Best Mortgage Deal

It's much tougher to get a home loan these days. Lenders now are required to perform more due diligence on mortgage borrowers than in the past. And thanks to the Great Recession, many mortgage shoppers may struggle to pass these stricter tests.

But that doesn't mean you have to give upt hope. Following are five expert suggestions to improve the odds of getting a loan at the best mortgage rate.

A mortgage shopper's most important move is to request a credit report and make sure it is accurate, according to Cindy Tessier, manager of mortgage processing and closing for Navy Federal Credit Union in Vienna, Va.

Tessier says lenders look to a borrower's credit score when deciding what interest rate to charge, so maintaining a high score is especially important.

"If there is anything negative on your credit report, you need to call the creditor to correct it or to work out a payment plan," Tessier says. "When you apply for a mortgage loan, be sure to provide documentation of any negative accounts, especially if this is something in dispute."

Once the error is corrected, go back to the credit reporting agency to see if the negative item has been updated.

Financial experts also recommend paying off collections and credit card balances before applying for a loan.

Todd Dal Porto, a national sales executive with Bank of America Home Loans, says, "Keep your debt low and the amount of credit you're using under 20 percent of what's available to you. Always paying your bills on time is one of the best ways to maintain healthy credit."

Don't hide flaws such as credit problems, and don't fudge information about income or assets.

"Take your time to carefully fill out the loan application as accurately as possible," Dal Porto says. "Trying to hide credit problems or holding back requested documents can only work against an applicant by delaying the process and possibly even preventing a mortgage approval."

The lender wants to make sure the borrower has the capacity to repay the debt. So applicants should be prepared to disclose all assets and income, Tessier says.

"If you earn overtime pay or a bonus, be ready to provide documentation for extra income," Tessier says. "Make sure you document all your assets, including a 401(k), an IRA, CDs and savings, even if you won't be using those funds for the home purchase."

A large down payment can make a big difference in whether your home loan application succeeds.

"The more you can contribute to the down payment, the more attractive you'll be to lenders," says Dal Porto.

Contributions from family members or friends for down payment money are allowed by most loan programs. Lenders typically require such contributions to be accompanied by a gift letter asserting you won't have to repay the money.

Mortgage Insurance

What is MPPI?

Mortgage Payment Protection Insurance (MPPI) pays your monthly mortgage payments for a specified period if you suffer accident, sickness, or unemployment. Lenders and insurers have agreed to adopt certain minimum standards for MPPI, so you can be confident that the level of cover you will be offered meets or exceeds these.

How does MPPI work?

You pay a premium each month while the mortgage is running. If you become unemployed, or unable to work due to accident or sickness, the policy starts to pay out (usually direct to your lender) to pay your mortgage.

To keep the cost of the insurance down, there are some periods where you will not be covered (you should check the individual policy for exact details). The main ones are an "exclusion period" of up to 60 days when you first take out your policy, during which any claim for unemployment would not be mett (although claims for accident or sickness would be paid). In addition, there is an "excess" or "waiting" period of up to 60 days for each claim, during which no payments will be made. So it makes sense to try to keep enough money in savings to cover two months worth of mortgage payments, even if you have MPPI. There are some circumstances when MPPI will not cover you - for example, unemployment caused by misconduct, or that you knew was impending at the time you took out the insurance, or sickness claims caused by certain pre-existing medical conditions.

How do I buy MPPI?

If you are taking out a new mortgage, you will probably be offered MPPI by your lender or the intermediary arranging your mortgage. Unless the MPPI is part of a mortgage "package", it is up to you whether you take the MPPI offered with the mortgage or to buy it from elsewhere. If you already have a mortgage, you may be able to buy MPPI from your lender, or through an insurance broker, or direct from an insurance company. MPPI is usually cheaper (and the terms may be more generous) if you take it out at the time you start your mortgage, rather than leaving it until you have had your mortgage running for a while.

What happens if I need to claim?

Your policy document will tell you how to claim. Usually, you need to obtain a claim form, complete it and send it to your insurer, together with some evidence (such as a redundancy notice) to support your claim. If you take a temporary job, then provided you let your insurer know beforehand, you can interrupt a claim without having to pass the 60 day excess period again when your temporary employment ends.

About Mortgage

What is a mortgage?

A mortgage is a loan which is secured against your home. When you take out a mortgage you agree to pay the loan back with interest over a period of time agreed with your lender. If for any reason you cannot repay the loan, the mortgage lender can sell the house to recover the debt.
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What types of mortgages are there?
Mortgages for house purchase
Buy-to-let mortgages
Lifetime mortgages
How can I repay my mortgage?

Repayment mortgage - each month you pay off both the amount you borrowed and the interest your lender charges.

Interest only mortgage - each month you pay off the interest charges on your loan, not the loan itself. If you chose this option it is very important to understand that you will not be reducing the amount you borrowed and will need to arrange for another way to repay the loan at the end of the term

You can also opt for a combination of the two.
The FSA explains the pros and cons of the different mortgage repayment options

What types of interest rates deals are there?
Fixed-rate - your interest payments are fixed for a set period of time after which you will be moved on to another rate, such as the standard variable rate or tracker rate.

Standard variable rate - your interest will vary with your lender's mortgage rate.

Tracker rate - your interest rate will move up or down by tracking an external rate such as the Bank of England rate or London interbank rate.

Discounted rate - your interest rate will vary with your lender's standard variable rate but you get a discount for a set period of time.

The Financial Services Authority explains the pros and cons of the different types of interest rate deals.