The decision to move up can be exciting. But applying for a home mortgage can be a killjoy, especially if you don’t qualify for financing or get stuck with a bad home loan deal.
Maybe you feel you have what it takes to get a home mortgage loan – a lender might feel otherwise. And sometimes, qualifying for financing is all about choosing the right kind of loan. Finding a mortgage can be stressful, but these four tips can make the process easier.
1. Know your financial health
Credit history, your amount of existing debt and income are three of the biggest factors affecting whether you qualify for a home loan. And when looking for a mortgage, you need to make sure that these areas are in good shape. Not that you need a perfect financial outlook, but lenders need to feel confident in your ability to pay the mortgage loan.
Checking your own credit history and score is a good start, and if you owe a lot of credit card debt, paying down balances looks good from a lender’s standpoint. The less you owe, the better.
Make sure you keep copies of your paycheck stubs and tax returns from the past two years. This information is necessary to verify your income.
2. Know your loan options
There is no one-size-fits-all mortgage loan. And while some lenders do an excellent job educating buyers on their options, you need to do your own homework.
Familiarity with different mortgage products can help you make an informed decision, plus provide clues on the right type of loan for your situation. For example, some mortgage loans – such as FHA home loans – are better suited for people with low credit scores or low down payments. Likewise, home mortgage products – such as a short-term ARM – might be a better match for people who only plan to stay in a house for a short period of time.
3. Shop around and compare mortgage lenders
Mortgage rates can fluctuate daily or weekly, and knowing the going rates for mortgage loans can help you decide the best time to jump into homeownership. It’s simple mathematics – low rates reduce your mortgage costs, resulting in a cheaper mortgage payment.
There is no set interest rate, which is why it pays to get free quotes from multiple banks. Additionally, shopping around lets you compare other expenses, such as closing costs. This simple step can help you avoid an expensive loan and maintain an affordable payment.
4. Save up for a larger down payment
The lenders you talk with may not require a large down payment, but when looking for a mortgage loan, a larger down payment can benefit your pocket in the long run. Sure, you’ll spend more of your savings to purchase the house. But if you can afford a larger down payment – say greater than 10%, this can help you negotiate a better interest rate. And if you can put down at least 20%, you don’t have to pay private mortgage insurance, thus opening the door to greater savings.