What You Need to Know to Get a Mortgage
Sometimes, the most complex thing about mortgages is how to get one. Having a dream of owning your own home is common, and quite often it’s the inability to get a mortgage that stands in the way of that dream becoming a reality.
There’s no magic formula when it comes to getting a mortgage, but there are some guidelines you’d do well to follow and information you should keep in mind as you search.
When the whole process is over and done with, you want both a house and a mortgage that suits your family’s needs. That’s why it’s wise to figure out what kind of home you want to buy, including the square footage and other details. It’s also important to figure out how much you’re able to spend on a mortgage each month and still be comfortable.
What Do You Need?
Take the time to work out your: ◦ Overall household income ◦ Overall household debts ◦ Normal household expenses ◦ Future income and expenses (if you have an idea how they will change)
As a general guideline, you want your mortgage payments to be in the 25 to 28 percent range of your pre-tax income. Of course, work out the details just to be certain that you won’t be extending yourself too far. For some people, even the lower end of the recommendation may be too much at the present time.
Realism is another important aspect when it comes to getting a mortgage. Try not to make assumptions or ‘probably’ statements when you’re working out a monthly budget. Be as realistic as possible and if you’re going to lean away from reality at all, make it on the side that gives you more than you expect at the end of the month.
Of course, creating a realistic budget doesn’t really mean anything if you don’t stick to it. You will certainly need discipline once you have a mortgage and work that amount into your household financial plan.
It pays to know a little bit about mortgage rates before you charge into the situation blindly. There are two basic types of mortgage rate that you should know about. One is called a fixed mortgage rate and one is called a variable mortgage rate.
◦ Fixed Rate – This means that the interest rate on your mortgage will remain the same for the entire term of the mortgage. ◦ Variable Rate – This means your interest rate will rise and fall as the mortgage rates rise and fall. Give your decision careful consideration and seek out more information if necessary.
Which Rate Is Best?
If it looks like you’re in a good financial position to get a mortgage, you’ll have to fill out an application to move the process along. Once upon a time, buyers would search for the home they want and then fill out the mortgage application and hope it was accepted. These days, buyers look for ‘preapproval’ so they know what amount they’ll be approved for before they start looking for and bidding on houses.
Fill Out an Application
Realtors and bankers can often provide you with some valuable advice regarding your mortgage, but if you really want someone to take control of the process a mortgage broker or agent may be the answer. A broker or agent is basically a middleman that works for you, and directly with you and the lender to find you the best possible deal. Some of the benefits of working with a mortgage broker or agent include:
◦ Access to multiple lenders to expand the possibilities of getting a good mortgage rate. ◦ Intimate knowledge of the industry and how it works.
Do You Need Help?
◦ Saves time because you don’t have to go out and search for a lender on your own. ◦ Not confined to using the products or tools from one specific lender or organization. ◦ Searches within the parameters you set down.
If you choose a mortgage broker with a solid track record and lots of satisfied clients, you can feel secure that you’ll end up with the best mortgage deal that’s available for your situation.
Using a good mortgage broker or agent will usually help you avoid many common mortgage mistakes. However, if you’d rather give it a try on your own, avoid these mistakes to get the best possible deal.
◦ Not Checking Rates – Mortgage rates are always moving around, so make sure you take a look at what they are before you sign.
◦ Not Learning Common Terms – If you don’t have a broker to help, it makes sense to learn all the common mortgage-related terms so you won’t be confused and you can keep up.
Avoid These Mistakes
◦ Not Considering Closing Costs – These are often added at the end of the process, so ask your lender what they’ll be so you won’t be surprised later on.
◦ Not Shopping Yourself Around – Even though it is extra time consuming without a broker, you have to shop around to get the absolute best mortgage that you can get. You still won’t have all the resources a mortgage agent or broker will have, but it will help.
Avoid These Mistakes (Con’t)