Top 10 Mortgage Insider Tips for Homebuyers
When it comes to applying for a mortgage, whether a purchase or refinance, there are frequently changes in loan guidelines. There are basic rules though, that don’t change. The more you know, the better you will be able to navigate the mortgage world. You’ll feel more in control rather than feeling like you’re trying to decipher a secret code.
Here are my top 10 expert tips to help you snag the best deal and avoid any unexpected bumps in the road:
1. Boost Your Credit Score: Think of your credit score as your financial report card. The higher your score, the better the interest rates you’ll qualify for. Aim for that sweet spot of 740 or higher to unlock the most favorable terms and save yourself a bundle in the long run.
- Pro tip #1: Pay down credit card debt, avoid opening new accounts, and make all your payments on time to give your score a boost.
- Pro tip #2: If you need to squeeze out a few more points, click here to download my free credit report tips.
2. Shop Around for Lenders: If you haven’t been personally referred by someone, by all means, shop around. That doesn’t mean you’ll ask the rate and go with the cheapest. Here’s why.
Rate quotes are garbage. Until your lender has specific information such as your credit score (yup – all 3 scores), knows your downpayment and your loan amount, they can’t even guess what your rate will be. And if they were to “lock” that rate, how long is the rate good for? And what about “points”? How many points for the rate they quote you.
Much better to talk to the lenders, and go with whoever you feel comfortable with. Remember, you are going to be discussing very personal information. If the mortgage person makes you feel at all uncomfortable or talks down to you, take a pass.
3. Get Pre-Approved: Getting pre-approved is like having a VIP pass in the homebuying world. It shows sellers you’re serious and gives you a clear picture of your budget, so you can shop with confidence.
You can even take it one step further and get fully approved before you begin house hunting. This way, you’ll have no stress about the mortgage.
4. Understand Different Loan Types: Mortgages come in all shapes and sizes, from fixed-rate to adjustable-rate, and even FHA loans for first-time buyers. It’s your lender’s job to help you determine what loan type is best for you, but don’t be afraid to ask questions.
5. Make a Sizeable Down Payment: The more you put down upfront, the less you’ll have to borrow, which translates to lower monthly payments and potentially a better interest rate. Aim for at least 20% down to avoid private mortgage insurance (PMI), an added cost that protects the lender if you default on your loan.
First-time buyers can get away with as little as a 3% down payment, but the payments may not fit in with your budget.
6. Consider Closing Costs: Closing costs are like those pesky baggage fees when you fly – they can add up! Budget for these expenses, which typically range from 2% to 5% of the loan amount, so you’re not caught off guard at the closing table.
There are ways to get some or all of those costs covered, though, so you won’t be out of pocket. Just remember, everything has a price, so if you don’t pay the costs up front, you’ll pay for them elsewhere.
7. Lock in Your Interest Rate – or don’t: Interest rates can fluctuate, so locking in your rate gives you certainty. Here’s the problem though. If rates are trending down, you don’t want to lock. Any lender that says they will lock and relock if rates drift lower doesn’t tell you the small print. (This means that rates have to decline at least a certain amount before a “float down” takes effect.
My advice, don’t lock too early, unless rates are flying up – which right now, they aren’t.
8. Review Your Loan Estimate Carefully: Your Loan Estimate is a breakdown of your loan terms and estimated costs. Comb through it with a fine-tooth comb to ensure there are no errors or surprises lurking.
It’s confusing, and it’s often easy to misunderstand some of the costs, so don’t try to decipher it yourself. Go over it with your lender.
9. Avoid Major Financial Changes: Don’t make any big moves, like opening new credit accounts or switching jobs, while your mortgage application is being processed. These changes can impact your credit score and potentially derail your loan approval.
10. Communicate with Your Lender: Keep the lines of communication open with your lender throughout the process. If you have any questions or concerns, don’t hesitate to reach out. A good lender will be your partner, guiding you every step of the way.
Communication is key!
Remember, knowledge is your best friend when it comes to buying a home. By following these insider tips and working with a trusted lender, you’ll be well on your way to homeownership.
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