What do you suppose the hardest part about buying a house is? Most would instinctively say choosing the house. After all, there are myriad details to figure out, such as location, size, layout, and so on. Finding the right house with the right land in the right neighborhood can be a challenge. But, even more important: how will you pay for that house once you find it? Mortgage financing is, arguably, even more important to the home buying process than finding the house. After all, if you can’t afford to pay for the house, all your work in hunting it down has gone to waste! So, before you dive headlong into house hunting, take a step back and be sure you’re financially prepared first. Start with these five tips to find the right mortgage financing for your situation.
Know How Much House You Can Afford
Understanding what your financial situation is — and where you would like them to be before buying — is an integral part of finding the right mortgage financing. When it comes to buying a home, a lender is going to be looking at a few specific elements of your financial landscape: your income (both what you make and length of time at your job/in that field), your credit score, your debt-to-income ratio (including what types of debt you have), and the size of a down payment you are prepared to make. If you have questions about how any of those components work in regard to applying for mortgage financing, it’s a good idea to start by talking with a mortgage broker. You don’t necessarily need to go through the full-prequalifying process, but they can run the numbers and give you an idea about what interest rates would be and how much of a loan you can qualify for based on your current circumstances. This will also give you a good starting point to make some changes.
Get Your Money In Order
If you learned that, for example, your credit score is a bit on the low side, it’s generally a good idea to take the time to fix that. Once you know what you’re working with in terms of mortgage financing, you can take time to save up a larger down payment or pay down debt and improve your credit score — all of which can help you get a better interest rate when you’re ready to actually apply for a loan. The other big thing you’ll want to do is dig up as much documentation as you can. Many mortgage financing options allow the use of gift money for part or all of the down payment, but they will require documentation about how you came to possess that money. You will also need to account for any income that isn’t from your job, so if you sell crafts online or something else like that, you’ll need to be able to show a paper trail.
Learn The Lending Landscape
While you’re taking the time to get your finances in order, this is also a great time to learn all about mortgage financing by talking to a mortgage broker like Patriot Home Mortgage. We suggest this for two reasons. First, there are a wide range of different home loan options out there. And second, you’ll be able to ask more pointed questions of a potential lender and ensure you are getting the right mortgage financing option for your specific financial situation. This will give you a better idea which types of mortgage financing will be more beneficial than others. It will also, generally, help you get the best interest rate and monthly payments possible. To be forewarned is to be forearmed, as the saying goes!
There is a common understanding that pulling your credit score frequently can actually cause your rating to drop. Many accept this as common knowledge and some less savory money lenders will use that logic as a way to encourage you to commit to their product. Fortunately, that’s not entirely accurate. When it comes to mortgage financing, your credit score won’t take a hit when you shop around.
Yes, it’s true that multiple ‘hard pulls’ of your credit score in a shorter span of time can damage your credit score. Hard pulling typically happens when you apply to open a new line of credit, so multiple hard pulls tells the credit reporting agencies that something unsteady is going on with your financial situation. However, the big caveat to this is that multiple hard pulls by mortgage lenders won’t ruin your credit score if they’re pulled within a thirty day window. This is because the credit reporting agencies understand that you are likely to — and should — shop around before opting for a specific loan. Your credit score may be pulled multiple times but most people only actually take out a single mortgage at a time. You aren’t actually taking on multiple new lines of credit all at once, which is the reason your credit score typically drops with too many hard pulls.
The final step toward selecting the right mortgage financing is to go through the pre-approval process. While many mortgage lenders may run through a pre-qualification process when you first start talking with them, this is a bit different. The pre-approval process is more intensive, as the lender will take an in-depth look at all of your financial information, pull your credit score, check with your employer about your income, and so on. Generally, lenders charge an application fee to go through the pre-approval process, but you will be provided with a letter of conditional commitment that includes the loan amount you are approved for. That number will tell you and potential sellers how much house you can afford to buy and shows that a lender is willing to give you a loan that size. However, even with a pre-approval in hand, you’ll want to keep from making any other large purchases. Your credit score and financial information will be pulled once more just before the actual closing and if you’ve made any big purchases, your credit score and your interest rate may be negatively affected.
Get trustworthy mortgage financing advice and help finding the right loan with the Patriot Home Mortgage team. Contact us today to get started!