Once you are ready to buy your first home, getting a mortgage will be one of your top priorities. Sometimes getting a mortgage can be daunting.
But this doesn’t need to be the case. If you take the proper steps, you’ll get a home loan you’ll love.
We will look at how to get a home mortgage with lower interest rates to make ownership a more straightforward process.
Check your credit report
When you apply to a lender, they will check your credit report, so you should check this in advance too. There could be errors in your credit report that hurt your chances of getting an outstanding mortgage.
To get the best mortgage rate, you need a good credit score, and if there are mistakes in your report, this could be holding you back. If you find errors, contact the credit bureau to get them sorted out.
If you regularly check your credit score and reports, you can monitor your progress in improving your creditworthiness.
If something unexpectedly changes, it could indicate that you have been the victim of identity fraud. If you regularly monitor your credit, it won’t harm you as much as it otherwise could.
Increasing your credit score to purchase a home should be a significant goal.
Do some research
While it isn’t exactly fun, researching home loans will help you find a better mortgage. You will pay a lot of money over the course of the mortgage in interest to the lender, so doing research is a valuable use of your time as large sums of money are involved.
Have reasonable expectations
While you might want a mortgage with the lowest interest rate, this might not be possible. If the lender requires that you have a 20% down payment to be approved for the lower rate, and you only have 10%, don’t base your decisions on getting this mortgage.
This might mean that you have to lower your expectations about what you can afford. It could mean a smaller home or not in your ideal neighborhood. The upside is you’ll have a more affordable home that is less likely to stretch your finances to breaking point.
Choosing the right type of mortgage
Understanding which home loan is best will be a crucial consideration.
Do you want an adjustable rate or a fixed-rate mortgage? The adjustable rate, or ARM, has a fixed introductory period with a normally lower interest rate. After this, the interest can increase and change your monthly mortgage payments.
A fixed-rate mortgage can be better if you expect interest rates to increase. If you lock in a lower rate, you could save a lot when interest rates rise.
You also need to decide the payback term for the mortgage. A 15-year mortgage will have higher monthly premiums than a 30-year one, but you will pay less overall interest.
Increasing your down payment
The more money you have for a down payment, the better the terms you are likely to be offered. While it is possible to buy a home with zero down in some situations, or 3.5% in others, it isn’t the best option.
Having a larger down payment means you will pay less interest on the loan and have less or no private mortgage insurance to pay. This results in smaller monthly mortgage payments and the ability to afford a more expensive property.
Watch out for payment penalties
Paying more each month will reduce the time it takes to pay your mortgage and the amount of interest. However, on rare occasions, some lenders include pre-payment penalties if you try to become mortgage-free sooner.
Check the home loan terms to see if a penalty like this will apply.
Be careful about mortgage applications
When you apply for a mortgage, the lender will make a hard inquiry on your credit report. This will negatively affect your credit score temporarily.
If you want to compare mortgages, you might want to apply to a few different lenders. This could reduce your credit score and make getting a mortgage more complicated and costly. However, if you apply to multiple lenders over two weeks, this will only count as a single hard inquiry on your report.
Is buying a home right now your best option?
While you might really want to purchase a home, you could be better off waiting. Buying now might mean you stretch your finances in a way you could regret later on.
But if you wait, your circumstances could improve and allow you the opportunity to save for a larger down payment.
Think over your options carefully before making a final decision.