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Buying a home is probably the largest transaction you will make in your lifetime. So, before getting a mortgage, it is always important to know what you can afford to lend considering your finances. This guide serves the purpose of giving knowledge on best practices when applying for a mortgage, what you need, what to look for when shopping for a mortgage, and what you can do with it once you have bought your home.
Things to Consider Before Applying for Mortgage
Starting with the acquaintance of mortgage, here are a few things you should be aware of that can heavily affect your mortgage eligibility.
Your Credit Score
To qualify for a mortgage, a good credit score is indispensable. So, before applying, go find out your credit score, and if it falls under the ‘good’ category you can go for a mortgage. This credit report will determine the terms of the lender and the interest rate you will be charged. The higher the credit score, the lower the interest rate.
Your Budget in Hand
Sit down and know how much loan you can afford. The lender will usually see your credit history to know how much mortgage payments are relative to your income. They will ensure you have the ability to pay what you are borrowing. Below are some of the things you must consider to account for in your budget.
- Mortgage principal
- Interest rate
- Property taxes
- Mortgage insurance
- Utilities like water, gas,
- Repair expenses
Your Mortgage Options
Once you know your eligibility and budget, now is the time to check which mortgage options do you have. There can be a wide variety of mortgage options available and they all can vary based on the size of the loan you are applying for, the amount you will take to repay, the interest rate you will be charged and any special program you are taking. Make sure you learn about the risks involved with each type before making a decision.
Loan terms are generally 30 or 15 years depending on the size of your loan. Interest rates can also vary depending on the time and term you are taking – for long-term loans, the interest rates are high whereas for short-term loans are interest rates are low.
The majority of the mortgages are conventional types of loans. However, if you are a first-time homebuyer, and have an unusual situation, then you can qualify for a special type of mortgage as well. Do your research to find out the organizations that have a special type of loan available for first-time home buyers. Know that these programs have some restrictions attached to them as well, so take them into account as well.
After knowing the loan terms, now is the time to pick the right lender for you. But how do you choose the right lender who will offer the best deal and great customer service for you? Since this is the largest purchase of your life, picking the right lender is important.
Since there is no shortage of banks, online lenders, mortgage brokers, and other players who lend mortgage loans, it is difficult to pick one. But do not worry, as we are about to discuss the things you must keep in mind while choosing the right lender for you.
How to Pick the Right Lender?
To find the best mortgage lender, you need to shop around and compare the prices of all. You can consider the option of your bank, local credit union, online lenders, and more for this.
Ask each of these contenders about the rates, loan terms, down payment, eligibility requirements, property insurance, closing costs, and every hidden fee involved in the process. Then, compare all these details and pick the best offer and lender for yourself. To give you a detailed insight, here is the step-by-step process to go through.
Step 1: Repair your Credit Score
Before applying for mortgages, make sure you give a checkup and fix any credit mistake. If the credit score is low, make sure you first fix it and bring it in a range where you get the best rates.
Step 2: Determine Your Budget
The most important part of finding the right lender is having a good handle on how much house you can afford. A lender can qualify you both for the max and min budget and leave you no wiggle room for unexpected expenses. So, it is you who have to decide what is your budget and how much cost can you afford.
For a better idea, look at your monthly net income and calculate how much you should spend on a mortgage payment.
Also Read: How to Improve Your Credit Score Fast?
Step 3: Know Your Options For Mortgage
Finding the best mortgage lender is dependent on knowing the different types of mortgages. With some upfront research, you can find your mortgage options and separate them from facts and fiction. Many lenders offer conventional loan with as little as 3 percent down payment, while other require no down payment.
So, explore all options and decide which option suits you best. Remember that many lenders charge higher interest rates than others, so make sure you explore all your options before picking one.
Step 4: Compare rates and terms of multiple lenders
Settling on the first lender you find, is not the wise idea. In fact, go to the different lenders like banks, credit unions, online lenders, and local independents to make sure you get the best deal. Also, try to find a lender that communicates with you well and through a proper channel. If you are not ready to shop around, then know that you are going to leave money on the table.
Read More: Debt Settlement in Canada: Ultimate Guide
Step 5: Get Preapproved for a mortgage
If you want a better comparison on loan offers, then applying for a mortgage preapproval with three or four different lenders may be a wise thing to do. In fact, it is the only way to get accurate loan pricing because lenders do a thorough review of your credit and finances. For preapproval, you might need several details, such as:
- Driver license or government photo ID
- Social security number for all borrowers
- Residential address history
- Pay stubs from the past 30 days
- Federal tax returns of last two years
- List of all financial accounts
- Employment and income history
The Bottom Line
Lending a mortgage for your house is the most critical decision of your life. So, before applying for it, make sure you do your homework on the basis of mortgage lending early on. Get yourself well acquainted with the different types of mortgage lenders as not all mortgages are fit for you. You need to know how a mortgage works, how mortgage lender differs from one another and what you will need if you apply for a mortgage.
Once you get your mortgage, keep your credit clean; avoid taking out any other loan, and try not to make any big purchases which you are not able to pay. Once you get your mortgage approved, you will have a new financial task to complete; so start working on it.
We at Lionsgate help borrowers like you to get their mortgage approval faster. For those, who are not sure which lender to pick, we have a customized checklist to decide in 5 minutes which lender will be best for you. Reach out to us to get your mortgage checklist NOW!