Mortage

15 Useful Tips to Assist Buyers Get the Best Mortgage Deals

15 Useful Tips to Assist Buyers Get the Best Mortgage Deals 10.07.2019Leave a comment
15 Golden Tips to Assist Buyers Get the Best Mortgage Deals

Purchasing a house rank highest amongst most Americans. There are various ways that one can use to buy a house, and mortgage loans remain the most common. Acquiring a mortgage can be an involving process which many people have not yet understood fully.

Buying a house requires meticulous planning, which usually isn’t the case as most people buy a home due to reduced prices or falling interest rates. Most people think the process is similar to obtaining a car loan which leaves them dejected if the loan is rejected.

In July 2019, data collected in the United States showed that most houses average cost is $189,300.

Such figures make it hard for most people to buy homes, forcing them to look for alternatives such as mortgages.  Just like any other product, there are terms and conditions when it comes to acquiring a mortgage, and people should take their time to understand them. The terms determine the amount to be paid and duration it will take to repay the money. However, the money should be repaid as soon as possible to reduce the interest amounts.

Credit Score

Getting a credit report and checking the score is a very straightforward process. To be in a position to adequately plan on the purchase, the buyer must check their credit history. The importance of a report cannot be overlooked by any potential buyer who might be angling to use a mortgage loan. Lenders use the report to decide whether to extend the loan or not by weighing the chances of a person defaulting. The higher the score, the higher the chances of obtaining a mortgage.

Credit Score from Credit Karma
Credit Score from Credit Karma

It is a common practice to see lenders using customers’ credit information to decide the terms to use when giving the mortgage.

A credit score of 680 is the cutoff point when it comes to determining who should be financed. A lower score means the chance of getting the loan are slim. An individual should regularly check their credit report and take the necessary steps towards improving it.

In case of a low credit score, one should start paying the bills on time, eliminate balances, and also try to carry less than 30% of the limit available.

Down Payment

When it comes to getting mortgage loans, people should understand that the requirements always change. For instance, lenders previously used to fund borrowers who did not have money to make a down payment, unlike today when a person can only obtain a mortgage if they have funds to make a down payment. As such, in the interest of getting a mortgage loan, every potential buyer should make a point of having a substantial amount to pay the required down payment.

No law regulates the minimum to be paid as a down payment. However, this is dependent on the terms of the lending institutions and the type of loan that the borrower is looking to obtain. Despite the differing conditions, almost all lenders require a person to make a down payment of 3.5% of the total value of the property.

Making a substantial initial payment helps reduce the balance and the interest to be paid as well as help alleviate PMI. This type of insurance is attached to properties with equity of less than 20%. PMI lead to higher interests paid; thus, borrowers should strive to make the payments affordable by raising the down payment to beyond 20%.

Down payment for Mortgage
Down payment for Mortgage

Employment Record

It is of utmost importance to show consistency both in earnings and employment when it comes to mortgage loans application. As such, it is recommended that a person should try to remain with their employer to enhance the chances of loan approval. Any form of change be it in employment or income can disrupt the process or have it stopped entirely.

This is because lenders keep referring to the information provided by the borrowers to determine whether to approve or decline the application.

Hence, quitting to be self-employed or taking a job that is paying less derails the process as lenders have to reevaluate the finances again.

Pre-Approval

Obtaining a pre-approved for a loan before starting a house search is beneficial to the buyer. It helps the buyer be in control of their spending as there is a limit to the much one can spend. This helps the buyer only to shortlist houses that are within their budget.

Pre Approved Mortgage Letter
Pre Approved Mortgage Letter

The pre-approval process is rather straightforward. It involves the buyer contacting a lender, submitting their supporting information, and after that, the buyer awaits the response after an evaluation is completed. Afterward, an approval letter is printed and funds released once the seller accepts the offer.

Adjustable-Rate Mortgage

When it comes to home buying, the buyer should look for an alternative as the conventional 30-year fixed mortgage does not represent the best financial option. Instead, a buyer should consider locking the rate for a short period, which might be more beneficial to them.

It is an alternative that people should consider as a short time fix as interest tend to increase after the lock period is over. In most cases, buyers choose products that have a lock period of between 3-10 years. The product might be suitable for people who might be looking to purchase another property soon. ARM loans should prove to be better compared to fixed long-term mortgage loans.

Buy what you Can Afford

It is a common practice to see lenders pre-approving customers beyond what they can afford. However, one should not allow lenders ‘generosity’ dictate the amount of money one spends on a loan, but instead, they should buy a property that is within their budget. When determining pre-approvals lenders use the information provided without factoring in other expenses. As such, it is best for the buyer to consider their other expenses to avoid scenarios where they might stretch themselves too thin as this increases their chances of missing a loan payment.

Evaluate the Lender

The current business setup presents borrowers with numerous mortgage lenders that they can use. Nowadays, one can choose to borrow from either banks (retail or local), credit union, or online lenders. Hence, one should take time and decide on the best lender, depending on the terms being offered.

Local Banks

For these institutions, they offer similar loan products to the other larger banking institutions. However, some factors, such as one-on-one experience and their decision making, makes them among the best lenders. Also, they are less rigid compared to other institutions. Despite the many positive factors, their loan options are limited due to inadequate capital.

Retail Banks

Most of these institutions close a vast number of mortgages in a year, thus guarantying their credibility. They have more varieties compared to local banks. However, an application might take time before it is processed given the number of pending applications.

Online Lenders

They have the lowest rates among all lenders. The low prices are as a result of the ability to pass on the savings due to lack of costs that come with having a physical location. However, they lack the personal support that is needed by most borrowers, and the chances of losing to dubious traders are quite high.

Credit Unions

They offer lower mortgage rates compared to commercial lenders. However, they only provide highly qualified individuals, and a person must be one of their members.

According to CFBP, half of the borrowers don’t take their time to evaluate the available lenders before applying for a mortgage. Slight changes in mortgage terms can prove to be costly; thus, the need to use the best lender.

Prepare Documents

Mortgage application involves a lot of paperwork, which makes the process to be rather involving. However, having recent documents goes a long way in saving time. The documents are used by the lenders to do a background check on their customers. To make the process smoother, it requires a borrower to have a recent letter from the bank, a current passport or green card, and a driving license with the current address indicated. For the employed individuals, one has to provide three months bank statement alongside W2’s for the past two years.

Your documentation checklist
Your documentation checklist

 

Seek Referrals

Through referrals, family members, colleagues, and friends might provide useful information on the best mortgage lenders. A person should be clear on what they are looking and the much they are willing to spend. This should help eliminate some lenders, thus focusing on the ones whose services best suit your needs. Additionally, one should strive to negotiate better terms using the information gathered. The secret to enjoying the buying experience is to work with a reliable lender.

Using a Broker

Brokers are intermediaries whose work is to connect borrowers to mortgage lenders. With the right information at their disposal, they can assist a borrower in getting the best mortgage before they apply. Brokers are useful to people who are looking to save both on time and energy. In most cases, they help in doing mortgage research on your behalf. Their services are usually free as the financial institutions pay them a commission for any new client brought. To have the best broker, one should make sure that their level of support is in line with the borrower’s needs.

Avoid Big Purchases

During application, a person should refrain from making big purchases as they often jeopardize the entire process. For instance, one should not acquire a car or any other substantial investment beyond the regular monthly expenses. The lender keeps referring to the credit score during the process, and a borrower’s eligibility might be affected by any new debts forcing it to be stopped.

Use Reputable Lenders

When planning to apply for a mortgage loan, vetting is one of the fundamental steps to be taken. Vetting helps the borrower to recognize genuine lenders, thus safeguarding themselves from predatory lending.

For example, one could use the information available at NAMB (National Association of Mortgage Broker) to decide on the broker to use depending on how they are rated.

Also, one can vet how the lender handles customer complaints by using information from the Better Business Bureau. Finally, by visiting licensing associations, one can tell whether a lender is registered and how they conduct their business within the state.

Avoid Unusual Property

Mortgage lenders view everything from a business perspective, and they try to avoid risky scenarios. Therefore, they can only offer to assist a person make a purchase using mortgage if only they are guaranteed of their back even in cases of defaulting the payments. For instance, lenders would shy away from financing a property that would prove challenging to sell due to its location or condition. Hence, properties in such categories should be avoided if one expects to benefit from mortgage loans. Such properties include flats above commercial premises, and old buildings build using low-quality construction materials.

Have Extra Cash

At all times, lenders go for low-risk clients to increase their chances of getting the money back. Having money in the bank account that can be used to make the monthly payments for several months can boost your chances. Depleting one’s savings should be highly avoided as it might put off the lenders. A high reserve works best for all parties involved as it is usually considered a compensating factor that could be used to make up for flawed credit.

Electoral Register

A credit score can be affected by many factors, some of which are dependent on the lenders. However, some steps can be taken to increase the amount of credit one can obtain. Having an updated address and being on the electoral roll certainly enhances the chances of accessing mortgage loans. Lenders use the electoral roll to verify the identity of the borrower. When a person is registered, it sends a positive sign to the lenders that the borrower is not a fraud. Also, the information on the register is used when a person wants a credit card or mobile phone contract. As such, any person that is looking to get a mortgage must register if they are to stand any chance of obtaining a mortgage.

 

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