Need a Mortgage? This Is How You Should Do It
Buying a home is a stressful project, but it is also a purchase that you will be paying off for the next couple of decades through mortgage payments. Do not just go to your nearest lender. Shop around and try to find the best mortgage lender you can. Here are some tips.
[su_quote class=”cust-pagination”] “I got a mortgage at 17! I didn’t even know you could get a mortgage at 17.” — Jennifer Ellison [/su_quote]
These five things you can do to improve your chances of getting the perfect mortgage plan before even visiting the lender:
Improve your credit score
Your credit score is probably the most important information for any lender. The higher your credit score is, the more power you will have in negotiations with the lender.
Ideally, you want to have a credit score in the “excellent” range, meaning over 750. To do that, you should get some loans and repay them instantly and always, and we mean always, pay all of your bills in time, and, if possible get out of debt, or at least get the debt to income ratio to a reasonable level.
If you know that your credit score is not that great, do not apply for a mortgage just yet. Buying a house can probably wait until you fix the score.
Basically, having a low score means that giving you money is a risky investment, and thus, the lender will substantially increase the interest rate on your loan to cover their risks, and, since you will be making hundreds of payments, even a small difference in interest can mean a lot of money.
Know your lenders
Lending is a lucrative business, and, as such, it is a very crowded field. However, you might not realize how many different types of lenders are out there. Here are the basics.
– Mortgage bankers: Bankers who use their own money to fund a mortgage (or borrow the money from a bigger lender) and, after a mortgage is created might keep it in their portfolio or sell it to an investor, which is what they mostly do.
– Correspondent lenders: Mortgage lenders that sell the loans to larger lenders or the secondary market. They are faster working than mortgage bankers and tend to offer better rates.
– Savings and loans associations: While they used to be the most prominent home lending institutions, nowadays, they can be difficult to locate. However, they tend to be community-oriented and should be sought out since the terms can be quite beneficial to you.
– Credit unions: Financial institutions owned by the members tend to offer great interest rates if you are a shareholder. So, instead of just asking for a loan, you could join a credit union and later ask for a loan.
The idea is that going the extra mile and getting yourself pre-approved for a mortgage before you even start looking for a house is a great way to put yourself above the other people who want to purchase the same house. The ugly truth, however, is that almost everybody does this, so, if you do not, you might just be the only one at the open house who didn’t, which will make your offer less attractive to the seller.
When getting pre-approved, you will be asked to provide certain information. This will most likely include your social security numbers and of your co-borrowers, your bank information (savings, checking and investment information too), any debt obligations that you have, tax returns for previous two years, salary and how big of a down payment you are willing to make.
The Interest Rate
As you can see, there is a lot of research and work to be done before applying for a mortgage loan. The most important one might be the interest rate the mortgage lender offers. You can start this search by browsing the Internet, but that is almost never enough.
The information lenders usually put online is their base offer and, based on your credit score, that number may very well change before you are approved. Therefore, you will have to contact them and provide the information they need to tell you the exact interest rate they can offer you.
Read the fine print
As always, there can be hidden fees and rules that are not very favorable to borrowers. Therefore, you might want to read up on the fine print to avoid, or at least be aware of lender fees like the commission, appraisal, credit reports and many others that your lender can think off.
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