6 Things Every Mortgage Applicant Should Know
Mortgages allow people to finance the purchases of their homes. Four key tips that can help anyone applying for a mortgage are the following:
#1. You can approach debt-to-income ratio from either side.
Lenders want to know that you can manage your mortgage payments. Your debt-to-income ratio should be as low as possible. Paying down existing debt can lower the ratio, as can getting a second job to increase income.
#2. Your credit score is very important.
Your credit score will be a central factor in qualification for any mortgage. If you do qualify, your interest rate will be calculated using your credit.
Get a copy of your credit report (free from all three major bureaus here), and look it over for anything that is incorrect using the credit report checklist from the Consumer Financial Protection Bureau.
The mortgage for which you are applying and lender’s parameters will determine the minimum allowable credit score. For conventional mortgages, it will usually need to be at least 620. Your credit score can be as low as 500 if you use the first-time homebuying program from the Federal Housing Administration (FHA) — but more will be expected in a down payment.
#3. Be realistic.
As noted by TransUnion, it is easy to get disconnected from your financial reality when looking for a home. If you only have a 5 or 10 percent down payment, use that to arrive at your rate – rather than thinking you can access lower rates that require 20 percent down.
#4. Know the difference between mortgage prequalifying vs. preapproval.
Prequalifying is simply an initial step in the process that provides a general sense of the size of mortgage you can get. When a lender wants to conditionally commit to accepting your mortgage application, you will get preapproval.
#5. Watch out for prepayment penalties.
You may decide that you want to pay off the mortgage ahead of time, whether through larger payments each month or on occasion. In this event, you certainly do not want to be penalized. Make sure there are no prepayment penalties on your mortgage so that you are able to pay the loan off as fast as you please, with no negative consequences.
#6. Work with a team you can trust.
Finally, it is critical to be in caring professional hands to get the best guidance for your mortgage application. “[C]ommunication throughout the process was consistent, and we always felt well informed,” wrote Nick Patrek of BAM in a 5-star Google review. (Currently ALL of our 52 Google reviews are 5 stars!) See the BAM process!