Learning the basics of how to get a mortgage needs to be one of the first things you take care of when you are in the early stages of purchasing a home. Not only will you feel more comfortable with the process when the time comes to actually buy your home but there are many real estate agents who will not work with a potential home buyer unless you have pre-approval for a mortgage. This basic guide provides you with the information you need to feel confident when getting a mortgage and meeting with the real estate agent.
Learn About Your Money
There’s a reason why buying a home is likely to be the single largest purchase you make in your lifetime. Not only do homes cost a lot of money but you also need to have access to cash to make the purchase – even if you are financing it.
Be prepared to have money for closing costs and your down payment. Some mortgage lenders might also want to see proof that you have enough money to pay the mortgage and taxes for the next year as well. The reasoning behind this thought process is that the lending institution wants to know that you have enough financial reserves so that you can weather those unexpected happenings that life often throws at you such as a job loss or the replacement of your entire HVAC system.
Check Your Credit
Your credit will likely have a huge effect on your mortgage – though the gravity of it will differ depending on who you use to write your mortgage. Your first step, though, is to get a copy of your credit report so that you know what your lending institution will be seeing when they pull it. Everyone is entitled to one free copy of their credit report each year. Keep in mind that while your credit report provides you with a credit score, it is nearly always higher than the one that the your loan officer will come up with.
Your down payment is an integral part of the mortgage process. The amount you put down directly affects the amount of money you will need to borrow to purchase your dream home. There are many different loan options and mortgage programs available.
For example, a VA loan -which is available exclusively to those people who are currently in the military or who are veterans – doesn’t require a down payment at all.
A mortgage from the Federal Housing Administration (FHA) could allow you to purchase a home with as little as 3.5 percent for a down payment. With careful shopping, conventional mortgages can be found that require just a 5 percent down payment.
One important caveat to the down payment issue that you need to know about. For down payments of less than 20 percent of the home’s purchase price, you’ll be required to also purchase private mortgage insurance -or PMI. For FHA mortgages, this is called the mortgage insurance premium. The amount that this PMI adds to your monthly payment varies according to a number of different factors.
Making a larger down payment could also translate into a lower interest rate from your lending institution as well. A lower interest rate not only saves you money every month, it can free up cash that lets you pay down your mortgage more quickly over the long run as well.
Finding a Mortgage Company
Traditionally, getting a mortgage loan meant approaching your bank or credit union to get the paperwork started. While these financial institutions are still valid options for obtaining a loan for a mortgage, they are far from the only route to do so. Limiting yourself to loan programs offered by them could mean that you are not seeing the lowest interest rates possible or that you are paying fees that are too high.
Another option is a mortgage broker which offers flexible options that appeal to a wide swath of potential home buyers. This type of variety in loan packages often results in lower interest rates and packages that are customized to suit your particular circumstances. They also often offer face-to-face meetings that allow you to obtain that personal touch.
Using an online mortgage broker offers you the convenience of shopping for a mortgage loan at a time when it fits most easily into your own schedule. In addition, these brokerages often offer a robust variety of loans that allow you to instantly compare their different features. By manipulating the different fields, for example, you can get a pretty accurate ballpark figure for the amount of monthly payment you can expect and how much interest adds to the total loan amount. Some mortgage providers offer more than one type of service or a hybrid of them – for your convenience.