Getting a mortgage can be a difficult process. Dealing with lenders, getting documentation ready, working with a broker and a real estate agent to figure out how much you can spend, securing funds and avoiding the pitfalls can quickly become a full time job. The good news is that there are ways to make it easier. Here are some tips that will come in handy when preparing for the mortgage process.
Save up: if you know well enough in advance that you’ll be in the mortgage market, start saving toward a down payment. Spend frugally, cut out luxuries and make small cuts in order to have some funds to put aside every month. If you have a windfall like an inheritance or a large refund, put that aside instead of spending it. The goal is to get a large down payment. If you can manage to save up 20% of the value of a home, you’ll get much better loan terms, including a lower interest rate, little to no fees, and no need to pay mortgage insurance. If there’s no way you’ll get the 20% in time, consider holding off until your finances are in better shape.
Find a mortgage broker: we don’t perform our own surgery and most of us don’t fix our own cars, so why do so many home buyers search for loans themselves? A mortgage broker is a trained professional, experienced in the home buying process. They know what the market looks like how to get the best rates. They can meet with you to discuss your financial situation and then they will do all the loan shopping for you. A mortgage broker will work with a variety of lenders to ensure you get the best deal that meets your financial and home needs. Best of all, the broker’s fee is paid by the lender, not by you.
Learn about the types of loans available: Sure, you know what a fixed rate and a variable rate mortgage are. But do you know the difference between a basic variable rate home loan and a standard variable rate home loan? What about a honeymoon loan or a split mortgage? These are just five of the many types of mortgages available to borrowers. Keep in mind that a mortgage is a product that you are purchasing. You should never go into the market for any product blind, bit knowing all you can. This is especially true with mortgages.
Look at more than just the rate; low interest rates are the bait that lending institutions use to draw you in. It’s easy to look at a low number and get drawn in by that, ignoring everything else. Unfortunately, this is a way to get stuck with a bad loan. Pay attention to the terms of the loan, including any fees, penalties or insurance requirements. It’s also important to look into the features of a loan. You might want the flexibility to split a loan, the convenience of borrowing against it or even the ability to pay extra. That bare bones loan with the low rate might not allow any of it.
If you’re not using a broker, do what a broker does and shop around: if you do choose to do all the work yourself instead of using a mortgage broker, at least look at a few different banks to find the best loan available to you. Rates, fees, terms and features vary wildly from one lender to another, so do all you can to find out about the offerings of as many financial institutions as you can. While you’re at it, try online banks. You might find even better loans there than you would with bricks and mortar lenders.
Research credits, grants and other incentives: government programs offer incentives for home buyers to get into the housing market and stimulate the economy. These can come in the form of tax credits, rebates, discounts and more and are available to first time home buyers and experienced home owners alike. Do research online or check with a tax professional or a real estate agent to find out more. There’s no reason not to take advantage of every program available in order to save money when buying a house.
Prepare your documentation: there’s no reason to assemble all the loan-related documents you need after the lender or mortgage broker asks for them. Instead, get everything ready ahead of time. Borrowers should obtain a copy of their credit report, along with tax records and current and past pay stubs. Bank records are also needed for the loan application. Research online or ask a banking professional what other supporting documentation might be needed. An added benefit of getting documents ready early is that it gives you a chance to review them and look for errors or areas of your personal finances you might need to strengthen.