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Jean Chatzky’s top 10 mortgage tips

Locking in rates? Pre-approvals? Our financial editor has advice on making the best decisions about mortgages and home-buying.

Thinking about buying a home in the coming year? Now's the time to get your other house — your financial one — in order, so you can get a mortgage without a hitch (and get the best rate).

Six months before you apply for a mortgage, buy a copy of your credit report from one of the three big credit bureaus. Three months prior, stop making big purchases that can add to your debt load. And with a month to go, start gathering documents.

Why? A poor credit rating can boost you from a reasonable interest rate into the stratosphere.

In fact, you don't even want lenders looking into your credit files until you've given them a thorough going-over to make sure they're clean.

  • Order a copy of your report from one of the three credit reporting agencies. If you find errors, you'll want to see all three — believe me. In my single days, I was once mistaken for another Jean Sherman who had several liens against her property. I got turned down for a credit card as a result and spent hours fighting with the credit bureaus to get them to remove the faulty information. If you've been turned down for a loan or credit card because of something on your credit report, the agencies will provide you with a copy for free, as long as you contact them within 60 days.
  • You can contact each of the three credit bureaus directly:
    Equifax: or 1-800-997-2493
    TransUnion: or 1-800-888-4213
    Experian: or 1-800-397-3742.

You can get an instant look at a single credit report or all three at myFICO (). There is a fee for this service.

Locking in interest ratesWhen you apply for a mortgage, you'll need to decide if you want to lock in your interest rate. To do that, you'll have to pay a quarter point or so, an amount that is typically refunded at closing.

When to lock is a crucial question. Trying to time the bottom of the market for interest rates, just like trying to time the stock market, is a fool's game. And it's really easy to get burned in a rising rate environment. Here are four questions you can use to help you decide when to pull the trigger:

  • If a jump in rates of a quarter point means you'll no longer be able to afford your house, lock immediately.
  • In a refinance situation, if you have a 7 percent or 8 percent rate, you win whether rates fall to 6 percent or 6.25 percent. If you're already at 6.75 percent, that quarter of point makes a bigger difference.
  • Mortgages follow bonds closely — not in lockstep, but closely. In most cases, one bad day won't cause a huge jump in mortgage rates, but if a bad pattern starts emerging (if you hear the CNBC jockeys talking about sell-offs over two or three consecutive days, for example), then act fast. Rates almost always rise more quickly than they fall.
  • If rates have plummeted to thirty-year lows and you're holding out for thirty-one-year lows, you're asking for too much.

Make sure that if you do lock, you get it in writing, that you give yourself enough days to get to the closing table, and that you have all the rates clearly specified.

Getting pre-approvedOne of the first steps in buying a home is nailing down your budget. Sounds simple, but calculating the figures may not be as easy as you'd think, since the budget hinges on more than just your cash flow. You also need to consider additional factors, like your tax bracket and mortgage rates.

One good way to establish your home-buying budget — and make yourself attractive to sellers at the same time — is to get pre-approved for a mortgage. But be aware that being pre-qualified and pre-approved are not the same thing. The difference?

  • Being pre-qualified is based on your word about your finances. It's also free.
  • Getting pre-approved requires a detailed investigation into your financial history. It involves a commitment to loan you a certain amount of money subject to a sales contract and an appraisal.

Second-home tipsLooking for a second home to use on weekends? Biding your time is key. Why? Real estate agents say weekend homeowners aren't motivated sellers. Most have no pressing need for the money they originally sank into their second home. As a result, they can hold on until they get their price.

That said, a certain amount of nervousness sets in when traffic vanishes at the end of the tourist season. In many hot weekend areas, you'll see price dips of up to 20 percent when properties listed in the summer haven't sold by fall.

Of course, when it's your turn to sell, you don't want to have to twiddle your thumbs. So be sure to buy in an area where tourism trends are positive. Check with the local chamber of commerce to see that occupancy rates in local hotels and new hotel construction are both strong.

Jean Chatzky is the financial editor for “Today,” editor-at-large at Money magazine and the author of “Talking Money: Everything You Need to Know About Your Finances and Your Future.” Her latest book, "Pay It Down: From Debt to Wealth on $10 a Day," is now in bookstores. Copyright ©2005. For more information, go to her Web site, .