Mortgage – 8 Essential Things to Know Before Taking It Out
If you’re finally thinking of buying your dream house, planning for a mortgage is your first step. And if you’re applying for a mortgage, knowing the basic terms should be your next step.
We have come up with a list of things to know and do before you head to a mortgage broker. Stay one step ahead with the things listed below.
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Things to Know When Applying for a Mortgage
Planning your financials can help you get the right mortgage without falling into the debt hole. Here are the things to take care of before applying for a mortgage loan. Learn more about it below.
1. Know More About the Different Types of Mortgages
Before you apply for a mortgage loan, knowing about the types of loans helps. You need to learn about them to determine the right one for you.
Some of the common types of mortgage loans are as follows:
– 30-year fixed-rate – It has a fixed interest rate for 30 years.
– 15-year fixed-rate – It has a fixed interest rate for 15 years.
– Adjustable-Rate – Here, the interest rates are fixed for the initial years and then adjust accordingly.
Government-backed loans are USDA Mortgage, FHA Mortgage, and VA Mortgage.
Other types of Loans are Jumbo Mortgage and Interest-Only Mortgage.
2. Check Your Credit Score and Analyse Your Credit Report
Before you blindly go to a lender, check your credit score and analyze your credit report. The two extensively used credit scores are FICO Score and VantageScore.
These scores can determine your financial stability and build credibility. It’s a key factor to consider while applying for a mortgage. You will have a low interest rate with a high credit score.
FICO Score ranges from 300 to 850. A decent FICO Score would be somewhere between 650 to 739. You will get the best interest rates if your credit score is between 800 to 850.
So, knowing these before meeting a lender helps. Also, check your credit reports as your credit scores will be affected if the report has minor errors.
3. Improve Your Credit Rate if It’s Low
If your credit score is low, improve it before going to the lender. You will end up paying more monthly, and the interest rates will be way too high, costing you a lot more than usual.
Avoid these by improving your credit score beforehand by repaying your older debts on time or by closing accounts.
This step is crucial to get the best rates to avoid being stuck your entire life repaying your mortgage loan. Take time out and analyze your credit report and calculate your credit score before applying for it.
4. Know How Much You Can Afford
There’s a thumb rule that you shouldn’t be spending more than 28% of your entire monthly income. So, determine whether you can afford that before applying for a mortgage.
Depending on the type of home you want and the final estimation you’ve come to after calculating your credit score, see if you can afford it.
Significant factors that mark if you can afford the home is your gross income, mortgage-to-income ratio, and debt-to-income ratio.
Based on these two, your lender will decide if you’re capable of paying the loan or not. Evaluate these factors before jumping in to apply for a mortgage.
5. Look for the Right Mortgage Loan for You
Once you’re aware of the various types of loans and your credit score, determining the loan type you want to apply for comes next.
Choosing the right one can be a daunting task. After all the calculations and estimations, you can seek advice from an expert if you’re still confused.
But you can check out a couple of deals and see which fits the best for you. It’s one of the best ways to get a precise picture before diving in. Go for the ones with lower interest rates and apply for the best deal in the market.
6. Pre-approve your Mortgage Loan
The next best step is to get your loan pre-qualified and then pre-approved to get a rough estimate of how much you will be able to afford.
A few essential documents required are proof of your assets, proof of your income, a good credit score, and employment verification.
The lender will verify and approve the home loan if he sees fit. So, getting a pre-approval is always better before the final approval.
Prequalification is to get an estimate, and pre-approval is to get your documents verified. As you can see, pre-approval is better than the former.
7. Finalize the Deal
After all the research, evaluation and verification, you should finalize the deal by filling an application with all your details.
It takes time but ensure you don’t miss out or make errors while doing so. A slight slip might cost you a lot later.
So, carefully finalize the deal after you’ve read about mortgage loans, discussed with various lenders, and come to the right decision. You don’t want to end up regret buying your dream home, right!
8. Evaluate the Forms
Cross-check the forms you receive after finalizing the deal and if you have any queries, ask your lender to clarify the same.
Read the forms and documents thoroughly before closing the deal to avoid consequences. It’s one of the crucial steps one shouldn’t miss.
Concluding Thoughts
Buying a home is exciting, but going through the process is not. Sure, it’s a lengthy process of filling out papers. But know what you’re getting into and understand the terms before talking to the lender. It will help navigate the process, and you get to stay on track with each step without feeling overwhelmed.
