Buying a Home: How to Shop for a Mortgage
By Scott Snider
If you’re thinking about buying a home, you’ll likely need a mortgage unless you’re sitting on a large endowment of cash. From pre-approval to interest rates and mortgage insurance, determining and understanding what mortgage suits your needs can be a difficult and complex task. When shopping for a mortgage, it’s helpful to keep a few strategies and stepping stones in mind to help you make the best and most informed choice.
Keep Tabs on Your Credit
When you begin the process of searching for a house, the first step is to make sure that you have good credit (or excellent credit, ideally!). Good credit is necessary while securing a mortgage; lenders will look at your credit score to determine whether or not they are willing to lend to you. Furthermore, your credit profoundly impacts the interest rate you qualify for if approved. Generally speaking, the higher your credit score, the better chances of receiving favorable terms.
Ideally, you would have begun building your credit since you obtained your first credit card. Your credit depends on things like whether or not you make on-time payments and how much you spend below your credit limit. If you haven’t built any credit, you should adhere to good credit-building practices immediately in order to get started. It’s generally a good idea. Credit doesn’t only affect mortgages; it also factors into things like credit card APRs and other loan types.
There’s more than one way to check your credit score, but most people request a free annual credit report from either Equifax, Experian, or TransUnion.
Save Money for a Down Payment
As part of securing a mortgage, you’ll also need enough money for a down payment. Depending on the cost of the house, you’ll typically be expected to pay anywhere from 5% to 20% of the purchase price. The more money you can save for a down payment, the less you’ll have to take out in a mortgage, which equates to less debt and interest.
While this may require a significant amount of money initially, it can save you in the long term. Mortgages typically span 15 to 30 years; you’ll want to keep your mortgage rate and overall cost as low as possible.
How do you know how much you should save up for your down payment? As a general rule, more is typically better. Mortgage calculators can help you figure out your future payments if you’re curious about the impact of varying down payments.
Research Different Mortgage Lenders in Your Area
Once you’ve determined that you have high enough credit and enough money for a down payment, you’ll need to research and compare different mortgage lenders in your area. Different lenders will have different criteria for lending you money. Some important factors to consider are things like mortgage rates—high or low, fixed or variable—along with repayment terms (15 years or 30 years), rate discounts if any, closing costs, and options for deferment or forbearance should you ever need them.
Once you’ve collected these important facts from each lender, you can sit down and compare them to determine which ones fit into your overall financial plan.
Seek Pre-Approval from Your Favorite Lenders
Once you’ve selected your favorite lenders, you can seek a letter of pre-approval from each lender. In order to be pre-approved, you’ll have to go through the entire process of applying for a loan and letting the lender determine how much they’re willing to loan you based on things like your credit, income, existing debt, savings, etc. By obtaining a letter of pre-approval, you’re preparing yourself to actually secure a mortgage from the lender. In turn, this indicates to sellers that you are serious about buying a house and less likely to back out of a deal.
When Ready, Apply with Your Preferred Lender
Once you’ve got everything in order, you can make an offer on a house. And once you’ve signed a purchase agreement that indicates how much you’ve agreed to pay for the property, it’s time for you to apply with a preferred lender for your mortgage. Even if you’ve already obtained pre-approval from several lenders, it’s still important to review and compare lenders to ensure you find the best fit. If all goes well, your mortgage will be approved, and you’ll be the owner of a new house (and quite a bit of debt)!
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Paragon Wealth Strategies, LLC [“Paragon”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Paragon. Please remember that if you are a Paragon client, it remains your responsibility to advise Paragon, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Paragon is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Paragon’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.wealthguards.com. Please Note: Paragon does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Paragon’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Also Note: IF you are a Paragon client, Please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.