Matter-of-fact Financial Tips for Obtaining a Home Loan

A deficiency in financial knowledge regarding mortgage lending should not detour one from owning a home or at the very least attempting to procure a residence for your family. Gaining a basic comprehension of the financing process, as the tips below provide, and how it applies to you can go a long way in preparing you for long-term personal finance success.

  • Have you recently received some unexpected income such as a tax return or inheritance? Rather than planning a family vacation or buying a new television, consider putting the extra money towards your mortgage payment. This responsible financing tactic will help you in the end and can result in a shortened mortgage term, meaning an early pay off in the future.
  • Have you been rejected by lenders because they cannot approve the mortgage amount that is necessary to buy the home of your dreams? Think about the debts you are currently carrying. If you have a lot of debt, whether it is credit cards, loans, or other bills, this can affect the approval of the mortgage amount you are attempting to obtain. Work on paying off these debts first, and then try again.
  • Are you not sure how much you can afford when it comes to monthly mortgage payments? As a rule of thumb, it is a good idea to purchase a home that has payments that will not exceed 30% of your post-tax, household income. This gives you room to afford other liabilities and still have funds available for everyday needs.
  • When shopping around for a mortgage lender, most are looking for the lowest interest rate that they can get. If you apply to lenders that are offering rates in the same general ballpark, consider their individual financing terms and conditions to determine which one is the best way to go.
  • While the down payment acts as a security to the lender indicating your invested interest in the home and that you will continue to repay the mortgage, it also acts as a bargaining tool to determine your rate and payments. The more you pay as a down payment, the lower your payment and rate may be.
  • Whether you plan to move in the near future or are planning to work on your credit and refinance for a better deal or lenient financing terms in a few years, it may be a good idea to go for a mortgage with a shorter term. For example, a 15-year fixed rate mortgage may be what you are looking for.
  • Did you know that many real-estate agencies and mortgage lending institutions offer free seminars for those interested in buying a home? This may be something to consider if you are buying your first home and need help understanding the process and confusing industry lingo. Search online for seminars in your area or call your local lenders/real-estate firms for more information.
  • Is your poor credit history or low credit score hindering you from getting an affordable mortgage payment? If past financial struggles were the result of extenuating circumstances such as the loss of a job, serious illness, or death of a family member (such as a spouse, whose income was necessary to meet financial obligations), explain your situation to your lender. Also, look into government loans and assistance programs such as FHA loans and Making Home Affordable (MHA) ®.
  • Are you trying to decide whether to use a mortgage broker or simply go directly to a mortgage lender? Many find it beneficial to go directly to the lender in order to avoid being taken advantage of by a disreputable broker. On the other hand, brokers may have the experience and resources to help you find the best deal if you have a poor credit score or other restrictions on your record such as a court judgment or bankruptcy filing.
  • While you are negotiating terms with your lender, remember to keep your eye on the big picture. While your lender may agree to reduce or eliminate one fee, they may be making up for it by increasing another somewhere else. Always be cautious, read the fine print, and try to read between the lines when discussing the details with your lender.
  • Are you afraid that your lender is exploiting your lack of financial knowledge and is taking advantage of you? In order to prevent this from happening, or to prevent you from making a mistake in the filing process, it is a good idea to have a lawyer look over all of your forms and documentation. Of course, this is most helpful if done before making any commitments or signing any papers.
  • Unsure of how mortgage terms will affect you? 30-year loans give you the opportunity to extend lower monthly payments over a longer period of time, while a 15-year loan carries higher payments but incurs less interest over the years. Consider this when trying to determine which one is the best route for you and your financial needs.
  • Are you only planning to live in your home for a short period of time? Look into lenders offering 3/1 and 5/1 adjustable rate mortgages. These options allow you to lock in a desirable lower interest rate for the specified period of time (3 or 5 years), after which the rate will begin to increase. If you are planning to move in 3 to 5 years, you can take advantage of the low rate, and will have moved on before it increases.

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