Home Mortgage Shopping
Mortgage Shopping – 10 Must-Know Tips
Shopping for a mortgage is a process that can save you a tremendous amount of money over the time you are in your home. Making smart choices is important to get the very best deal. Some strategies even begin before you start the mortgage process, while others will entail choices along the way. Here are ten key tips in getting the best mortgage deal:
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1. Prepare your credit in advance - How do you prepare your credit? There are actually a few things you can do to get a higher credit score besides simply making payments on your credit accounts. Ideally try and pay balances down below 50 percent of your limit. And also, don't apply for new credit lines during the months leading up to applying. It's not the end of the world if you have already done so, but in general application inquiries automatically deduct points from your credit score.
2. Get a copy of your credit report - Credit reports often have mistakes, and you may be able to improve your credit score by correcting these errors. If you don't get a copy, you will never know they exist. Better credit score means better mortgage rates. I'll include a link to get your Free Credit Report on this page.
3. Improve your debt to income ratio - Lenders see debt as the enemy. The higher amount of debt you have, the greater the lender's risk and thus higher the mortgage rate. Your total debt payments each month for all of your regular expenses should be less than 36 percent of your monthly income. If it is more, attempt to pay down your debt to reach this yardstick.
4. Keep your income stable - Incomes that vary over several months make lenders nervous, and even if you qualify well, you may receive a higher mortgage rate if your income fluctuates. Having 6 months of a stable income figure prior to applying for a mortgage is important.
5. Stay within your means - Don't over-borrow. The best step is to get pre-qualified through a lender to see how much you can actually afford. Some lenders may stretch the figure but only at the cost of a higher mortgage rate or less favorable term. Inquiring about possible rates at different levels of borrowing can help you understand your best price range.
6. Shop for the best rates - Keeping track of mortgage rates in the newspaper or on-line can help you know when it is the best time to apply for a mortgage. In comparing rates, APR (annual percentage rate) gives the best comparison figure among lenders. You may be better served through a mortgage broker who can find the best rate and term for your situation.
7. Beware of the fees - There are often numerous fees that exist from originating a mortgage loan to document preparation to appraisal costs. Be sure to get a good faith estimate to assess all of the fees outside the basic mortgage loan and its rate. All fees are negotiable, but you have to be aware of the fees first. Be sure also that all the fees are disclosed on the good faith estimate.
8. Avoid PMI if possible - PMI (private mortgage insurance) is an additional cost monthly to you if you loan more than 80 percent of the home's appraised value. Lenders see this as a risk, and an insurance premium is paid to protect their interests. If you can loan less than 80 percent, this avoids this costly expense. If not, sometimes two loans can be arranged to waive PMI. One loan is for 80 percent of the value, and the second loan the additional amount that you need. The second loan will be at a higher rate, but it may be worth it to eliminate PMI.
9. Use a mortgage broker - Mortgage brokers are agents that shop various lenders for you. In doing so, they will have access to a number of different rates and terms that could save you time and money in the process. While brokers do cost fees as well, they can help reduce other costs and fees in the negotiation process. Particularly if your credit is less than perfect, mortgage brokers may be valuable resources.
10. Negotiate with the right person! - Sometimes, lenders fees can be waived or reduced to make the deal, as can extra unnecessary charges such as credit insurance. By knowing the fees, you can negotiate better. Likewise, letting more than one lender compete for your business can be to your advantage. The thing to be careful of is negotiating with someone who just tells you yes, yes, yes without asking the right questions to make sure you qualify for what you are negotiating.
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By using these important tips, you can secure the best mortgage rate possible. In today’s real estate market, buyers are in high demand. Lenders will indeed compete for your business. Put yourself in the best position to get a great mortgage rate, and then let the lenders compete. Whether this is on your own, or through a mortgage broker, healthy competition can secure the best mortgage for you.
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