Securing the Best Mortgage Loan for You

Erasing words mortgage in house outlineThinking of jumping into the mortgage market? Not so fast. If you aren’t aware of the dangers of getting a mortgage, you should listen closely. In case you forgot, Wall St brought the economy to its knees in 2008 after it gambled on the housing market. Part of the financial crisis brought about by these lenders was the fact that these institutions offered deceptive mortgage deals to unsuspecting consumers.

Not every financial institution is out to get you. Regardless, you should be prepared for the worst. Moreover, you should be shopping for the best deal, just like you would any other consumer product. Considering the size of most mortgages, wouldn’t you want to try and get the best deal possible? You’re going to be stuck with that mortgage for years to come, even decades. Preparing now will save you in the long-run.

Mortgage Shopping Tips

Just like with most of our other credit articles, we’re going to recommend that you check your credit score before proceeding. Once you’ve got that squared away, you can gauge your position in the mortgage market. If you’re in the higher bracket of credit scores, you’re known as an ‘ideal’ borrower. Generally speaking, an ideal borrower is someone who has a debt-to-income ratio of 36 percent or less. If you do not have an ideal or at least average credit score, you should take steps to improve your financial ranking.

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The next phase when shopping for a mortgage is saving for a down payment and pre-approval. Contrary to public perception, it is not required to provide 20 percent of the house price before either applying for a loan or purchasing a home. In most situations, you will be required to provide 3 percent, maybe 3.5 percent, of the cost of the property. At the same time you’re saving for the down payment, you can begin applying for pre-approval offers. You should be careful not to accept these offers. Instead, see how large of a loan you can receive with pre-approvals and use that as a guide when applying for a regular mortgage.

Next, you should shop around for the best lender based on what kind of loan type you’re looking for. If you’re planning on buying a home and living there for quite some time with your family, you should probably look for a fixed-rate 30-year loan. These loans have a static interest rate and are repayable over a 30-year period. If you’re going to move out of the house in less than 10-years, you may want to look for an adjustable-rate mortgage (ARM) instead. ARMs generally start with a fix-rate and then change over time and can often times be more flexible for those who want to move later on.

Finally, always keep your budget and income at the forefront of your decision making process. It is not a good idea to assume you will make more money in the future, and then apply for a mortgage based on that perceived future income. Apply for mortgages that you can actually afford based on your income, and stick with that budget. Don’t be pressured into a mortgage that is too big for comfort. Home ownership is expensive and can come with all sorts of hidden costs, including closing costs, repair and upkeep costs and environmental damage costs. Crunch the numbers and see what will realistically fit into your current budget.

Posted on March 11, 2016 by in Mortgages

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