Are you looking to buy a house? The purchase of your home may be the largest expenditure you will have in your life. Therefore, applying for a home loan is a process that you should not take lightly. The cost of a house is just your beginning expense. Points and the interest you must pay for a mortgage during the term of your loan will be much more than the price of the house. That’s why paying attention to the details of your home loan may turn out to be more important than the sale price of the home.
To get the most out of your mortgage, consider the following:
• Do what you can to improve your credit score before applying for a home loan if your credit history is not great. You may have to be patient because it can take several months to raise your score. Remember to always pay your bills and make your loan payments on time. Using credit cards and paying them off every month will help strengthen your credit rating. Use them wisely, and only charge what you know you can pay for each month.
• Do wait to apply for a home loan until interest rates are low. However, sometimes through history lower interest rates have indicated that home prices are expected to climb higher.
• Do begin with the pre-qualification or pre-approval. To pre-qualify, submit information to a lender who will give you an estimate of the mortgage amount you can afford. You can get pre-approval if the lender checks your credit, verifies your income, performs other inquiries and approves a particular mortgage amount for you.
• Do lock in the interest rate if you receive approval for a loan amount when rates are low.
• Do get your mortgage before new credit inquiries and debts start appearing on your credit report if you know you will have several financial obligations in the future.
• Do save as much as you can to make a larger down payment. You can get a better interest rate if you borrow only 80 percent of your home’s value.
• Don’t forget to consider points and other upfront expenses when shopping for a home loan. Those charges can make a significant difference in the cost of your loan.
• Don’t shop for a large, expensive first home unless you are positive you can afford it. When lenders see a big difference between your current rent payments and your potential house payments, they may decide that you do not qualify for the loan.
• Don’t consider checking with only one lender. Shop around to find the best deal. A mortgage broker can compare rates from many lenders and may find the best rate for you. However, other lenders who do not have the overhead that brokers have may be able to give you lower rates or costs.
First-time Home Buyers:
First-time home buyers often find that making a down payment is their biggest challenge, especially now that interest rates are so low the opportunity to buy a home is one that should certainly be taken advantage of.. Saving enough to make a 20 percent down payment on a home that costs over $100,000 can be difficult. If you are a recent college graduate or just got married, you may still be making payments on college loans or wedding expenses. In today’s economy, it is hard to save money, but there are some financing options that can help you get a home loan with a smaller down payment.
A mortgage broker may be able to find a solution for you. Ask a lender or broker about taking out two mortgages, called a piggyback loan. That may allow you to finance a home with a 10 percent down payment and avoid buying private mortgage insurance as well. Some lenders may offer mortgages for up to 97 percent of the value of a home. However, the interest rate on a loan with a low down payment will be higher, and the lender will almost certainly require you to purchase private mortgage insurance to protect the institution if you default.
What were some of your “dos” and “don’ts” when you applied for a mortgage?
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