How to Get a Mortgage Loan
The time has come for you to invest in your first home. Congratulations! Are you ready to take the next steps to learn how to get a mortgage loan you can afford?
Owning a home is a big responsibility and a major financial investment, and it can be tricky to find the most affordable mortgage for your personal lifestyle and yearly income.
Therefore, pay close attention to our these key tips for landing your first mortgage.
1. Debt-to-income Ratio
First of all, using a debt-to-income ratio can factor into your mortgage affordability. It simply calculates your income versus your debts. If you earn $10,000 a month and your debts equal $2,500 per month, then your debt-to-income ratio looks like this:
- $2,500/$10,000, which equals 0.25.
In fact, this ratio is imperative information to mortgage officers. You need to figure out how much money you can borrow, and knowing your debt-to-income ratio determines if you can. Furthermore, Lenders like lower ratios.
2. Tackle Your Debt
Lowering your outstanding debts is important to keep your mortgage lenders confident that you will pay your mortgage fees on time.
Consider paying off credit cards and student loans down to the best of your ability. You do not want too much debt to hinder your mortgage payment options.
It may seem effective to pay off all your debt at one time, but this actually isn’t the case. Paying off an outstanding balance twice a month can help reset your credit balance and will encourage you to consider putting more money aside to quickly offset these debts.
3. Improve Your Credit Score
Do you know what your current credit score is? Find out by getting a free credit score report so you can understand how your score compares. You want to have a minimum score somewhere in the 600s up to the mid-700s. Start building up your credit in as little as 30 days and do it as early as you can so you can maintain a comfortable credit score when the time comes for you to apply for a mortgage.
Good credit habits = a better mortgage financing option. You need to be a trustworthy individual who will repay the amount borrowed. Find out how you can build credit without the use of a credit card and learn how to keep a good credit score for all your financial needs.
4. How to Find a Mortgage
A free mortgage estimator calculator is available online, so take advantage of this tool to analyze your monthly income, debts, and expenses.
This fast calculation will give you a better look at where you stand financially speaking. If you have too many outstanding debts, you may not qualify for a mortgage at this point in time, but there are more ways to improve your possible affordability by tackling your debt before making the leap into home ownership.
Here’s how you can find a mortgage:
For example, if the mortgage amount is $100,000 and the interest rate is at 3% for 30 years, you will pay somewhere around $430.
The national average for a home loan according to LendingTree is set around $220,000, with a payment per month at around $1,060 at a 4% interest rate. Keep this information in mind when you are shopping around for a mortgage of your own.
5. Meet With Several Lenders
Your first mortgage option may not always turn out to be the best, so shop around. Talk to many qualified mortgage officers at the beginning of your mortgage journey to weigh your options on how to get a mortgage loan you can afford.
In addition, Mortgage officers will bring lenders (banks) and borrowers (future homeowners) together to discuss the best option for your future mortgage plan. As a result, they can help you find the lowest rates based on your current financial information.
6. Keep All Important Documents
Lenders need to see it all out in the open when it comes to mortgages. As a result, your financial information will determine how much you can afford to pay per month.
Tax returns, bank statements, and outstanding debt bills all factor into determining what mortgage financing you will qualify for.
Some more documents to keep include the following to discover how to get a mortgage loan:
- Employer information
- Proof of income
- Social Security payments
- Child support and/or alimony payments
- Stocks and/or bonds
- Life insurance information
7. Understand Loan Options
There are three different options to choose from when it comes to the length of a mortgage you can afford (meaning how long you have to repay the loan):
- 30-year, 15-year, or other.
- A longer term means lower monthly payments, however, it usually means a higher overall cost.
- A shorter term means higher monthly payments, and will usually end in a lower overall cost.
- The longer you have a mortgage, the more you will be paying in interest.
Choosing what option works best for you also takes into account your debt-to-income ratio, which your mortgage officer will discuss with you once you set up a meeting.
There are also different types of loans to choose from:
- Conventional Loan: These types of loans have fixed terms and interest rates over a period of time.
- FHA Loan: You need to provide an upfront premium in addition to a monthly premium. You typically can qualify for these types of loans as a first-time homeowner. They require less strict credit standards and lower down payments.
8. Learn About Down Payment Assistance
Need some funds? Housing Financial Agencies exist to help you out.
Even if you are suffering from a bad credit history, there are ways to seek assistance. There are other government supported options available to you on how to get a mortgage loan:
Housing Bonds are used in creating low-cost mortgages for families with lower income levels. Essentially when you make a payment on your monthly mortgage, the interest collected goes toward paying off the mortgage bond.
Home Investment Partnerships are designed to increase home ownership in a community by providing low-income home buyers with government appointed grants.
Don’t be discouraged. There are people willing to help you find a home despite unfortunate setbacks to your financial history.
As a financial consumer, you need to be aware of the requires involved in purchasing a home for the first time. These steps are crucial on how to get a mortgage loan that you can afford.
By investing in a home you are taking on a financial liability, which means you need to be able to cover all costs associated with this purchase. Calculating your current income versus debt ratio will provide you will more insight into how much you can afford to borrow from a lender.
Here at Credit Squared, we want you to become more financially savvy, and by providing you with the best knowledge about the home owning process you can become a vigilant buyer.
If you have any questions please feel free to drop a comment below!
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