card, car loan and other high-interest debt.

Debt consolidation comes with the possibility of a single payment, and a low interest rate that allows you to pay off your debts in less time for less money. If you’ve got the equity, you have two options: Home Equity Loan or Mortgage Refinance.

A home equity loan or line of credit is a second mortgage that lets you turn equity into cash, allowing you to spend it on home improvements, debt consolidation, college education or other expenses.

Equity is the difference between how much the home is worth and how much you owe.

With a home equity debt consolidation loan or line of credit from you can take advantage of:

• A lower interest rate: Rates on home equity loans and lines can be lower than credit card rates by 7-10% or more. With lower interest rate, your interest costs are reduced.
• Tax savings: Interest payments on home equity loans or lines are potentially tax deductible, but credit card and auto loan interest payments are not.
• Time savings: Make a single payment to your debt consolidation home equity loan or line rather than multiple payments to many creditors.

There are two types of home equity debt: home equity loans and home equity lines of credit, also known as HELOC. Both are sometimes referred to as second mortgages, because they are secured by your property, just like the first, or primary, mortgage. Home equity loans and lines of credit usually are repaid in a shorter period than first mortgages.

Debt Consolidation Home Equity Loan. Home Equity Loan is a one-time lump sum that is paid off over a set amount of time, with a fixed interest rate and the same payments each month. Once you get the money, you cannot borrow further from the loan.

Debt Consolidation Home Equity Line of Credit. Home Equity Line of Credit, or HELOC, works like a credit card because it has a revolving balance. A HELOC allows you to borrow up to a certain amount for the life of the loan — a time limit set by the lender. During that time, you can withdraw money as you need it. As you pay off the principal, you can use the credit again, like a credit card.

A home equity loan or line of credit allows you to borrow money, using your home’s equity as collateral. Collateral is property that you pledge as a guarantee that you will repay a debt. If you don’t repay the debt, the lender can take your collateral and sell it to get its money back.

With a home equity loan or line of credit, you pledge your home as collateral. You can lose the home and be forced to move out if you don’t repay the debt. This one of disadvantage of consolidating unsecured debts such as credit cards into home equity debt.

Mortgage Refinance to Pay Off Expensive Debts

With a refinanced mortgage, for the same mortgage payment or less than you’ve been making each month, you can pay off more expensive debts.

Don’t pay for more of a refinance than you can afford.

Points and fees are negotiable. Check mortgage rates, points and fees with at least three to five lenders.

Pay closing costs up front. If you have the cash, paying closing costs will save you on financed interest charges over the life of the loan.

Whether bad credit is the result of home foreclosure, bankruptcy, or unpaid credit card debt, repairing bad credit report is not an impossible goal. It will take time to fix your credit and by following these simple steps.

Credit Repair: Get a copy of your credit report. This will give you what you need to see why your score is where it is. This is the same information used by the credit agencies in determining your credit score. Credit report and credit score is available from the three credit reporting agencies: Experian, Equifax, and TransUnion.

You can also order a copy of your credit report free of charge annually from AnnualCreditReport. The report does not contain your credit score, but it will contain information on your credit so you can ensure accuracy of the report.

Look at how you are using the credit you have, particularly your credit cards. Keep the balance below 30% the credit limit on the card. Pay off the balance each month. Closing credit card account can actually have a negative impact on your credit score. Weight your options carefully when choosing to close an account.

Credit Repair: Partial Settlement Payment. Pay off your debt faster with partial settlement. Tell creditors that you are trying to fix your credit and offer them a partial settlement payment. Most creditors will take payments of 30% to 40% of outstanding balances than nothing at all.

Get the terms of the settlement in writing if your creditors accept your offer to pay portion of your debt. Once the settlement has been paid in full, send the signed settlement letter documenting your bad credit repair to the credit bureaus. Each bureau should update your credit report to show that your settlement is paid. Creditors do not have a negative view of partial payment settlements, because that shows that a borrower took responsibility for bad credit repair.

Credit Repair: Bad Credit to Good Credit. The fastest way to credit recovery is by accumulating assets. With a high-paying job, your income-to-debt ratio will be lower and increase your credit score. If you have equity in your house, you can do something about your credit days after the bankruptcy. FHA will approve you three years after a bankruptcy.

After bankruptcy, lenders won’t be clamoring to give you a new mortgage loan. You will have to wait four to five years and try your luck with mortgage brokers who have more mortgage products to offer. The mortgage rate you will get may likely be higher than to borrowers with perfect credit score.

Credit Repair Steps. An important thing to remember when you’re trying to repair credit following a bankruptcy, foreclosure, or other credit problem is never to be late on payments. Your bad credit history puts you under greater scrutiny, and lenders will not be lenient about payment schedules. You have to be dedicated and really want to work on your credit. It’s up to you to prove to lenders that you are someone who will pay on time.

Make your payments on time. Never be late.
Utilize no more than 30% of your credit limit on credit cards.
Make more money. Increase your income with high-paying job.

Mortgage rates, however, are widely seen to be on an upward trajectory this year as Federal Reserve asset purchase programs cease. Rising mortgage rates do not bode well for the housing market.

30-year fixed-rate mortgage averaged 4.95% for the week ending March 11, down from last week’s 4.97% average and 5.03% a year ago.

15-year fixed-rate mortgage averaged 4.32% for the week ending March 11, down from 4.33% last week and 4.64% a year ago.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARM) averaged 4.05%, down from last week’s 4.11% and 4.99% a year earlier.

One-year Treasury-indexed adjustable-rate mortgages (ARM) declined to 4.22% from 4.27% and 4.8%.

To obtain the rates, the fixed-rate mortgages required payment of an average 0.7 point and the adjustable-rate mortgages required an average 0.6 point. A point is 1% of the mortgage amount, charged as prepaid interest.

“During a light week of mixed economic reports, mortgage rates eased somewhat,” said Frank Nothaft, Freddie Mac vice president and chief economist.

“Pending existing home sales fell 7.6% in January, well below the market consensus of a 1% gain,” Nothaft said. “Meanwhile, the economy lost only 36,000 jobs in February, fewer than market forecasts, and the unemployment rate held steady at 9.7%. In addition, revisions added a net 35,000 workers to January and December combined.”

Mortgage-back securities buy ends

The Federal Reserve is winding down a program to purchase as much as $1.25 trillion in securities backed by home mortgage loans. The MBS buy program helped reduce mortgage rates over the last year, driving borrowing costs for 30-year fixed home loans to a record low of 4.71% in December 2009.

Mortgage rates are expected to rise as the Federal Reserve program ends at the end of the month.

Bond purchases from Fannie Mae, Freddie Mac and Ginnie Mae, which buy home loans from lenders and package them into securities, brought down yields and allowed lenders to reduce mortgage rates while still selling the bonds at a profit.

Foreclosures are by far one of the biggest threats to the housing market. If foreclosures keep dropping, it will be one of the strongest signals yet the market is on the path to recovery.

RealtyTrac, the Irvine, California-based foreclosure listings company, reported foreclosure filings on 308,524 properties in February, up 2% from January. Default notices, meanwhile, were up 3% from the prior month but down 3% from a year earlier. On the state level, foreclosures declined on a monthly and yearly basis in the hard-hit states of Nevada, Arizona and California, but still grew rapidly in Florida.

Still, fears remain about the hundreds of thousands of homeowners who are still being evaluated for help under loan modification programs. Many analysts say most of those borrowers will eventually lose their homes, sparking a new round of foreclosures later this year.

“The 6 percent year-over-year increase we saw in February was the smallest annual increase we’ve seen since January 2006, when we began calculating year-over-year increases, but it still marked the 50th consecutive month of year-over-year increases in foreclosure activity,” said James J. Saccacio, chief executive officer of RealtyTrac, in a statement.

“This leveling of the foreclosure trend is not necessarily evidence that fewer homeowners are in distress and at risk for foreclosure, but rather that foreclosure prevention programs, legislation and other processing delays are in effect capping monthly foreclosure activity — albeit at a historically high level that will likely continue for an extended period,” Saccacio said.

On the state level, foreclosures declined on a monthly and yearly basis in the hard-hit states of Nevada, Arizona and California, but still grew rapidly in Florida.

In Nevada, 1 of every 102 housing units was subject to a foreclosure filing in February. That’s nearly four times the national average. Foreclosure activity in the state fell 30% from February 2009 and fell 7% from January 2010. Nevada has had the highest foreclosure rate in the U.S. for 38 straight months.

In both Arizona and Florida, nearly 1 of every 163 housing units was subject to a foreclosure filing. In California, 1 of every 195 housing units was subject to a foreclosure filing; the figure in Michigan, the No. 5 state in the report, was 1 of every 226.

In absolute numbers, California had the most foreclosure activity in February, with 68,562 properties — follow by Florida, Michigan, Illinois, Arizona and Texas. That’s down 15% from February 2009 and down 5% from January 2010. The six states accounted for 61% of the national total of properties subject to foreclosure in February.

Average interest rate for 30-year fixed-rate mortgages increased to 5.01% from 4.95%, with points decreasing to 0.82 from 0.99 (including the origination fee) for 80% loan-to-value (LTV) ratio loans.

Average interest rate for 15-year fixed-rate mortgages increased to 4.32% from 4.27%, with points decreasing to 0.88 from 1.36 (including the origination fee) for 80% loan-to-value (LTV) ratio loans.

Average interest rate for one-year adjustable-rate mortgages (ARM) increased to 6.80% from 6.77%, with points increasing to 0.3 from 0.29 (including the origination fee) for 80% loan-to-value (LTV) ratio loans.

Mortgage Applications Increased

Mortgage applications rose for a second week, led by an increase in purchases that may indicate the renewal of a home buyer tax credit is starting to invigorate demand.

The increase in requests for purchase financing may be a precursor of sales gains in coming months. The real estate market still faces hurdles of a weak job market, record foreclosures and Federal Reserve ceasing purchases of mortgage debt.

While Americans can take advantage of incentives such as the $8,000 tax credit for first-time home buyers, renewed in November 2009 for contracts signed by April 30, 2010, the initiative has so far failed to give housing a second boost. Sales of existing homes declined 7.2% in January 2010, while purchases of new houses fell to the lowest level on record, recent figures showed.

Homeowners insurance is a very important protective measure you can take to secure and protect from perils and losses. Getting the most expensive coverage may be unnecessary, as lower insurance cost will cover you just as well. Now is a good time to examine your policy and look for ways to save money.

The cost of homeowners insurance depends on what it would cost to replace the house and which additional items are attached to the policy. Typically, claims due to floods, earthquakes, or war are excluded. Special insurance can be purchased for these possibilities, including flood insurance.

If you are like most homeowners purchase your home with a mortgage, your lender will require insurance on the property to protect their collateral. In the loan contract, the collateral is your pledge, as a borrower, of the property to your lender, to secure repayment of a loan. It’s best you buy home insurance on your own. If you let your lender buy it on your behalf, the insurance costs will be very high.

Here are some steps you can take to reduce your home insurance costs.

Shop for the best deal. Get more quotes, the better. In addition to the low prices, evaluate which companies provide the best customer service.

Raise your deductible. The higher your deductible, the less premium you’ll have to pay.

Buy your home and automobile policies from the same insurer. Ask for discounts.

Make your home more resistant to disasters. Adding storm shutters and shatter-proof glass or reinforcing your roof. Upgrade your heating, plumbing and electrical systems to reduce the risks of water and fire damage.

Secure your home. Install smoke detectors, burglar alarms and dead-bolt locks.

If you are 55 or older, ask your insurer for discounts.

Review your policy and the value of your possessions. May be you don’t need so much coverage on your personal property.

There are loan types, hundreds of mortgage products, and thousands of mortgage brokers, bankers, lenders, credit unions, and online brokerage firms to choose from. With so many choices available, this is actually a good thing for the consumer. Mortgage shopping can be daunting, if you are not prepared and informed.

Mortgage shopping doesn’t begin by apply for a loan application. You don’t want to apply for every home loan there is, that can affect your credit negatively. Start with education. Internet web sites, newspapers, books, consumer workshops (HUD, non-profit credit agencies), real estate agents, mortgage brokers and lenders are sources to assist you.

Know your finances. You must determine your mortgage payment will fit your current budget and in the future. Determine how much mortgage you can afford. Calculate your income-to-debt ratio. Typically, you want to be about 30% debt to your pre-tax income. You can to calculate other expenses related to housing costs, such as homeowner’s insurance, real estate taxes, and maintenance and repair expenses.

Shopping for a home loan. There are two main mortgage stores to shop for a home loan: lenders (banks) and mortgage brokers.

Lenders are commercial banks, community banks, and credit unions. Lenders will offer you their own mortgage products. Mortgage brokers can shop from hundreds of lenders and thousands of mortgage products.

Mortgage brokers are paid from the amount you borrow. Mortgage brokers are a lot like real estate agents, make sure to go with someone who is recommended.

When evaluate borrowing costs, don’t just go with the lowest mortgage rate. There are many other factors that affect the total cost of a mortgage loan, including broker fees, points, prepayment penalties, terms, application fees, credit report fee, appraisal and many others.

Apply for a home loan. Gather all documents necessary for a loan application. Documents you will need are paycheck stubs, W2s, recent tax returns, employment proof, divorce decrees, current loans, and bank statements.

The loan application will need information about your job, employment stability and history, income, your assets (property, cars, bank accounts and investments) and your liabilities (car loans, installment loans, credit card debt, household expenses and others).

If the lender deems you are creditworthy, a licensed appraiser will make sure the value of the property you want to buy is worth the purchase price. Once you are approved, you are on the path to owning your own home.

Several factors, including market conditions and mortgage rates, will determine how much you can get for your house. Sale prices are subjected to the law of supply and demand. If you live in a location with a growing population, expanding jobs, and a limited housing supply, it’s likely that prices will rise.

While an appraiser can provide an official market value, it is possible to estimate the market value of the house and decide if it’s the right time to put your house up for sale on the market. The price you come up with is only an estimate. An official market value of a real estate property can only be determined by a licensed appraiser.

Options for gathering data. There are a few sources that won’t cost you any money. Utilizing every option available will give you a better idea what is the best selling price. When putting your house on the market you should price it few percent lower than the lowest comparable house for sale. Your estimated market home value is your target that you are willing to sell at or above. By setting your asking price low, you will attract more buyers to bid for your house.

Your local real estate agent can provide an estimated market value of your house. When you decide to sell, you should use your agent. Just as you don’t work for your employer for free, so you should hire your agent. Your agent is paid when your house is sold. Your agent will have every incentive to make sure your house sells for the highest possible price.

Print media such as local newspaper and real estate magazine are another source for home pricing information. However, the sample size is limited. Now with the Internet, you can gather vast real estate listings to average out comparable houses.

The main features of comparable houses that you want to look for are square footage, lot size, number of bedrooms and bathrooms, kitchen features, and year it was built.

The sales and listing prices for real estate properties are mostly determined by the price a buyer is willing to pay in order to buy a property. If there are more buyers in the market than there are homes for sale, this can drive the prices of homes up. If there are more homes for sale than there are buyers, home prices may drop. It’s simply the law of supply and demand.

The key to selling your house at the best possible price is your real estate agent. In turn your real estate agent must perform the most important task, that is, marketing your house well. Casting a wider net and at the right places, you will catch more buyers. With more buyers, you’ll have a good chance of getting a high offer.