October 10th, 2017 6:59 AM by Jackie A. Graves, President
The mortgage process can be intimidating, especially to
first-time homebuyers, but it doesn't need to be. As long as you know some of
the basics about mortgages Opens
a New Window.before you start the process,
and choose a good lender to guide you through the process from the offer to
closing, getting a mortgage can be relatively painless.
With that in mind, here's what you should know before you start looking for a
lender, including how to compare different lenders and their mortgage offers.
To be clear, you don't
need to know your credit score Opens
a New Window.before you start shopping for
a mortgage lender. However, checking your score beforehand can give you an idea
of what sorts of terms mortgage lenders may offer you (more on that later)
-- and whether you're even ready for a mortgage in the first place.
Many credit card issuers
offer a free FICO score as a perk, but if you want your complete Opens
a New Window.(three-bureau) credit report,
you'll probably have to pay for it. MyFICO.com Opens
a New Window.is one popular website that
sells FICO scores from all three credit bureaus.
Certain loan programs require certain minimum credit scores.
Just to name one example, a conventional mortgage requires a minimum FICO
credit score of 620, while a low-down-payment FHA mortgage Opens
a New Window.can be obtained with a score
as low as 580. So if you check your FICO score and find that you have a 600,
you'll know to focus your search on lenders that specialize in FHA loans.
On the other end of the
spectrum, some lenders offer their own unique terms, such as 100% financing for
borrowers with excellent credit scores Opens
a New Window.. So if you know your FICO
score (and how to interpret it), you'll know which loan programs you can
realistically qualify for.
It can takes months or years to
boost your credit score significantly. However, there are some ways you may be
able to boost your score quickly Opens
a New Window., and you should consider them
before applying for a mortgage.
major distinction you should know before you begin comparing lenders is the
difference between interest rates and APR.
interest rate is simply the price you pay for borrowing money, expressed as a
percentage of the principal amount you're borrowing. As a basic example, if
you're borrowing $1,000 for one year, a 4% interest rate implies that you'll
pay $40 in interest to the lender.
On the other hand, annual percentage rate Opens
a New Window., or APR, is the total cost of
borrowing money. In addition to the interest, or finance charge, APR also includes
certain fees you'll pay to borrow the money, such as a mortgage origination fee
charged by the lender.
point is that APRs and interest rates are often slightly different, and APR is
the number you should consider when comparing lenders' offers. You may be
surprised how different the APR can be between two loans with the exact same
a final pre-shopping item, you can use national average mortgage rates along
with your credit score to get a rough idea of the APR you can realistically
expect to obtain for a mortgage.
One tool that is very useful is
the Loan Savings Calculator Opens
a New Window.provided by myFICO.com. This
breaks down the national average APRs, as well as state averages, for various
types of mortgages (30-year, 15-year, adjustable-rate, etc.) into credit tiers.
example, let's say I have a FICO score of 730 (Note: Lenders typically look at
your FICO scores from all three credit bureaus and use your middle score to
determine your rate). If I plan to get a 30-year mortgage in Florida, I can see
that the average APR obtained by other borrowers in my credit tier is 3.808% as
of Oct. 4, 2017.
addition to interest rates, there are some other to ask prospective lenders
For starters, ask how they
communicate with clients (phone, email, etc.) and how quickly you can expect
them to respond to messages. Having been through the mortgage process three
times myself Opens
a New Window., I can tell you firsthand
that it can be infuriating to have to wait several days when you ask your
lender for a status update.
can also ask about turnaround times, fees you'll be expected to pay, and how
much of a down payment they'll require. There are minimum down payments for
certain loan programs (such as 3% for a conventional mortgage), but some
lenders require more.
far the smartest thing you can do is shop around for a mortgage lender. Talk to
lenders at national banks, regional banks, credit unions, and others. Ask your
real estate professional for recommendations. And be sure to check out online
reviews, as they can tell you a great deal about each lender's reliability,
customer service, and other qualities.
doesn't just mean speaking with
a few lenders. It means taking the time to complete the pre-approval process Opens
a New Window.with at least a few lenders in
order to compare the loan terms each one offers you.
mortgage pre-approval is essentially a thorough mortgage application that
doesn't have a particular home in mind. The lender will check your credit,
verify your income and employment, and give you a firm commitment to lend a
certain amount of money at specific terms.
Finally, don't worry about your
credit suffering from completing several mortgage applications and credit
checks. There's a special provision in the FICO formula that allows for "rate-shopping" Opens
a New Window.for mortgages and auto loans.
As long as all of your applications occur within a two-week period, they will
count as a single credit inquiry for scoring purposes.
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