Choose The Right Mortgage
Once you have your credit and savings in place and a good idea of what you can afford, its time to start searching for a lender, comparing interest rates and terms and finding the right kind of mortgage for your situation.
The main types of mortgages include:
- Conventional loans These are best for homebuyers with solid credit and a decent down payment saved up. Theyre available at most banks and through many independent mortgage lenders.
- Government-insured loans These can be great options for qualified borrowers who may otherwise struggle to buy a home. Government-insured loans are widely available through many institutions, but are targeted at borrowers with less-than-stellar credit. USDA loans have some geographical restrictions, and VA loans can only go to members of the military, veterans or their spouses.
- Jumbo loans These are for the big spenders out there. Conventional loans have a maximum allowable value, and if you need to finance more than that , youll need to get a jumbo loan.
A first-time homebuyer, for instance, might consider an FHA loan, which requires a minimum credit score of 500 with a 10 percent down payment or a minimum score of 580 with as little as 3.5 percent down.
to determine the right time to strike on your mortgage with our daily rate trends.
Make An Extra Payment Every Year
One of the simplest ways to pay off your mortgage faster is to add a single payment each year. If youre on a monthly schedule, simply make a thirteenth payment at the end of the year thats equal to your other monthly payments.
To achieve this, you dont need to come up with a lump sum. Just put aside one-twelfth of a payment each month, so youll have the money ready come the year-end.
If a full extra payment isnt feasible for you, remember that every penny counts. Even if you set aside a few extra dollars each month to apply as an extra payment at the end of the year, it will still help save you money in the long run.
Heres an example to illustrate the importance of extra annual payments:
- You start with a $200,000 mortgage and a 4.5% interest rate.
- For the first five years, you make the minimum payment because you just bought a house and things are tight.
- After five years, your budget is more relaxed, and you start making the additional payment each year.
Get A Decision In Principle
Before you apply, you should make sure that:
- you’re a UK resident
- you’re aged 18 or over
- you’re not looking for a buy-to-let mortgage
- your income is only received in GBP
- the mortgage is for your main residence and you’re not looking to borrow more for your current property
- you’re not a member of the armed forces
- you’re not purchasing through a government scheme, such as Help to Buy
Spring Clean Your Expenses
If you want to be approved for a loan, Ms Mitchell says you need to rein in your spending.
Most lenders will want to see three months worth of living expenses, so its a good idea to critically assess your expenses six months prior to applying for a home loan and rectify any spending habits you feel are atypical, or could hinder your chances of being approved for a loan.
Yep, it turns out all those coffee and Afterpay purchases could be seriously hurting your chances of being approved for a loan, so work on cutting down on any unnecessary spending.
Catch public transport instead of an Uber, start shopping at Aldi and curb the mindless online shopping.
Mortgage Company Advantages And Disadvantages
There are some specific advantages to using a mortgage company for your loan. First, they probably have access to a wider range of loan products than a full service bank. Banks structure their own loan programs within guidelines set by Fannie Mae, Freddie Mac, FHA and VA. But if your situation does not fit within their criteria, they will decline your loan.
Mortgage companies sell the servicing. This way, they have access to loan programs that are structured and offered by a variety of loan servicers, usually big national banks. Unlike a mortgage broker, the mortgage company still closes and funds the loan directly. Because these companies only service mortgage loans, they can streamline their process much better than a bank. This is a great advantage, meaning your loan can close quicker.
In a competitive real estate environment, the ability to close a loan on time is vital. The other advantage to fast closings is that rates and fees are cheaper for shorter rate lock terms.
You should note that your mortgage lender may sell your loan to another institution after closing. If this happens to you, dont worry. The loan documents you signed with your original lender are legally binding for the life of the loan. A loan servicer cannot change the interest rate, fees or any other aspect of the loan.
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How To Get A Mortgage
By Romana King on July 24, 2015
You can get a mortgage if you’re self-employed, got a poor credit history, or if you own more than three rental properties
If youre a credit-worthy employee at a Fortune 500 company and dont have much debt, the mortgage world is your oyster. Banks knock on your door looking to give you the best rates, most advantageous terms and any other perks they can use to get your business. Youre an A-lister. A borrower with impeccable credentials.
But what if you dont quite fit that mould? It doesnt mean youre out of luck, it just means you have to learn how to work the system in your favour.
To help you, Ive compiled a list of some of the most common B-class borrower hurdles and the best ways to minimize the risks and get better mortgage rates and terms.
Choose The Right Mortgage Type
A loan officer reviews your mortgage application to see if it meets the home loan requirements of a number of different programs. The table below describes the benefits of some of the most common loan types:
- Conventional loans follow guidelines set by government-sponsored enterprises Fannie Mae and Freddie Mac.
- FHA loans are insured by the Federal Housing Administration.
- VA loans are guaranteed by the U.S. Department of Veterans Affairs.
- USDA loans are backed by the U.S. Department of Agriculture to finance homes in USDA-eligible rural areas
Also Check: What To Look Out For With Mortgage Lenders
Learn More About Home Loans
We think it’s important for you to understand how we make money. It’s pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.
Compensation may factor into how and where products appear on our platform . But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That’s why we provide features like your Approval Odds and savings estimates.
Of course, the offers on our platform don’t represent all financial products out there, but our goal is to show you as many great options as we can.
How To Get A Mortgage In Principle
Getting a mortgage in principle is relatively simple and requires just a few key pieces of information about you and your personal circumstances. You will likely need to provide:
Your name and date of birth
Three years of address history
Your monthly expenses
You will not need to provide evidence or supporting documentation at this stage, however, you will need to do so if and when you apply for a mortgage.
Also Check: What Required To Refinance A Mortgage
Find A Mortgage Lender
Once you have your financial ducks in a row, its time to find a mortgage lender. Its important to shop around for multiple offers to make sure youre getting the best possible deal, not just the lowest interest rate. When youre looking around, make sure you pay attention to all the fees and other conditions of every offer.
To find the right lender, speak with friends, family members and your agent and ask for referrals, advises Guy Silas, branch manager for the Rockville, Maryland office of Embrace Home Loans. Also, look on rating sites, perform internet research and invest the time to truly read consumer reviews on lenders.
decision should be based on more than simply price and interest rate, says Silas. You will rely heavily on your lender for accurate preapproval information, assistance with your agent in contract negotiations and trusted advice.
Remember that interest rates, fees and terms can vary substantially from lender to lender.
Thats why its important to shop around carefully and ask questions, Woroch says.
For many borrowers, applying for a mortgage is overwhelming. If youre not sure exactly what to look for, you may want to work with a mortgage broker. A broker can help you navigate all the different loan options available to you and might be able to secure you more favorable loan terms than youd be able to get by applying on your own.
Im Actively Shopping For A New Home
If a move is in your near future, these are the two most important things you should do first. Theyll put you in the hands of experts who help people like you become a homeowner for the first time every day.
First, get approved for a loan. Doing this before looking at houses helps you a lot. Here are some of the benefits:
- Youll get an approval letter that shows real estate agents and sellers youre able to afford a house.
- Youll find out how much house you can afford.
- It makes the rest of the mortgage process smoother and easier.
Next, find a real estate agent. After you apply and get approved, choose a real estate agent. Theyre another great source of experience and knowledge when it comes to how to buy a home. You can expect your agent to do these things:
- Help you find the right house in the right place at the right price.
- Manage paperwork.
- Negotiate with sellers.
With an approval letter and listings from your agent, youll be ready to start hitting those open houses.
Recommended Reading: What Can I Do To Lower My Mortgage Payments
Prepare For Your Closing
Once your lender is ready to finalize your loan, you’ll be given a closing packet full of loan documents. Be sure to review that information carefully, as it will spell out the terms of your loan and outline the payments and costs you’ll be responsible for. You’ll also need to decide if you’re rolling your closing costs into your mortgage or paying them up front. Usually, you’ll get the option to pay those costs off over time rather than having to bring extra money to your closing. Once that’s all set, you’re ready to close. You’ll sign a hefty stack of paperwork and your mortgage will be in place.
Getting a mortgage can be a daunting prospect, but it doesn’t have to be. The key is to know what to anticipate and be patient, since the process can be time consuming. If you’re applying for your first mortgage, check out this list of the best mortgage lenders for first-time home buyers. Working with the right lenders could make the process go more smoothly.
In Fact Put All Your Extra Money Toward Your Mortgage
The same principle holds true for any extra money you have while youre still paying off your mortgage. Whether youve got extra money from a raise, bonus, gift, tax return, inheritance, or even a lucrative night at bingo, put it toward the mortgage and get it paid off faster.
Michael Saves is a finance blogger who started writing about savings after paying off his $86,000 mortgage in just two years. A big part of his strategy was working more so hed have more money to put toward the mortgage.
First, I made a commitment to work 10 extra hours per week, so 50 hours total. In addition to volunteering for overtime at my full-time job, I waited tables on the weekends and took care of pets around the holidays, he says.
He also used apps like Mint to track his spending and make sure that he wasnt wasting too much money in other areas.
On top of scrimping and saving as much as he could, another big part of his approach was making sure every penny went to the mortgage: Any extra money that came my way went to the mortgage, including work bonuses, birthday cash and credit card rewards, he says.
Also Check: Can You Take Out Two Mortgages
Check Your Credit Score
Most lenders will run a credit check to determine how likely you are to repay your loan. While some online lenders have started to look at alternative credit data, they will still typically look at your credit score.
If your credit score is lower than you expected, get a copy of your credit report from AnnualCreditReport.com to see if there are any errors. Through his website, you can receive a free copy of your credit report from all three credit bureaus every 12 months. If you find mistakes, contact the major credit reporting agencies to get them corrected.
If your credit score is low for other reasons, you may still have a chance to get a loan. But the interest rates and fees may be too high to make it worth it, so take steps to improve your credit before applying.
Takeaway: The better your credit score, the more likely you are to get approved for a loan and the lower your interest rate could be.
Next steps:Check your credit score and history. If your score is lower than the qualification requirements, work on improving it.
Decide What Type Of Loan You Want
Youll need to evaluate your options to decide which type of mortgage loan would best suit your needs. A few things to keep in mind include:
Conventional vs. government-backed. There are two main types of mortgage loans. The first is a conventional mortgage, which means its provided by a private bank, credit union or online lender. These loans tend to have fairly strict eligibility requirements and higher down payments.
If your credit isnt in great shape and/or you havent saved up much for a down payment, you may still be able to buy a home through a government-backed mortgage such as an FHA loan or VA loan. These loans are still borrowed through individual lenders, but the funds are insured by the federal government. This makes these loans much less risky to the banks providing them, allowing you to secure more flexible terms.
Fixed vs. variable interest rate. Another big consideration is choosing between an interest rate thats fixed for the entire term of your loan or one that can vary. Fixed-rate loans are generally a safe bet, as you know exactly how much your mortgage payment will be each month. Variable rates tend to be less expensive in the first few years of the loans. However, the rate will reset one or multiple times throughout the loan term according to the current market. That means your interest rate could increase in the future, causing your mortgage payments to become unaffordable.
Select The Right Offer
Once you’ve filled out those mortgage applications and hear back from lenders, you’ll need to decide which lender to work with. When comparing your choices, don’t just automatically go with the lender that offers the lowest interest rate. Pay attention to closing costs, too. Closing costs are the fees you’ll pay to finalize a home loan, and they can vary by lender. It could be that one lender offers a lower interest rate on your mortgage but much higher closing costs than another.
How To Applyfor A Mortgage
Applying for a mortgage is pretty straightforward.
Youll choose a lender, start the application , and provide supporting documents like tax returns and bank statements to verify your finances.
After that, its mostly a waiting game. Underwriters will check your credit and documentation, then decide whether to approve you. If everything checks out, youll set a date to close the loan usually within 30-40 days.
The most important thing is to apply with more than one lender. You should apply with at least 3-5 mortgage companies to make sure youre getting the best deal.
Luckily, many lenders now offeronline applications, so the process is much faster and simpler than it used tobe.
Recommended Reading: How Do I Qualify For A Mortgage With Bad Credit
Open And Closed Mortgages
There are a few differences between open and closed mortgages. The main difference is the flexibility you have in making extra payments or paying off your mortgage completely.
The interest rate is usually higher than on a closed mortgage with a comparable term length. It allows more flexibility if you plan on putting extra money toward your mortgage.
An open mortgage may be a good choice for you if you:
- plan to pay off your mortgage soon
- plan to sell your home in the near future
- think you may have extra money to put toward your mortgage from time to time
The interest rate is usually lower than on an open mortgage with a comparable term length.
Closed term mortgages usually limit the amount of extra money you can put toward your mortgage each year. Your lender calls this a prepayment privilege and it is included in your mortgage contract. Not all closed mortgages allow prepayment privileges. They vary from lender to lender.
A closed mortgage may be a good choice for you if:
- you plan to keep your home for the rest of your loans term
- the prepayment privileges provide enough flexibility for the prepayments you expect to make