Access to financing determines your ability to successfully negotiate a home purchase. In seller’s markets, proof of mortgage pre-approval can help you clinch the deal, so it is important to to shop for a home mortgage before you start scheduling home tours.
1. Get your Financials in Order
Examine your household budget to determine how much mortgage payments you can afford. Remember to account for homeowners insurance and other insurance that a lender might require. Property taxes and maintenance expenses should be factored into the costs of owning a home.
Review your credit reports from all three rating bureaus, and make sure to correct any errors immediately. Your credit score affects the interest rate and loan product offered to you, and consequently, the cost of the home loan. Qualifying credit scores will vary among lenders. Examine your credit and debit accounts and calculate your loan to income ratio. This ratio can be improved by paying down your debts or raising your credit limit.
2. Obtain Mortgage Information from various Sources
Shop around to find the best costs and terms. Start by browsing home mortgage sources online to get a handle on market rates and loan terms. Contact traditional mortgagelenders or brokers to discuss your loan requirements and their loan approval process. Bear in mind that the market fluctuates, and you may be quoted a different price for exactly the same loan terms on a different day. Negotiate your best deal .
Some lenders will offer to lock the rate pending receipt and review of your application. To speed up the approval process, make sure to provide all documentation required to process your loan application.
3. Understand what you are Signing For
Negotiating mortgage terms can be a tricky business for inexperienced consumers. Stay on top of the process by making sure you understand what is going on. The terms of your loan will define how much interest you will be paying.
Choose wisely between fixed rate and variable rate loans. If you have a consistent and predictable income source, a fixed rate mortgage will work out better for you. A variable rate or adjustable rate mortgage is one where the interest rate changes periodically. It may start with a teaser or introductory rate, which is low enough to appeal to consumers. When the teaser rate expires, your interest rate will change. Variable rate loans are suitable for those who don’t intend to stay in the home for a long time and when interest rates are expected to drop.
Some loans may offer discount points to cover origination fees and to add to the compensation of the mortgage lender or broker. This portion may be paid by the buyer, seller or both. Pay attention to these details as they may add to mortgage costs.