Having Problems Getting A Mortgage
Ive had some credit problems. Will I have to pay more for my mortgage loan?
You might, but not necessarily. Prepare to compare and negotiate, whether or not youve had credit problems. Things like illness or temporary loss of income dont necessarily limit your choices to only high-cost lenders. If your credit report has negative information thats accurate, but there are good reasons for a lender to trust youll be able to repay a loan, explain your situation to the lender or broker.
But, if you cant explain your credit problems or show that there are good reasons to trust your ability to pay your mortgage, you will probably have to pay more including a higher APR than borrowers with fewer problems in their credit histories.
What will help my chances of getting a mortgage?
Give the lender information that supports your application. For example, steady employment is important to many lenders. If youve recently changed jobs but have been steadily employed in the same field for several years, include that information on your application. Or if youve had problems paying bills in the past because of a job layoff or high medical expenses, write a letter to the lender explaining the causes of your past credit problems. If you ask lenders to consider this information, they must do so.
What if I think I was discriminated against?
Fair lending is required by law. A lender may not refuse you a loan, charge you more, or offer you less-favorable terms based on your:
Tips When Shopping For A Mortgage
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Shopping for a car: fun, freeing, and full of fresh new smells. Shopping for a puppy: heartwarming and full of suspicious smells. Shopping for a mortgage: not particularly thrilling or fragrant but one of the most important decisions many consumers will make in a lifetime.
From assessing what they can afford to nailing down a mortgage type, researching the best rates, and ultimately securing a loan, homebuyers must take many steps when shopping for a home loan.
Here are a few tips and tricks on how to shop for a mortgage loan and what to expect along the way.
Mortgage Lender Or Broker
When wondering how to shop for a mortgage lender, it can be useful to start by distinguishing between a direct lender and a mortgage broker:
A direct lender is a financial institution that assesses whether a buyer qualifies for a loan and offers them the funds directly. A mortgage broker is an intermediary between the buyer and financial institution who helps the buyer identify the best direct lender and compiles the information for the mortgage application.
Long story short, mortgage brokers help homebuyers comparison-shop by culling together multiple lender quotes and presenting them all at once. This can be helpful for buyers who dont want to deal with contacting multiple lenders. That said, the broker typically takes a commission, covered by the buyer, based on the mortgage amount.
In the case of working with a direct lender, it can be a good idea for buyers to deal with a financial institution they already have a relationship with.
Read Also: How To Figure Mortgage Rates
Proof Of Assets And Liabilities
Your lender might ask you for some or all of the following when they verify your assets:
- Up to 60 days worth of account statements that confirm the assets in your checking and savings accounts
- The most recent statement from your retirement or investment account
- Documents for the sale of any assets you got rid of before you applied, such as a copy of the title transfer if you sold a car
- Proof and verification of any gift funds deposited into your account within the last 2 months
Your lender may also ask you for supplemental information on any debts you owe, like a student loan or an auto loan. Cooperation with your lender only makes the process easier, so be sure to provide any requested information as soon as possible.
Fixed Vs Adjustable Rates
The fixed-rate mortgage is the most popular home loan type. It gives homeowners a stable principal and interest payment that never changes for the term of the loan. The most common fixed-rate loan terms are 10, 15, 20, 25 and 30 years.
Adjustable-rate mortgages offer a temporary low rate for a set time period ranging between one and 10 years, and then adjust based on the margin and index tied to the ARM program you choose. For example, with a 5/1 ARM, your rate is fixed for the first five years, and then adjusts every year for the remainder of the loan term. Make sure you review the caps with ARMs so you know how much the interest rate and payment could go up over time.
Also Check: How Much Is A 180k Mortgage Per Month
The Difference Between Aprs And Interest Rates
Your annual percentage rate is disclosed on Page 3 of your loan estimate, and reflects the total cost of getting a mortgage and is different from the interest rate. Generally speaking, the bigger the difference between your APR and interest rate, the more youre paying in closing costs. However, its still a good idea to compare the itemized costs on the loan estimate to make sure youre getting the best deal.
How High Does Your Credit Score Have To Be To Qualify For A Mortgage Loan
Technically, you can qualify for a loan with a credit score as low as 550. However, most mortgage companies will not lend to someone with such a low score. This makes you a huge credit risk, and the truth is, lenders dont want to do foreclosures if they dont have to.
Assuming that you will get approved if you have the bare minimum score is not a good way to go rate shopping. In fact, its a bad way to work with most personal loans, too. If you want to get the best rates and ensure that you will be approved, you should try to clean up your finances as soon as possible.
Recommended Reading: How To Get A Mortgage If Self Employed
When Should You Start Shopping For A Mortgage
If youre planning to buy a home within the next 90 days, you should start shopping now. You want to research available loan programs, your credit scores and choose the right mortgage type long before you start making offers, to make sure there are no surprises once your offer is accepted. If youre applying for a mortgage refinance, you should start shopping once youve determined whether the cost outweighs the benefit of refinancing.
Shop Around For Best Rates
Getting rate quotes from multiple lenders and comparing offers is one of the easiest ways to save money on your mortgage. Thats because the interest rate is one of the key components of the mortgages total cost, and rates can vary considerably with each lender. Despite this, about half of homebuyers skip shopping for the best rate.
According to the Consumer Financial Protection Bureau, borrowers could save $300 a year on average by shopping for more than one rate quote. You might save even more, depending on what you qualify for.
Get Started: Find Your Mortgage Rate Today
Read Also: How Much Should You Pay A Mortgage Broker
Shop Within A Short Time Frame
Again, multiple credit checks from mortgage lenders go on your credit report as a single inquiry as long as you stay within that 14-day window.
Within this time frame, you can look around and even get multiple preapprovals from many different lenders. Shopping around gives you the biggest advantage because you can compare and contrast interest rates, loan terms and plan how to save money over time.
What happens if just one lender must check your credit after the 14-day window? You’ll find that the impact of an additional inquiry will stay small.
How To Shop For A Mortgage In 6 Steps
Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It may not have been reviewed, commissioned or otherwise endorsed by any of our network partners.
If youre thinking about buying a home and need a loan, knowing how to shop for a mortgage is a must. Before you start applying online or calling local lenders, follow these shopping tips to make sure you pick a mortgage thats a good fit for your finances.
Read Also: How Much Can I Mortgage My House For
Compare Different Types Of Mortgage Lenders
Once youve matched your credit scores and have a good idea of the best programs for your financial situation, its time to start comparing loan estimates from different lenders. Studies have shown that youll typically get the best deals by checking with three to five lenders.
Heres a brief overview of the three most common types of mortgage lenders: banks, mortgage brokers and mortgage banks.
- Banks. Your local bank or credit union probably offers mortgages and may extend a discount if you carry large balances or investment accounts with them. Banks are also often approved for first-time homebuyer programs that may help you out if youre short on cash for your down payment and closing costs.
- Mortgage brokers. If you want to compare a number of different mortgage lenders in one place, a mortgage broker may be a good option. They dont actually lend money, but theyre approved by several different lenders and often have a wide variety of programs to fit different mortgage financing needs.
- Mortgage banks. Unlike regular banks, mortgage banks only specialize in home loan products. One of the big advantages of mortgage banks is the processing of your loan is handled in house, which means the lender actually loans the money, and employs underwriters and processors on site to make lending decisions.
Does Owning A Home Help Your Credit Score
If you took a loan for your home, owning a home can help your credit score. This improves your ability to have a solid payment history. It also improves the number of loan types you have. Since a healthy credit mix shows that you can handle more credit, having a mortgage is a good thing for your credit score.
You May Like: Does Refinancing Your Mortgage Hurt Your Credit
Compare Key Personal Loan Features
When you compare loans, you should look first at the interest rate or annual percentage ratethats how much the loan will cost you and should be the most important part of the decision. After that, keep an eye out for fees and other features. Some common fees include:
- Origination fees
- Returned payment fees
- Prepayment penalties
Youll find it easier to decide which option is the best fit for you when you know the true cost of the loan beyond the interest rate. Better yet, there are multiple popular lenders that offer loans without fees.
Aside from fees, spend a minute to see if the lender offers any other benefits that would help you in your decision-making.
For example, SoFi offers borrowers unemployment protection, multi-product discounts, as well as complimentary access to financial coaching and credentialed financial planners.
Zara Mohidin, a strategy and business development associate at Fig Loans, told The Balance in an email that its important to make sure your lender reports your payments to credit bureaus, too. Some lenders don’t report at all, others report to one or two of the three major credit bureaus, and others report to all three, Mohidin said.
However, sending your payment information to credit bureaus only helps your credit score if you make your payments on time. Any payments that are more than 30 days past due will likely damage your credit score.
Start Shopping For A Car
Once you have been pre-approved, you can start the fun part of the processshopping for a new car.
Take the time to look for the best car available, and don’t be afraid to negotiate a lower price. When you are able to secure your own financing, you may be able to get a better price because you have leverage and aren’t depending on the dealership for financing.
When shopping for a car, you may be tempted to trade in your old car, but it will likely be more financially beneficial to sell your old car on your own and apply those funds to your new down payment. You also shouldn’t roll your current loan into your new one. This will likely cause you to go upside down on your new car, which means you’ll owe more than it’s worth.
Recommended Reading: What Are Prepaids On A Mortgage Loan
Dont Necessarily Trust What Your Loan Officer Promises
A lot of loan officers are under the pressure of a monthly quota. And they will do whatever it takes to get your business.
A few of the signs youre dealing with such a loan officer:
- High pressure sales tactics youll know it when you see it
- Cant be bothered to give you a quote without pulling credit
- If you do get a quote, theyll conveniently omit third-party fees from the list of closing costs to make themselves look cheaper
- Theyll bad mouth the competition
If something doesnt feel right, go with your instinct. Ask questions. Get answers in writing. Hold that person accountable for what they tell you, and if things change, ask why. Ill leave it at that. I vented on the subject in a previous blog post: 5 Signs You Should Ditch Your Mortgage Loan Officer!
How To Shop For Mortgage Rates In 5 Steps
Mortgage rate shopping isnt hard, and it can easily yield thousands of dollars in savings.
In fact, research from Freddie Mac shows that borrowers can save $1,500 over the life of their loan by getting just one extra quote and $3,000 or more by getting five quotes.
But you have to go about shopping for a mortgage the right way. Theres more to it than just comparing rates online. You need to be a strategic shopper and find the lowest-rate loan for your financial situation.
Heres what to do.
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New American Funding: Nmls#6606
Min. credit score
Min. down payment
New American Funding works with down payment assistance programs in 14 states, including California, Texas, Florida and Illinois.
Why we like it
Good for: borrowers who need to be evaluated on the basis of nontraditional credit and those interested in various down payment assistance programs.
Uses manual underwriting to evaluate creditworthiness, in some cases.
Offers full online mortgage application, rate quotes, document upload and loan tracking.
Min. credit score
NASB offers conventional loans for as little as 3% down.
NASB couples competitive mortgage rates and reasonable fees with a good assortment of loan options.
Offers competitive rates and origination fees.
Considers nontraditional income sources, in some cases.
Does not offer home improvement mortgages.
Doesn’t offer home equity loans and lines of credit.
Min. credit score
Ally offers conventional loans with as little as 3% down.
Why we like it
Good for: home buyers and mortgage refinancers, including jumbo borrowers, who want a digital experience with attentive customer service.
Excels in online convenience, with document upload, loan tracking and e-signatures.
Offers good rate transparency rate shoppers can see customized interest rates.
Min. credit score
Why we like it
Whats A Good Credit Score For A Mortgage
In general, a 740 credit score or higher will get you the best mortgage rate. However, there are some other benefits to having a credit score this high when youre shopping for a mortgage:
- Your private mortgage insurance cost may be lower. If you make less than a 20% down payment on a conventional loan, youll typically pay private mortgage insurance to cover the lenders investment if you default and they have to foreclose on your home. PMI premiums are lower with higher credit scores.
- You may be approved with a higher DTI ratio. Lenders measure how much total debt you have compared to your income to calculate your DTI ratio. You may be able to exceed the ratio limits in the table above if you have high credit scores.
THINGS TO KNOW
There are some simple steps you can take to boost your credit score before you start mortgage shopping.
Pay off debt 60 to 90 days before you apply. It takes a few months for debt paydowns to reflect on your credit report, so give it a few months if you recently maxed out your cards. In general, keep your total credit use at 30% or less of your total credit limit.
Add or remove yourself as an authorized user. If youre a user on a card with a high balance, getting taken off may help your scores. If you hardly have any credit history, being added as an authorized user may give your scores a nudge upward.
Recommended Reading: How Long Will Mortgage Interest Rates Stay Low
How To Shop For Mortgage Lenders And Financing Options
Securing a mortgage loan doesnt have to be challenging. In fact, with so many potential lending options available, your biggest challenge may be picking the right lender and program.
That said, a home loan remains a large financial commitment for millions of people of all backgrounds and circumstances. Its often one of the largest investments that youll make in your lifetime. Noting this, it pays to do your research before picking a lender and applying for a loan product, to make sure youre selecting the best fit for your circumstances and budget.
Ready to get started? Following the below steps can help speed you along in your research.