Buying a home is a huge financial decision for anyone with an average income, because most homes have to be financed with a mortgage. To identify the right mortgage, you’ll need to do your research before you start applying and signing on the dotted line. If you’re planning to purchase a house for the first time, then you are probably new to the process of shopping for the right mortgage. Traditionally, first-time home buyers prefer getting a mortgage from a local bank or getting a personal recommendation for a mortgage broker from their real estate agent or a friend. When shopping for mortgages, gather and compare mortgage quotes from different lenders. Then classify the quotes you receive based on what matters most to you. You should figure out what you can actually afford and create a realistic budget.
Looking for a Mortgage? Here’s How You Should Shop!
To successfully shop for a mortgage, ask yourself the following questions:
- How much money you have saved for a down payment? Do you plan to spend it all?
- What’s your actual price range?
- Have you thought about all the extra costs associated with buying a house? You will have to pay utility bills, property taxes, and the cost of upkeep.
- Have you planned any lifestyle changes in the future that could affect your household budget, like children or profession changes?
Below are some ideas you can use to get a mortgage that’s right for you:
First, know what you need from your mortgage. Pay attention to small details when it comes to choosing a mortgage and contacting a lender.
Down Payment: Find out the minimum down payment you will need to make. Remember, making a larger down payment means you’ll pay less interest.
Mortgage Payments: How many payments you can afford to make?
Mortgage type: Open mortgages let you make extra payments whenever you want to, while closed mortgages don’t.
Amortization Period: This is the time it will take to pay off your mortgage.
Mortgage term: This refers to the length of time your mortgage is in effect.
Interest Rates: What will suit you best, a fixed or variable interest rate?
Payment frequency: How often can you make a mortgage payment?
The second thing you need to do is look around for a lender who’s the right fit for your needs.
Credit report and score
Get a copy of both your report and your credit score. If your score is too low for you to be approved, you need to improve it before you try to buy a home.
The preapproval process
Have a discussion with your potential lender about what the maximum amount of money they can lend you is and what interest rate they can offer. However, be aware that your potential lender will verify and approve the house you want to purchase, because your house will serve as the collateral for the loan. If the house you’ve selected doesn’t meet your lender’s standards, your application will be denied.
Who can pre-approve you?
You can be pre-approved by any legitimate mortgage lender. All lenders have different standards and can offer different interest rates, so talk to more than one lender. This will help you compare lenders and find the mortgage that is best for you. Find a lender you can comfortably work with.
Qualifying for a mortgage
Your lender will consider both your income and your debts when approving your mortgage. Your lender will look at your gross debt service ratio and total debt service ratio in order to decide how much they can lend you.
Look at all the other costs
Apart from the actual price of the home and the down payment that you need to make, there are several other costs that you should look at before you decide to buy a house.
Closing costs need to be paid up front before you move into your new home, so you should have money in your hand to cover this. The following are examples of some of the closing costs you might have to pay: Notary fees, land registration, property purchase fees, a mortgage default insurance premium, appraisal fee, home inspection fee, and so on.
On the whole, take your time, have patience, and be detail-oriented. Go to different lenders and get all the details of their loans, from the major differences to the minute, hidden details that may be buried in the fine print. Then compare them again, taking time to decide whether to accept a lender’s offer. Speak to people who have gone through this before, and only look at homes you are sure you can afford to pay for.