Getting the mortgage you want is easier than you think, but it requires wise financial choices and preparation. Many people consider buying a home the American dream but with lenders imposing stricter guidelines, and home prices increasing in some parts of the country, qualifying for a home loan has its challenges. This doesn't mean it's impossible. Here are seven steps for getting the mortgage you want.
Getting the mortgage you want requires building a good credit history. If you don't have credit, apply for a secured credit card or a store charge card. Pay your bills on time each month, and don't acquire a lot of debt. It takes years to build a good credit history, so the sooner you open your first account, the sooner you can qualify for a mortgage.
Maybe you have credit, yet your score isn’t in good shape. Getting a conventional mortgage requires a minimum credit score between 680 and 700. Check your credit report and credit score — and if necessary, take steps to build your credit rating. Paying your bills on time and reducing debt can raise your score. Also, check your credit report and dispute errors.
Buying a house is expensive. You'll need at least a 5% down payment, and closing costs can range between 3% and 5% of the sale price. Even if you qualify for an FHA home loan, you'll still need a 3.5% down payment. Some people borrow from retirement accounts to pay mortgage-related fees. However, you might be able to save the money by reducing your spending and creating a savings plan.
There is no one-size-fits-all home loan. Therefore, you'll need to speak with a lender and discuss your options. Some banks have programs designed for first time home buyers, and mortgage options for people who don't have a down payment. The more you know about mortgage lending, the easier it is to make an informed decision.
Getting information about different types of home loans is just the beginning. You also need to compare mortgage rates among banks. This ensures you get the cheapest interest rate and the most affordable mortgage payment. Ideally, you should speak with at least three lenders and request a no-obligation mortgage quote.
Once you decide to move forward with a home purchase, get a pre-approval letter from your lender. This is not a requirement to buy a house, but the letter carries weight. Some real estate agents only work with buyers who are pre-approved, and some home sellers only accept bids from pre-approved buyers. A letter shows that you're a serious buyer who is eligible for financing.
Getting pre-approved for a mortgage loan does not guarantee closing on a house. Your lender will recheck your credit one or two days before closing. And unfortunately, if you finance a car or another large purchase beforehand, or if you quit your job, this can affect whether you're able to close on your mortgage. As a rule of thumb, avoid major changes to your credit and income until you’ve signed the mortgage documents.
Getting the mortgage you want is possible, but you might need to speak with a lender and educate yourself on options. Getting to the closing table can be challenging, but once you get the keys to your new house, it'll be worth any headache. What are other tips for getting the mortgage you want?