Get Your Credit in Shape
One of the most important things when getting ready to apply for a mortgage is getting your credit in shape. Poor credit ratings can not only cost you in higher interest rates, but can also limit the types of mortgage types you can choose from. Get a copy of your credit report and find issues that can be fixed, such as satisfying collection accounts and disputing anything that does not agree with your records.
Determine Your Down Payment
Calculate the budget you have to purchase your home and then determine what down payment you will need to buy in that range. For many loans, you will be required to pay 20% down along with closing fees at the time of signing.
Decide Whether You Want a Fixed or Adjustable Rate Mortgage
There are two primary types of mortgage in the industry, fixed rate and adjustable rate.
- Fixed Rate Mortgage - This type of mortgage involves a fixed rate of interest throughout the duration of the loan. If loan rates are low when you obtain your mortgage, this is a great way to pay low interest throughout the duration of your loan. If rates are high at the time, it can create a larger monthly payment, which my hinder the amount you will be able to borrow.
- Adjustable Rate Mortgage - This type of mortgage will typically have a fixed rate for a short time at the beginning of the loan, and will then fluctuate on a regular basis based on the market. This can be good if rates are low when you apply, but can cause difficulty if rates fluctuate significantly higher.
Get all of Your Information Together Ahead of Time
You can save time and delays on your mortgage loan by having all the paperwork and information that you will need to complete your mortgage. You will be required to produce verification of your employment such as paystubs, W2s, or tax returns, as well as proof of any assets.
Find a Qualified Lender
Once you have determined what type of mortgage you will want to pursue, you will need to find a lender who is qualified to handle those mortgages. Find a reputable lender who you can trust to walk you through the mortgage process and answer any questions that may arise.
To avoid any hassles when looking for a new home, it is best to get pre-qualified for the loan amount before you start your home search. Some homeowners who are looking for a quick sell may ask if you have obtained pre-qualification before showing you the home. This is also sometimes a tactic to weed out serious buyers from those who are just looking.
Follow the steps above to complete your mortgage education and start your journey to homeownership. For more mortgage education materials, download our eBook now!