Whether you’re seeking to purchase a home for the first time or you wish to buy a second home, the most important step to take is to clear up your credit and remove all derogatory marks. After spending time cleaning up your credit (learn how at www.your650score.com), comes the fun part. Although there are many different steps you can take to ensure the best mortgage for your unique situation, the following five steps are considered essential by industry expert. After reading this article you’ll have a solid understanding of what it takes to secure the best mortgage based upon your unique financial situation.
Step One | Determine Why You Need a Mortgage
While the goal for millions of Americans is to become a homeowner, the most important question to ask yourself is whether or not this is the best time in your life for such a financial commitment. If you’re buying a home for the first time, spend time reviewing special offers provided by most mortgage lenders. If you’re refinancing your home, then you should really spend time determining whether or not the extra time commitments and various fees outweigh your current interest rate.
Step Two | Mortgage Duration
Sit down and ask yourself, “How long do I want to pay on a home?” This among the most important questions to ask as it determines the overall cost of your loan. For example, if you’re not sure you want to live in a home for 15 to 30 years, then a traditional loan duration may not be your best bet. If you’re facing high interest rates, then a longer loan may result in paying tens of thousands of dollars in interest. It makes no sense to spend tens of thousands of dollars on a 30-year mortgage if you only end up living in the home for four years.
Step Three | Weight Your Financial Risks
If you are sure you wish to live in a home for several decades, then a traditional 15 or 30-year mortgage may be the ideal choice for you. However, there are various risks you must come to terms with. Perhaps the most important of these risks is determining the amount of interest you’ll pay over the life of a loan. If at the current time you only qualify for high-interest loans, then you’ll potentially pay tens of thousands of dollars over the life of the loan, which may result in dire consequences to your ability to save for retirement and emergencies.
Step Four | Select a Loan Provider Ideal for Your Current Situation
In most cases, if you have low credit score, but a decent financial history in terms of your debt-to-income ratio and outstanding debts, you may want to forgo conventional loans and look into lenders approved for FHA loans. In general, there are four types of mortgages ideal for almost all home buyers:
Government loans (FHA, VA and USDA)
- Loan terms – 15, 30 or 40 year mortgage durations
- Interest Rate – There are three types of interest rate plans: fixed-rate, adjustable-rate and hybrid loans, which feature a fixed rate for a specified duration then automatically transform into an adjustable rate for the remainder of the loan.
- Interest-Only Loans – These loans require you to pay only the loan’s interest for the first several years, then you begin to pay off the principle balance.
Step Five | Compare Loan Quotes from Multiple Lenders
Perhaps the most important step in the quest for a home loan is to compare loan quotes from multiple lenders. Do not only review the quotes from two lenders, but rather, try to obtain pre-qualification quotes from at least five different lenders. Because of the competitive nature of this business, don’t be surprised to see a wide array of offers and loan terms; however, the lowest interest rate loan may not be your ideal choice. Make sure to read the fine print and fully understand your responsibilities before agreeing to a specific loan.