Finding your dream home is just one part of the home purchase process. The other part is finding a home loan that fits your needs and your budget. Let’s take a look at what you can do to get financing that is affordable now and in the future.
Clean up Your Credit
Those who have good credit generally receive the lowest interest rates on mortgages. They also tend to receive favorable terms as it relates to making a down payment or paying mortgage insurance. Paying down debt and resolving any past due debt payments are two effective ways to increase your credit score quickly. Ideally, you will aim for a credit score of 640 or higher prior to applying for a mortgage.
Compare Traditional and Government Loan Products
There are many different loan products that are available designed to help a wide range of buyers. If you are looking to keep closing costs to a minimum, an FHA loan and its 3.5 percent down payment may be your best option. However, if you want to avoid paying mortgage insurance or build equity quickly, a traditional loan may be best. It is important to note that government loans can be worth looking into even if you have good credit or could make a large down payment.
Research Different Lenders in Your Area
While lenders may offer you the best terms, it is always a good idea to shop around. Ideally, you will look at loan products available from local lenders, national lenders and online lenders. However, if a lender asks to do a credit check to determine your creditworthiness, make sure that is a soft inquiry. This is because a hard pull may lower your credit score.
How to Decide between a Variable and Fixed Rate
Variable rate loans typically offer a lower initial rate compared to those with fixed rates. However, if you plan on keeping your home and your loan for more than five years, the fixed rate loan is usually the one worth taking. In some cases, lenders will offer rates lower than those advertised if you have a credit score above 700.
A mortgage is something that you will be paying for most of your adult life. Therefore, it is important to get a loan that won’t leave you house poor. This can be done by working with a loan officer or real estate agent to research the loan options available to you.
About the Author: Lizzie Weakley is a freelance writer from Columbus, Ohio. She went to college at The Ohio State University where she studied communications. In her free time, she enjoys the outdoors and long walks in the park with her 3-year-old husky Snowball. The information in this article is credited to Home Mortgage of America.