A mortgage is the biggest, and likely most important, financial transaction of your life. Buying a home is something everyone dreams of doing. Your new home will not only be where you raise a family but where you spend a whole lot of money. A mortgage can be a scary thought. Both interest rates and home prices are rising. Here are some tips that will help you get the best deal, as quick as you can.
1. Have strong credit
Your credit score is used to show lenders that you are going to be able to repay. If they see a low score, it may be challenging to get a mortgage, and you will end up spending a lot more money.
Many sites allow you to check your credit score for free. You should aim to be somewhere in the mid 700s. Make sure you are paying off the balances of these cards. Do not use them too much, and do not apply for new cards before you apply for a mortgage.
2. Stay within budget
When considering which home you want to buy, make sure you are taking into account the monthly payments you will be making. A good rule of thumb is not to buy a home that is more than 2.5x what you make in a year.
You can opt for a 30 or 15-year mortgage, both having different benefits. If you can spend a little bit more each month, the 15-year plan could end up saving you hundreds of thousands of dollars in the end. Calculating your budget is important.
3. Build up your savings
Most people underestimate how much they should have in their savings before buying a home. You have down payments, mortgage payments, property taxes, closing costs, etc. You should try to have the equivalent of six months worth of mortgage payments in your savings account.
The amount of costs that go into buying a home that goes beyond the listing price is extensive. Many people are not prepared to be spending this much money. Make sure you have enough and will not fall short anywhere.
Plus in most cases, you will be earning interest on these savings, which is always a good thing.
4. Pre-approval is key
Do not wait until you have found the home of your dreams to get a lender to give you the money. If you get pre-approved, you will have an idea of how much a bank is willing to lend you. This also will look good to the seller of the home. You seem prepared, and they know you have financial backing.
Getting pre-approved is simple and only requires some simple documentation. You will be thankful you did this when your offer gets accepted quickly.
5. Consider different options
There are so many types of mortgages and loans. Home buyers take many different routes when getting a mortgage. You can choose between a 15 or a 30-year mortgage at a fixed or adjustable rate, or even get a Federal Housing Administration-insured loan.
There are different options, and the best choice will relate to your current financial standing. Paying less now means you will end up owing more over time.
6. Act quickly
It may take time to find the perfect home for you. It is one of the most significant decisions anyone will ever have to make. Do not settle. However, once you find a home that you love that is within budget, you need to act fast. The market is competitive, and listings do not stay on the market for long.
7. Get ready for the final steps
Once you have found your home and you agree on a price, a lot of steps are going to start rolling out.
Your lender will get the home appraised. If it is less than what you agreed to pay, you may be responsible for that money, or you will have to agree upon a lower price. The bank will also officially approve your mortgage. You will have to get the home inspected, which could result in another negotiation.
You will do a final walk through and buy homeowners insurance. The home is finally yours!
Getting a mortgage can seem daunting, but with proper planning, it can make the home buying process go much smoother for you.