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Getting the Best Deal on a Mortgage

Getting the Best Deal on a Mortgage

One area that many homebuyers may overlook is earnestly shopping around for the best

mortgage loan. Buying a home is one of the largest purchases most people will make during

their lifetimes and comparing products and characteristics of a home mortgage is vital. It could

end up saving you thousands of dollars over the life of the loan and home. Below are several

criteria to keep in mind in order to get the very best deal.

CREDIT – CREDIT – CREDIT

If there’s one area of your financial life that has the greatest impact on what kind of mortgage

loan and rates you qualify for, it’s your personal credit score and history. Your credit score has a

huge impact on what kind of mortgage rate you qualify for. A low score could mean higher

interest rates and thereby higher overall mortgage payments. Tarnished credit, high

debt-to-income ratios, and a bad history of repayment could also be a red flag to your mortgage

lender.

Lenders will use your credit reports and scores as important factors in determining whether you

qualify for a loan , and what interest rate to offer you. However, it is important that you have a

good understanding of your own credit before you begin the home buying process. It’s free to

check your own score and knowing what you may find in your history ahead of a mortgage

lender could prove helpful. Your credit report contains all the information used to calculate your

credit score, a three-digit number between 300 and 850 that gives lenders an objective

assessment of your credit risk. The higher your credit score, the better.

If you do have a bad credit history or a lower-than-preferred score, it’s not too late to try to

rebuild or repair the number. While it may not happen overnight, actions like creating a budget

in order to reduce debt, keeping credit card balances low, being selective about which types of

credit cards you have, making more than required minimum payments, and paying early or

setting up auto payment could all help to improve your overall score.

SHOP – SHOP – SHOP

Once you have established a good credit score and have a better idea of what kind of mortgage

loan and rates you can qualify for, next it’s time to shop. While you may think of shopping for the

actual home as the next right step, it’s actually still further down the list of priorities.

With an accurate representation of what your credit score can mean for your home-buying

prospects, the next step is to shop for mortgage lenders, types of loans, as well as gain an

understanding of the difference between pre-qualification and pre-approval. One of the easiest

ways to compare mortgage lenders is to research online. Sites like NerdWallet can offer

unbiased input on the pros and cons of a variety of lenders as well as give side-by-side

comparisons for information like minimum credit scores and minimum down payment

percentages required.

For pre-qualification, lenders can determine how much mortgage you’ll likely qualify for and give

details for preliminary terms on a loan. This is the stage where providing details like the

purchase price of a home, estimated down payment amounts, your other monthly debts, and

how the terms of your loan (length, fixed- or adjustable-rate interest, for example) can predict

with greater accuracy what you can afford. With pre-approval, this process becomes formalized

as you begin to supply documents of proof to complete a full loan application.

Finally, now that you are armed with all of the most vital financial information, you are ready to

begin your home search. Knowing how much house you can comfortably afford and the terms of

how much your mortgage loan will cost you monthly and in the long run will prepare you for the

most informed decision possible. Keeping these steps in the proper order will allow you to

wisely and confidently buy the home of your dreams.

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