Back a year ago I got my fourth and hopefully last mortgage when I built my brand new house. Getting a mortgage is a big deal and you want to treat it that way, after all you’ll more than likely have it for the next 20 to 30 years.
In fact before I even considered a lender I started out by just doing my research online and came across some really great resources to help me understand lenders better and find local lenders in my area such as Homepath Loans.
So in this article I’m going to share with you the 7 things I learned before I got my last mortgage and hopefully these tips will help you find the mortgage that is right for you.
Stay Local To Keep Connected
One of the first things I recommend to people is that they stay local if possible. Back five years ago I made the decision to work with larger lenders and it ended up costing me big. My closing cost and fees were much higher.
More than that though I didn’t have anyone or anywhere I could go talk to someone about my situation unless you want to talk to one of their call centers for hours on end. On top of that there’s nothing like knowing someone by their first name and be able to talk to them anytime you have a problem with your loan.
This is why I switched to a local lender. Because I know when I have a problem they are only one phone call away or a small drive up town, and more than that they give you the convenience that larger lenders cannot offer.
Go With A Lower Term To Get A Lower Rate
The second thing to look at is the length of the loan you plan to get. First off, I almost always suggest going with a fixed rate loan than an adjustable rate. More than that though I suggest going with lower term mortgage as well.
The reason for this because you can get far better interest rates with lower term mortgages, versus longer loan terms which will typically have higher loan rates. Now you might be asking, I can’t afford a 15 year mortgage payment, and I totally agree, so here’s a suggestion you can try.
Start out with a 30 year term mortgage and switch five years down the road to a 15 year mortgage. By doing this you not only lower your interest rate down the road but you will also cut 10 years out of the life of your loan saving you thousands on interest payments.
Breakdown Closing Cost To Save Money
The next step is to consider your closing cost, and did you know that all lenders DO NOT charge the same closing cost? That’s right, they don’t.
In fact when I got my last mortgage I compared bigger lenders over local lender and I found that bigger lenders were charging right around $3500 to close a mortgage while smaller lenders were only charging around half of that around $1800.
So you might be wondering, why is there is such a big difference and the truth is every lender charges different amounts when it comes to your closing cost. For example, if a lender has a specific appraiser they like to use that charges more it will end up costing you versus a lender who might use a cheaper appraiser.
If you would like to learn more about the closing cost that go into a mortgage check this article I wrote a while back here.
Destroy Debt To Improve Your Available Credit
Fourth on the list is to destroy and get rid of as much debt as possible. In fact having to much debt can put you a much higher risk of being declined for a loan. The way lenders evaluate this is by looking at your available credit amount.
For example, if you have $25,000 of available credit and you have $15,000 of credit card debt you will have a 60% which is actually very high. In fact you don’t want to go any higher than 36% typically, and the lower you can get it the better it will look.
Increase Your Savings To Show Strength
The same also goes with have extra money in your savings account. Most lenders want to know what kind of assets you have whether it’s money in your savings account or your 401k because they want to know that if things do go bad and you can’t make the payment that you will be able to sustain the mortgage.
My suggestion would be to have a minimum of $2000 to $3000 of total assets. This could include savings, 401k, or even any vehicles you might have that could be used to cover the cost of the loan.
Review Your Credit For Missed Opportunities
Sixth on the list is to review your credit score. When you go to apply for your mortgage lenders are required to show you your credit report but don’t wait to look at though. The reason for this is because credit reports are not always accurate.
What’s great about this is that you can look at your credit reports way ahead of time and spot any mistakes the credit bureaus may have made and get them changed. Doing this allows you to improve your credit and more importantly the interest rate on your loan.
An easy place to find all three of your credit reports for free is AnnualCreditReport.com. At Annual Credit Report you can also see what your scores are but you may have to pay extra for these but all you really need is the reports.
Give 20% Or Go Home
Finally, one tip that I suggest all prospective homebuyers yield to is how much money you put down. In most cases lenders will require you to put down a minimum of 20% of the value of the house. Now this is no hard and fast rule but there is a reason why they like you to hold to this rule.
Having less than 20% equity in your house will likely put you in a higher risk loan which means your interest rate will be higher but on top of that you will also have extra added fees such private mortgage insurance which will be tacked onto your monthly mortgage payment.
In fact this actually happened to a family member of mine recently when they went to buy a house and they had nothing close to 20% equity when they bought and their payments are now costing them an extra $100 to $200 a month.
My Final Thoughts…
Finally, take a moment and consider these tips before you decide to apply for your next mortgage, and if you do have question or don’t understand something make sure you take the time to talk your loan officer because the last thing want to is put yourself in a situation that could damage your finances.
Have you recently refinanced or closed on a mortgage? Share your thoughts below.