It’s a good time to be a homebuyer. Mortgage rates are still around historic lows, even if they have gone up in the past few weeks and in what was usually supposed to be a slow winter season, homebuyer traffic has stayed up. Housing affordability is also at a high.*
Working with a great lender and knowing what you want in a mortgage is a winning combination. But even after you’ve found the right lender, the second part can still be tricky. How do you know what to look for in a mortgage when there are so many options to choose from?
Do these 6 things before you decide on a mortgage
Sticking with our best-practice dos and don’ts, based on our 33 years of experience as a leading lender, can simplify the process of picking a mortgage:
1. Do keep an eye on your credit.
- You’re entitled to a free credit report each year by federal law from one of the top three credit reporting agencies in the U.S. Having a better grasp on your credit score puts you in the driver’s seat.
- Your credit score can affect your mortgage rate. This can impact your monthly mortgage payment, for better or for worse.
- Checking in on your credit annually can give you time to improve your score. Or fix any errors. AnnualCreditReport.com is authorized by federal law to provide a free yearly credit report to the public.
2. Do choose a lender based on reputation.
- Real estate is all about location, location, location. And mortgage lenders are all about reputation, reputation, reputation.
- Looking into a lender’s rep is one key way to protect yourself from predatory lending. Reading customer reviews (and asking for references) is a smart place to start.
- Our company, for example, is award-winning and community-driven. Our loan officers, like Marcie, are known for their warmth, connection, and how much they truly care.
3. Do continue to pay your mortgage or rent on time.
- Life happens. But even one 30-day-late payment on a credit card or another loan could set you back in your mortgage qualification.
- Paying your rent more than 30-days late within the past year might affect your loan terms, resulting in a higher down payment or interest rate.
- A mortgage application will typically be denied if a borrower has three or more 30-day-late payments in the last 12 months.
4. Do get prequalified first.
- Prequalifying for a home loan before you start searching for houses can make it that much easier to nab your dream home when it becomes available.
- In a nutshell, a home loan prequalification tells you how much house you can afford before you begin shopping.
- Because there’s currently a lack of inventory in the housing market, buyers need an advantage; prequalifying first could strengthen your offer by showing a seller you’re prepared.
Keep it simple: Use our free LoanFly app to prequalify remotely.
5. Do keep track of all your paperwork.
- After you prequalify, your loan officer is going to ask you for several important documents to get the loan process moving.
- Gather your Social Security Card, work history, employer information, pay stubs, bank statements, and tax returns to avoid scrambling at the last minute.
- At this time, it’s also important not to change bank accounts: Your loan officer needs to source your assets, which can be difficult when paper trails are inconsistent.
6. Do notify your loan officer of any big changes in your life.
- If you hope to get into a new home without delays, try not to rock the boat for a little while.
- Changing jobs, moving, and even switching insurance companies are all boat-rocking variables that could delay your mortgage approval and affect interest rates.
- Interestingly, closing a credit account can also count as a big life change — negatively impacting your credit score by altering scoring factors like your percentage of available credit and length of credit history.
Don’t waste your time making these 6 mortgage mistakes
If it all possible:
1. Don’t start house-hunting before you know what you can afford.
- Once again, that’s the beauty of getting prequalified. It’s quick. It’s easy to do online or via an app.
- And ultimately, it’s going to tell you exactly how much you can afford so that you don’t lose valuable time viewing houses out of your price bracket.
- Taking the steps beyond early prequalification to early loan approval is an even better bet in today’s still-booming market, helping you to gain a competitive edge by acting as a cash buyer.
2. Don’t take mortgage advice from just anyone.
- It’s a bitter pill to swallow. But it’s never a good idea to take your mortgage advice from a friend, a hairdresser, or even a real-estate-savvy neighbor.
- You’re making one of the biggest investments of your life. So, get your mortgage information and rate quote straight from the source — your lender.
- Homebuyers who are better informed are more likely to get better financial terms on their mortgage; you could save as much as $44,500 over the life of your loan just by shopping around and finding your preferred lender.
3. Don’t make any major purchases.
- Remember that thing about not rocking the boat? Buying a new car, appliances, or furniture before signing your home loan contract could impact your financial criteria for qualification.
- Taking on new debt signifies that you’re increasing your monthly obligations. Additional obligations may trigger new qualifications for a mortgage.
- If you have more debt, this could increase your DTI, or debt-to-income ratio. A higher DTI makes a loan risker; in some cases, a previously qualified borrower might not qualify.
4. Don’t apply for a new line of credit or loan.
- Likewise, taking out a new line of credit or a new loan, whether it’s for a car or education, can change your current financial picture. Changes in your finances may indicate instability and could delay or influence the loan process.
- It’s also critical that you don’t deposit cash into any accounts before running it by your loan officer. A lender needs to track your funds, and cash is hard to trace.
- Before making a cash deposit, talk with your loan officer. They’ll let you know how they’d like you to document the transaction.
5. Don’t drain your savings.
- All that money you saved for a rainy day can go toward your down payment and closing costs.
- If you have little-to-nothing in savings at the moment, we suggest checking out a big-picture budgeting app like Mint.
- Any cash you can set aside may help to offset the often-unexpected costs that arise when buying a house.
6. Don’t be a stranger.
- There’s no such thing as a stupid question. And there’s no wrong time to contact your loan officer.
- That’s what we’re here for. If you have any questions about your mortgage quote, or if you foresee any life changes coming up, give us a shout.
- We’re the professionals who can troubleshoot and keep you on track, helping you to reach your closing day on time.