Mortgage Transaction

8 Mortgage Tips Every Homebuyer Should Know

Are you planning to take out a mortgage?

You might think that you’re making a bad decision, but it’s not. Although there’s some stigma around debt, there’s no doubt getting a mortgage is a savvy financial move. With the median home prices in the U.S. hitting about $250,000, a home loan offers you the best opportunity to become a homeowner.

However, a mortgage is a big financial commitment. If you’re not careful, you could end up in financial disaster and possibly lose your home.

That doesn’t have to happen, though. In this article, we’re sharing several mortgage tips that will help you get the best deal and make the most of your loan.

Keep reading!

1. Are You Ready to Become a Homeowner?

Our first tip isn’t even directly related to taking out a mortgage, but it’s arguably the most important.

You want to take out a mortgage when you’re sure that you’re ready to become a homeowner. You’d think that everyone wants to be a homeowner, but that’s not the case.

In fact, the number of people opting to rent instead of buy has been on the rise. Renting offers unapparelled flexibility, which is what most millennials want. When you’re a tenant, you can move to another city on a whim without caring about the home you’re leaving behind.

The big question is: how do you know you’re ready to become a homeowner?

There’s the financial aspect of things, which we will talk about shortly, and there’s the emotional/lifestyle aspect. Mentally, you ought to be prepared to own home. This means you’re ready to settle in one location for a long time.

If you’ve got a young family, that’s a good sign. You certainly don’t want to be adventurous when you have young kids to raise.

2. Can You Afford to Be a Homeowner?

Owning a home isn’t a cheap affair. When you take out a mortgage, you’re making a commitment that will last anywhere from 15 to 30 years.

You must be able to afford your monthly repayments. Defaulting on your mortgage is a sure way to invite the foreclosure process.

Owning a home costs more than the price you’ll pay for it. For instance, if a home costs $250,000 and you have just this amount, you can’t afford to be a homeowner.

In addition to the price of the home, there are other costs associated with running the home. There’s routine maintenance and occasional repairs.

Beyond that, you must be able to take care of your living expenses and pay other bills. You don’t want to be left with no money to buy your food after you’ve made mortgage and other home payments.

Do a thorough evaluation of your finances before you take the first steps towards getting a mortgage. It’s advisable to consult a personal finance advisor. This professional will assess your finances and help you decide whether you’re financially capable of owning and running a home.

3. Keep an Eye on Your Credit Score

To qualify for a mortgage, one of the requirements a borrower must meet is the credit score. Different lenders and mortgage types have different credit score requirements, but you generally need good credit. This starts at around 620 for a conventional mortgage.

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Are you one of the millions of Americans (1 in 8) who don’t know their credit score? If you’re, you’re certainly not doing yourself any favors.

A mistake some mortgage borrowers make is looking into their credit just before they submit an application. If you do this and find that your credit score is below what your lender requires, you’ll be frustrated.

It’s a good habit to keep an eye on your credit score several months before you go in for a mortgage. This way, you’ll be in a better position to implement credit building efforts in a good time. Depending on the state of your credit, it can take anywhere from a couple of months to a number of years before your credit grows to the level lenders want it to be.

That being said, it’s not impossible to get a mortgage even when you have bad credit. There are mortgage companies that offer home loans to people with bad credit, but you’ll need to prove that you have a solid income to qualify.

4. Know the Different Types of Home Loans

If you’re like first-time mortgage borrowers, you’re only familiar with one type of mortgage: the conventional home loan.

This is understandable. Conventional mortgages, the kind you’d find being offered by your local commercial bank, are the most common.

However, there are other types of mortgages and it’s possible that you could qualify for one of them.

There’s the FHA loan, which is backed by the Federal Housing Administration but offered by several select lenders. There’s the VA loan, which is meant for veterans, and the USDA loan, which is designed for farmers in rural areas.

These loans can also vary depending on the nature of their rates. For example, a conventional loan can be either fixed-rate or variable-rate. A fixed-rate loan carries the same interest throughout the entire time while a variable-rate loan carries a changing rate.

When you have a good understanding of the various types of home loans, it’s easier to find one that’s the best fit for you. For example, if you’re a veteran who meets the specific requirements of VA loans, you’re better off going for that loan instead of getting a conventional home loan.

In most cases, conventional mortgages are pricier than the rest because they aren’t government-backed.

Trinity Mortgage LLC has a detailed description of the various home loans. Be sure to have a look!

5. Know the Kind of House You Need (Not Want)

We get it. Your dream home is probably a beach-front gem with an outdoor kitchen and indoor pools.

However, most people aren’t able to afford their dream homes. This is why it’s super important to know the kind of house you can afford. In other words, a house you need, not want.

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Of course, your finances play a big role here, but there are other factors. For example, if you’re single but plan to have a family in the near future, you want a house that can accommodate the growing needs of your family.

Besides the size of the house, do you want a condo? A single-family home?

Having a firm grip on the kind of house you need helps you resist the temptation to impulsively pick a house that isn’t right for you.

6. Get a Mortgage Pre-Approval

Applying for a mortgage is slightly different from applying for other loans. With a mortgage, lenders typically pre-approve borrowers.

However, this doesn’t guarantee you’ll be approved for a mortgage. It just means that, right now, you’ve satisfied the lender’s requirements. It’s possible that something, such as your credit score, can change before the approval. Also, lenders reserve the right to reject your application if they think you’re a risky borrower.

Either way, get a pre-approval before you start house hunting. You’ll be well aware of the amount of money the lender will approve, which means you’ll know the cost of the house you can afford.

For instance, if you’ve been pre-approved for a $400,000 mortgage, and you intend to put down $50,000, you’ll look for a house in the $400K-$450K range.

7. Save Up for a Down Payment

Speaking of putting down money, your deposit will improve your chances of getting approved for a mortgage, especially if you’re applying for a conventional loan.

Most home loan lenders will ask you to put down anywhere from 3 to 20% of the price of the home you want to buy. However, there’s nothing that stops you from paying a larger deposit if you can afford it.

Besides improving your approval chances, a larger down payment will earn you a lower interest rate.

Starting saving for the deposit as soon as you decide that you’d love to own a home. By the time you go in for a mortgage, you’ll have saved a substantial amount of money.

8. Hire a Mortgage Broker (Don’t Fail)

For a newbie like you, the mortgage process will be daunting. It’s a multi-step process that will leave you drained.

But you don’t have to make an already hard process any harder. You just need to hire a mortgage broker. This professional will evaluate your situation, recommend the best home loan for you, and help you with the paperwork.

You stand a better chance of being approved for a mortgage when you have a mortgage broker on your team.

Make Use of These Mortgage Tips

Homeownership is a key part of the American dream. Getting a mortgage is the only way for most people in the U.S. to become homeowners. With these mortgage tips, you now have plenty of useful information you can use to get not only the best mortgage but also the best home.

Keep reading our blog for more tips and insights.