Use these five tips to find the best lender for you to get a head start on the mortgage loan process.
Not everyone is eligible to buy a home; you must meet certain credit and income requirements to assure mortgage lenders that you will be able to repay the loan.
A low credit score indicates that lending to you is risky, resulting in a higher interest rate on your home loan. The higher your credit score and the more on-time payments you make, the more negotiating power you will have with potential lenders. In general, if your credit score is less than 580, you will have a difficult time qualifying for most types of mortgages.
To improve your credit score, first, ensure that your credit reports are accurate and error-free. Get your credit report from the three major credit reporting agencies: Equifax, Experian, and TransUnion. Every 12 months, each is required to provide you with a free copy of your report.
Next, try to pay off high-interest debts and reduce your overall debt as soon as possible. You will improve your debt-to-income ratio by reducing your debt. Paying off credit cards and recurring loans prior to purchasing a home will also free up more funds for the down payment.
Understanding the major players will assist you in navigating the crowded lending market. The following are the most common types of mortgage lenders:
Credit unions: These member-owned financial institutions frequently provide shareholders with favorable interest rates. And many have relaxed membership requirements, so you should be able to find one to join.
Mortgage bankers: They work for a specific financial institution and package loans for the bank’s underwriters to consider.
Correspondent lenders are frequently local mortgage loan companies that have the resources to make your loan but rely on a pipeline of other lenders, such as Chase, to whom they immediately sell your loan.
Savings and loans: Once the backbone of home lending, S&Ls are becoming increasingly scarce. These smaller financial institutions, on the other hand, are frequently community-oriented and should be sought out.
Mutual savings banks: Similar to savings and loans, mutual savings banks are locally focused and frequently competitive.
Check to see if each lender you are considering is licensed in the state where you are looking. You can do so by registering with the National Multistate Licensing System Registry. Also, look for unbiased reviews and information at the Better Business Bureau.
Obtaining a mortgage preapproval letter before beginning your home search will give you an advantage when bidding against other buyers. The letter demonstrates to the seller that you are a serious buyer with a loan that is likely to close. It is proof that a lender has reviewed your finances and determined how much you can afford to borrow, and thus how much house you can afford.
Obtaining preapproval now will also save you time later. Lenders will already have the information they need to process your home loan when you are ready to make an offer on a home.
You must provide lenders with your financial information in order to be preapproved.
Here is a list of typical lender requirements:
Obtain preapproval from more than one lender. Then you can compare Loan Estimate forms from each one to see who has the best rates and terms for you.
Begin by looking for the best mortgage rates online. Remember that the rate quote you see online is only an estimate. To provide an accurate rate, a lender or broker will need to pull your credit information and process a loan application, which you can then lock in if you are satisfied with the product.
Once you have obtained several quotes, compare prices and determine which one makes the most financial sense for you. Use your research as a negotiating tool to get the best mortgage rates possible.
While there is more to finding a good lender than choosing the lowest rate, this does not negate the importance of the rate. The total interest you pay over the life of the loan is substantial, and a low-interest rate can save you thousands of dollars.
Narrow your options by asking friends, family, or your real estate agent for lender recommendations, or by reading online reviews. Once you have compiled a list of names, pose the following question:
Also, consult with your mortgage lender or broker to see if purchasing discount points to lower your interest rate makes sense. When you buy points, you pay some interest upfront in exchange for a lower mortgage rate.
If you intend to stay in the house for an extended period of time, this may be a wise decision.
Mortgage principal and interest payments are not the only costs associated with purchasing a home; ask your lender about closing costs, points, loan origination fees, and other transaction fees. If you are unsure about something, ask for clarification. More information on these fees can be found at Mortgage Closing Costs Explained.
To begin the loan process, most mortgage lenders will require an “earnest money” deposit. Ask the lender to specify the circumstances under which the earnest money cannot be returned, and if the answer is ambiguous, keep looking.
Examine the fine print on your loan documents at all times. These will detail the exact financing terms, who pays which closing costs, what items are and are not included with the home, whether there is a home inspection contingency, the closing date, and other important information.
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