It’s been said that a house is one of the wisest investments you can ever make. After all, not only does it provide shelter for your family, its value also increases over the years.
But if you’re like most people, you need to take out a mortgage first before you can invest in a home. Luckily, we prepared this handy guide to help you qualify for and select the best loan:
Work on your credit scores
Before you look for a mortgage, make sure to take a look at your credit score first. You’ll need at least 660 to qualify for most mortgages, but a score of 760 will net you the best interest rates possible. Experian, Equifax, and Transunion all provide one free credit report per year, so request one to know your current standing. You can boost your credit score by paying off outstanding debt and making timely payments on bills.
Know thy budget
Deciding on a budget is critical because it dictates a lot of factors, including the size, location, and features of your home. As a rule of thumb, your housing costs should not exceed 30% of your gross monthly income. This 30% should include not just the mortgage itself, but also expenses such as home insurance, maintenance costs, and other related payments.
A crucial step is getting pre-approved by a lender. In pre-approval, a lender verifies your credit, financial, and employment records. After evaluating all these, they will give a ballpark estimate of how much money you are qualified to borrow. Note that sellers tend to prioritize pre-approved buyers. They are deemed to be more financially capable of going through with the sale.
Choose a mortgage
There are a lot of mortgage options to choose from, and it’s up to you to decide which is best for you. Government-backed loans, such as those granted by the Federal Housing Authority, have lower credit score and down payment requirements. These factors make them ideal for first-home buyers. You can also get conventional loans from banks, credit unions, and other mortgage lenders, though approval requirements may be stricter.
Know the terms
First of all, know the interest rate on your loan— even a difference of 1% can cost you thousands of dollars more over the life of a mortgage.
You also need to know the duration of the loan, which typically lasts 10, 20, or 30 years. If you choose a shorter loan tenor, your monthly payments will be bigger but you’ll pay less in interest overall; the opposite is true for longer-term loans.
Fixed or variable
Lastly, decide whether you want a fixed-rate or adjustable rate mortgage. With the former, the rate remains the same throughout the loan’s tenor. In the latter, the interest rate goes up or down depending on the real estate market’s performance.
Indeed, securing a mortgage is one of the biggest hurdles you have to clear on your way to homeownership. If you need additional guidance on this step, allow me to provide you with expert advice and to link you with reputable mortgage lenders. I’m your trusted Realtor, Matthew Curry, and you can call me at 970-889-0307 or send an e-mail to matt(at)welcometonoco(dotted)com.