Financing
The way you approach mortgage shopping can literally save thousands of dollars. Take time to understand the system and make educated decisions. Doing so may very well cost you less over a shorter period of time.
If we can explain any steps along the way, please ask. We're always happy to help.
Steps to Successful Financing
Get pre-approved. Don't skip this step. Getting pre-approved is fast, easy and free. A written pre-approval includes a completed credit application and a certificate guaranteeing you a mortgage to a specified amount. With one in your pocket, you won't waste time looking at homes you can't afford.
Instead, you can invest your time shopping for the home of your dreams - and in your price range.
Examine your finances. How much can you afford to spend? While a lender will tell you how much you qualify for, it's up to you to figure how big a payment fits into your budget. What monthly dollar amount do you feel comfortable committing to? Remember to consider related costs such as insurance and taxes, as well as interest and principle.
Consider what type of loan is best for you. Compare fixed-rate with adjustable rate mortgages. Look down the road. Where will you be in 15 years, 30 years? What obligations might you have? Take those things into consideration as you choose a loan.
Polish Your Credit. Your credit report holds valuable information for lenders. It shows your past and present debts, along with indications of how well you kept up with your payments. Lenders look at the three major credit bureaus — Equifax, Experian and TransUnion when evaluating your application. For conventional loans, most lenders will typicallylook for at least a 620 credit score, but it really varies according to what type of loan you are applying for. The better credit score you have, the better interest rate you may land and you may avoid jumping through additional hoops. But getting a “no” from a lender doesn’t mean you are our of luck. Aquire a copy of your credit report and...
- Correct any errors on your credit report. Mistakes are more common than you would think. If you find one, fix it.
- Assess your credit. Longevity is one of the factors that make up your credit score, so you might be hurting yourself if you close an old card. What’s more important is how much of your available credit you are using each month. Aim for just under 30% of your limit.
- Pay your bills on time. Late fees can cripple your credit score, so set your bills on automatic payment to make sure you never miss a due date again.
Clear up any financial problems. Do you have credit problems or owe money to the IRS? Buying a new home may still be a possiblity. Contact a financial advisor or tax resolution service to find solutions.
Shop Around. When you're ready to get a loan, explore your options. You can choose either a direct lender or a mortgage broker.
A direct lender has money to lend and makes the final decision on your loan. Brokers are intermediaries who choose from many lenders. A broker may be able to help find you a loan if you have special financing needs, but he or she will also receive a percentage of what you borrow.
While you're shopping for a loan, also look for the best loan costs. These may include:
- Interest rates
- Broker fees
- Points (each point is one percent of the amount you borrow)
- Prepayment penalties
- Loan term application fees
- Credit report fees
- Appraisal costs
Be aware. Don't let hidden costs sneak up on you. Ask your lender for a written estimate.
Apply for a loan. Gather all the documents you'll need to verify your loan application. Lenders will want to know your job tenure, employment stability, income, assets (property, cars, bank accounts and investments) and your liabilities (auto loans, mortgages, installment loans, credit-card debt, household expenses and others).
You'll need to provide documents such as paycheck stubs, bank account statements and tax returns. Check with your lender or broker for more information.
Lock it down. With interest rates changing daily, locking down your rate can prove a big money saver. A rate lock - in writing - guarantees you a certain rate and terms for a specified period of time. Lock in all the costs you can, including interest rates and points. And try to set the lock at the time of application, not at approval. This will protect you from rising rates.
Your lock-in period should be long enough to allow for all processing time. Most lock periods range from 15 to 60 days. Make sure to check with your lender or broker about the average time it takes them to process a loan.
Ask about Pre-payment. You can shave years off the length of your mortgage by restructuring the way you pay back your loan. Simply paying more frequently can save thousands in interest. So can making a lump payment toward the principle - or paying a little more each month. These methods are called pre-payment.
Not all loans allow for pre-payment. If you want the option, discuss it with your lender or broker.
