Buying a home can be a fun and exciting experience. But finding the right housing is just one step in the process. Choosing the right mortgage can be just as important. Here are some tips to help you find the mortgage that suits you best.
Tip # 1 – Start saving for a down payment
Depending on your lender and the type of loan you choose, your down payment may range from 2.25% to 20% of the purchase price of the home. Establishing a monthly budget will help you save enough money for your down payment.
Once you have determined the budget allocated by your budget, consider automatically transferring money from your paycheck or bank account to a savings account to facilitate the setting aside of money each month. An account like Discover Bank’s AutoSavers plan can help you start saving today.
If you are unable to make a large down payment, you should consider an FHA loan, which will help homebuyers who can only make a small down payment.
Tip # 2 – Check your credit score
Having a good credit rating allows you to attract the best deal for your home loan. It is therefore wise to obtain a copy of your credit report before starting the process of buying a home. You will see how your credit profile will look to potential lenders and then take steps to improve your credit score, if necessary.
You can receive a free copy of your credit report each year from each of the three major credit reporting agencies – Equifax, Experian and TransUnion – by visiting www.annualcreditreport.com. If you pay a small fee to the rating agency, the credit report you receive will also include your credit score.
Tip # 3 – Put your financial documents in order
When you apply for a mortgage, you will need to provide your lender with a number of financial documents. Having these documents already assembled will help speed up the processing of your loan application. At a minimum, you must be prepared to provide your last two pay stubs, your most recent W-2, your last two years’ tax returns, and current bank and brokerage statements.
Tip # 4 – Use a Mortgage Calculator
Mortgage calculators are great tools to help you understand how much house you can afford. They are very easy to use and can show you the amount of your monthly mortgage payment under different price, down payment and interest rate scenarios. Discover a variety of our convenient mortgage calculators.
Tip # 5 – Learn to Compare Offers
All mortgages are not created equal. Although loans have the same interest rate, there may be differences in points and fees that make one bid more expensive than another. It is important to understand all the elements that go into determining the price of your mortgage so you can accurately compare the offers presented. You can click here for a good explanation of the components of mortgage pricing.
Tip # 6 – Start Tracking Interest Rates
The interest rate will be one of the most important factors in determining the cost of your mortgage. Mortgage interest rates change almost every day and it helps to know where they are going.
Tip # 7 – Get pre-qualified
Many real estate agents want you to be pre-qualified for a loan before you start working with you. The process of pre-qualifying mortgage is quite simple, usually requiring only financial information such as your income and the amount of your savings and investments. Once pre-qualified, you’ll have a better idea of what you can borrow and the range of home prices you can afford.
Tip # 8 – Understanding the different loan options
Maybe your parents had a 30-year fixed rate loan. Maybe your best friend has a variable rate loan. This does not mean that one or the other of these loans is the right loan for you. Some people might like the predictability of a fixed rate loan, while others would prefer the lower first installments of an adjustable rate loan. Every buyer has their own financial situation and it is important to understand which type of loan best suits your needs.
Tip # 9 – Be quick to respond to your lender
After applying for a home loan, it is important to respond quickly to any requests for additional information from your lender and return your documents as soon as possible. If you wait too long before you can respond, you risk delaying the closing of your loan and creating a problem with the house you want to buy. Do not put yourself in a position where you could lose your dream home, as well as any deposit you might have deposited.
Tip # 10 – Do not waste your credit while processing the loan
It is not uncommon for lenders to extract your credit report a second time to see if anything has changed before closing your loan. Be careful not to do anything to reduce your credit score while processing your loan. So, pay all your bills on time, do not ask for any new credit cards, and do not take out any new car loans before closing your mortgage.