September 26th, 2014 7:43 AM by Jackie A. Graves, President
Snagging a great loan and setting yourself up for a smooth trip on
the home buying journey doesn’t happen by accident.
As with most big decisions, you have to take small steps to start.
When you’re looking for a mortgage, here are six smart tips to get
you started on the right track.
Tip #1: Budget Wisely
Knowing the type of home and mortgage you can afford is all about
budgeting. Search around for the kind of home you want in your area and compare
prices to get a ballpark figure. Figure out the following for creating your
Estimated cost of living expenses
Amount saved for a down payment
Then head on over to realtor.com®’s
online mortgage calculator to get a feel for how much your
monthly payments might be. Tinker with the interest rate a little bit to see
how that can change and compare to the money you pull in each month.
To avoid a cash crunch, your mortgage
payment shouldn’t exceed 43% of your monthly income.
Tip #2: Decide on a Mortgage Type
The type of home you want and any assistance you need will decide
what type of loanyou’re eligible
for. As an example, do you meet any of the following qualifications?
A military veteran? Consider a Department of Veterans Affairs (VA)
A first time homebuyer with good credit?
Consider a first-time
homebuyer loan via the Federal Housing Authority (FHA). FHA
loans require only a 3.5% down payment and typically come with good interest
Looking for a mansion? For really expensive
homes—you might want a jumbo
Tip #3: Mortgage Broker or Lender?
There are two ways to find a loan: dealing directly with the lender or
seeking some help from a mortgage broker.
If you go the solo route, you have to do all the legwork and shop for a
loan—which includes going from lender to lender, comparing interest rates and
other loan terms.
If you enlist a mortgage broker, they do the legwork and will work
with you to figure out which loan best fits your needs. But they typically
charge 1% to 2% of the loan amount.
If you’re into research and tracking down information, by all means
go solo. However, if the process seems too daunting or confusing, you might
want to find a good mortgage broker.
Tip #4: Check Your Credit
Now’s the time to check your credit report for blemishes.
If you see something that
doesn’t look right, ask to have it removed.
By law, you can obtain one free credit report from each credit report
company—TransUnion, Equifax and Experian—per year. Go to annualcreditreport.com to
Tip #5: Get Your Paperwork Together
Your finances will be under the microscope, so make sure you have
everything you need to back up the numbers.
Have you opened a bank account in the past six months? Have been gifted
any money recently? Be prepared to tell the lender why.
Gather up these documents:
Two forms of government identification
Two years of tax returns
Two years of income statements
Proof of all assets
This isn’t an exhaustive list, but getting your
mortgage paperwork right the first time is a huge win in the
process to secure a mortgage for the home of your dreams.
Tip #6: Get Pre-Approved
While a pre-approval won’t guarantee you a loan, consider it a diploma
of the mortgage process.
pre-approval, the lender will do a credit check and go over your
income statements to determine your financial capability.
It’s recommended to go to at least three lenders to ensure you get the
best deal possible.
By: Craig Donofrio | Updated from an earlier version by Laura
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