Buying a home can be a fun and exciting experience. But finding the right home is just one step in the process. Choosing the right home loan can be just as important. Here are some tips to help make finding the right home loan as easy as possible.
Tip #1 – Start saving for a down payment
Depending on your lender and the type of loan you choose, your required down payment can range from 2.25% to 20% of the purchase price of the home. Establishing a monthly budget will help you put away enough money for your down payment.
Once you’ve assessed what your budget will support, consider having money automatically deposited from your paycheck or bank account to a savings account to make it easier and more convenient to put aside money each month. An account like Discover Bank’s AutoSavers Plan can help you start saving today.
If you won’t be able to come up with a large down payment, then you should look into an FHA loan, which helps home buyers who can only make a small down payment.
Tip #2 – Check your credit score
Having a good credit score puts you in a position to attract the best deal on your home loan. So it’s a good idea to obtain a copy of your credit report before starting the home buying process. You will see what your credit profile looks like to potential lenders and can then take steps to improve your credit score if necessary.
You can receive one free copy of your credit report each year from each of the three major credit reporting agencies – Equifax, Experian, and TransUnion – by visiting www.annualcreditreport.com. If you pay a small fee to the reporting agency, the credit report you receive will also include your credit score.
Tip #3 – Get your financial documents in order
When you apply for a mortgage, you will need to provide your lender with a number of financial documents. Having these documents already assembled will help accelerate the processing of your loan application. At a minimum, you should be prepared to provide your last two pay stubs, your most recent W-2, your last two years of tax returns, and current bank and brokerage statements.
Tip #4 – Utilize a mortgage calculator
Mortgage calculators are great tools for helping you understand how much home you can afford. They are very easy to use and can show you how much your monthly mortgage payment would be under different home price, down payment and interest rate scenarios. Check out a variety of our handy mortgage calculators.
Tip #5 – Learn how to compare offers
All mortgages are not created equal. Even if loans have the same interest rate, there could be differences in the points and fees that make one offer more expensive than another. It’s important to understand all of the components that go into determining the price of your mortgage, so you can accurately compare the offers being made. You can click here for a good explanation of the components of mortgage pricing.
Tip #6 – Start tracking interest rates
The interest rate will be one of the biggest factors in determining the cost of your mortgage. Interest rates for mortgages change almost every day and it is helpful to know which way they are heading.
Tip #7 – Get pre-qualified
Many real estate agents want you to be pre-qualified for a loan before they will start to work with you. The mortgage pre-qualification process is fairly simple, usually just requiring some financial information such as your income and the amount of savings and investments you have. Once you are pre-qualified, you will have a better sense of how much you can borrow and the price range of the homes you can afford.
Tip #8 – Understand the various loan options
Maybe your parents had a 30-year fixed-rate loan. Maybe your best friend has an adjustable-rate loan. That doesn’t mean that either of those loans are the right loan for you. Some people might like the predictability of a fixed-rate loan, while others might prefer the lower initial payments of an adjustable-rate loan. Every home buyer has their own unique financial situation and it’s important to understand which type of loan best suits your needs.
Tip #9 – Be prompt in responding to your lender
After you have applied for a home loan, it is important to respond promptly to any requests for additional information from your lender and to return your paperwork as quickly as possible. Waiting too long to respond could cause a delay in closing your loan, which could create a problem with the home you want to buy. Don’t put yourself in a position where you could end up losing your dream home, as well as any deposit you may have put down.
Tip # 10 – Don’t mess up your credit during the loan processing
It’s not uncommon for lenders to pull your credit report a second time to see if anything has changed before your loan closes. Be careful not to do anything that would bring down your credit score while your loan is being processed. So, pay all of your bills on time, don’t apply for any new credit cards, and don’t take out any new car loans until your home loan has closed.