You’ve checked off all the boxes: Your credit is looking good. The market is looking promising. You’ve got a down payment ready to go. The real estate agent of your dreams is available and ready to go. Now’s the time to buy! Take note of these ten mortgage financing tips and you’ll be ready to shop for your Santa Barbara home in no time.
1. Now’s the time for due diligence–let’s research!
It’s time to hit the books! Your due diligence will pay off in a huge way–promise. When you put in the time it takes to research loan types, rates, and the lenders who can fund your purchase, you’re likely to end up with better terms than you would’ve gotten in the first place. Don’t skip this step. It may cost you thousands in the future!
2. Before you get the ball rolling, start with your credit report.
Don’t let your lender be the first one to check your credit–this is where you need to start before you even make that call or send that email. If you aren’t already monitoring your credit on a regular basis, now is a great time to start–when you keep an eye on your credit report, you can ensure all of your information is listed correctly and that there aren’t any surprises on file with the bureau that you didn’t know about. Identity theft, accounts opened without your knowledge, or incorrect addresses on your credit report can harm your score. Be vigilant! Take care of any inconsistencies before you take further steps with a lender. And if there’s some fishy activity in your credit file, be sure to investigate and get to the bottom of it. Remember: The higher your credit score is, the more likely you’ll be to get the rate and terms you’re after.
3. Affordability is everything
Know what you can afford before you start shopping. Have discipline and stick to the budget you’ve given yourself. Be sure to shop for a mortgage that can give you the rate you’re looking for with the down payment you’ve saved. Remember that depending on the size of your down payment, you may have to pay PMI (Private Mortgage Insurance). And one last thing–consider how your down payment will affect your monthly payment. Ensure that even though you’ve saved a sizable down payment, your monthly payment will still allow you to afford your lifestyle. Being nobody’s American Dream is to be house poor.
4. What’s the difference between prequalified and preapproved?
They might sound alike, but the difference between prequalification and preapproval is vastly different. In a nutshell, getting prequalified can give you a general idea of how much you may be able to borrow in order to buy a home. In order to get prequalified, you’ll provide some basic information about your finances–your credit will be checked, too. On the other hand, mortgage preapproval is a stronger tool to have in your arsenal once the shopping begins. You’ll complete a mortgage application, a credit check, and you’ll have a letter to provide when placing an offer on a home. For sellers, it’s an attractive thing–a preapproval letter shows you’re a serious homebuyer. You’ve got a lender lined up and ready to let you borrow (go you!).
5. Decide how you’ll finance it
Once you research the types of financing available, determine which is best for your financial situation when buying a home: 15-year mortgage or 30, adjustable or fixed. If you are looking for security and a guarantee that payments won’t increase, a fixed rate mortgage might be the way to go. If you believe mortgage rates could still fluctuate and you want more flexibility, consider an adjustable rate mortgage.
When it comes time to pull the trigger on a loan, look ahead and think about what type of commitment will suit your future. What would be a better fit for you? A fifteen year or thirty year mortgage? Would you prefer an adjustable or fixed rate? Whatever you choose, you’ll need to keep a couple of things in mind—opt for a fixed rate mortgage to keep your costs consistent and predictable. If mortgage rates are fluctuating with room to drop, you might consider taking a risk in exchange for flexibility with an adjustable rate mortgage. It’s in your best interest to work with a local lender who is known, liked, and trusted in the industry. A lender like this will give you an edge when it comes to a multiple offer situation. Why? The seller will know exactly who’ll be going through the escrow process with them. Better yet, they’re familiar with their track record. When it comes to the big online mortgage brokers, the communication can be less than desirable.
6. Opt for a larger down payment if you can
It’s pretty straightforward: The more money you put down on your new home, the more favorable your terms will be. Better yet? It improves your chances of winning in a multiple offer bidding war because the seller will view your preapproval as a less risky deal. Your monthly payment will be smaller for the duration of your loan. You can use that wiggle room in your budget to replenish your savings again.
7. Be intentional with your mortgage applications
Here’s a credit “hard inquiry” hack: No matter what kind of loan you’re applying for, the lender will pull your credit report, resulting in a hard inquiry that’ll reduce your score by a handful of points. If you condense these inquiries within a two week period, it’ll show up on your credit report as a single inquiry. So put it this way: If you’re shopping around for mortgages, apply for several within a two week period to reduce the impact to your credit score.
8. “Not yet” is okay!
If now’s not the right time to jump into the housing market, that’s okay. Even though rates are better than ever before, don’t be discouraged. Your time will come! It’s better to feel ready, prepared, and empowered to rock the process than feeling pressured to rush. The economy is constantly changing–it may mean years until your next opportunity to invest in real estate. And that’s okay! Until then, you can breathe easy knowing that you’ll be more than prepared when the time comes. Buying a home is a huge commitment–one you shouldn’t jump into until you’re more than ready.