Typically, buying a home is the largest investment, and a mortgage is the biggest debt for most people. Your loan is essential about the long-term cost of your mortgage or your home. Below you can find the basic information about home mortgages and mortgage refinancing.
Check as Many Offers as Possible
It won’t be an overstatement if we say there are hundreds of offers for mortgages.
- Check the offers of the local banks and lenders but don’t forget that the mortgage plans they provide can be limited.
- Mortgage brokers work with numerous lenders, so they can compare the rates and plans offered by different credit institutions. Such a comparison is very helpful when you choose the most suitable mortgage program.
- Keep in mind that rates and conditions change very often, even hourly. That is why it is good to choose a lender who provides up-to-date information about various plans.
- You can get a free Credit Report Card before you start checking different mortgage offers.
What Amount of Money Can You Get
In order to define your “debt-to-income” ratios, the lender will make a comparison of your income prior taxes and the debts you have to pay.
- Typically, the monthly payment on the mortgage, including all taxes, principal, interest and insurance, should be about 28% of your income. However, some lenders agree the percentage to increase to 40.
- All your monthly payments on debts, such as your mortgage, personal loans, credit cards, etc., should be about 36% of your monthly income. Again, some lenders allow a higher percentage.
Equity and Down Payment
When you get a mortgage to purchase a home, you typically need a down payment. In cases of refinancing, the lenders usually require you have equity in your home.
- If you can’t afford to make a down payment, you can ask for loans with no or low down payment, such as VA and FHA loans. This will allow you to purchase a home with limited money.
- If you opt for a no or low payment loan, you will probably have to pay insurance, so that the lender is protected in case you can’t pay your debt. This will increase your monthly payments.
- If you want to refinance your mortgage but you don’t have equity, you can ask the creditor about the Home Affordable Refinance Program.
Mortgage Interest Rates
Your monthly payments are defined on the basis of various factors, including your credit score, the length of the debt, down payment and equity, etc.
- It is important to ask not only about the rates, but also about the costs. If you want to pay points (one point is 1% of the loan), you may get a lower rate. On the other hand, if you agree to a higher rate, this may reduce the closing costs you pay.
- The Annual Percentage Rate (APR) is very useful when you compare rates because it include some of the long-term costs of loans.
- Find out whether it is possible to “lock” your rate, so that the rate won’t change.
Closing costs usually include various fees imposed by the lender, third-party taxes, as well as pre-paid insurance and fees.
- Different lenders offer different closing costs which should be estimated and provided by the lender within a few days after you apply for a mortgage. You need to check them careful and make sure you understand all conditions.
- The insurance can be very expensive and its cost depends on the location and on other factors, too. If the insurance is not fixed, you can find a cheaper policy.
- It is possible to get a loan to cover your closing costs if you are willing to pay a higher rate.
Credit Score and History
The lender will check your credit history and credit score, so it is wise you do the same before you apply for a mortgage.
- The majority of the lenders use FICO scores which usually differ from the score you get from other services.
- It is recommended to check your credit score about three months before you apply for a loan. This will give you some time to react in case of problems.
- You shouldn’t make significant changes to your credit without informing your loan officer and discussing the changes with them. Opening new credits to purchase furniture or domestic appliances, or closing your paid credit cards may lower your score and lead to poor credit history.
- You don’t have to worry that shopping for a mortgage can affect your credit score. When FICO scores are calculated, any credit inquires related to mortgages in the past 30 days are not taken into account.