Applying for a mortgage for the first time can be nerve-wracking. Whether it’s delivering piles of financial documents or hearing terms you might not be familiar with (what is a debt-to-income ratio anyway?), it’s easy to get overwhelmed as a new mortgage candidate. If you are in this boat, here are some tips to help you.
6 simple tips to get a 1.75% mortgage rate
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1. Have a good credit score
Your credit score could be the difference between approving a mortgage and refusing it. This number indicates how you use credit and with what regularity you pay certain debts. So it makes sense that lenders take your score into consideration.
You will need a minimum credit score of 620 to qualify for a conventional mortgage. But some lenders have higher demands. And if you want to get the lowest mortgage rate offered by a particular lender, you will usually need a score between 700 and 700 or higher.
Some first-time mortgage seekers make the mistake of trying to get a home loan before checking their credit rating. A better bet is knowing your score to know if you are in a good position to apply or not.
2. Repay part of the existing debt
Okay, so it’s time to talk about this debt-to-income ratio. It’s a formula that measures your existing debt relative to your income, and if it’s too high, it will lead mortgage lenders to believe that you can’t handle a monthly mortgage payment.
If you have a lot of debt, paying off some of it before you apply for a mortgage could increase your chances of success. And if you have different types of debt, focus on your credit card balances first. Reducing them could also help your credit score improve.
3. Increase your cash reserves for a down payment
Putting more money on the table as a down payment will often help you borrow less to buy a home. But some lenders require a larger down payment than others, so the more you can save, the better.
In fact, your goal should be to deposit 20% of the purchase price of your home at closing if you take out a conventional loan. If you don’t, you can still get approval for a mortgage, but you’ll also be affected by private mortgage default insurance, or PMI. This is an expensive premium that is on top of your monthly payments and makes owning your home more expensive.
4. Know how much mortgage you can afford
While lenders today are not exactly used to granting loans without checking applicants’ finances, the loan amount you qualify for may not be the amount you are comfortable with. to pay each month. Suppose you could get approval for a mortgage that would leave you with a monthly payment of $ 1,200. If you think you can’t swing more than $ 1,000 per month, you shouldn’t go over that threshold.
Before you apply for a home loan, use a mortgage calculator to see how much you’re willing to borrow. And then stick to that number, even if you’re tempted by a higher loan offer.
5. Shop around with several lenders
Mortgage lenders do not always offer borrowers the same terms. A lender may be willing to offer you a better interest rate than another on a home loan. Or maybe two lenders offer you the same rate, but one charges lower closing costs to finalize your loan.
That’s why it’s a good idea to shop around for a mortgage rather than going ahead with the first lender who approves your application. Doing your research could save you a lot of money.
Applying for a mortgage for the first time can be stressful, but the more prepared you are, the easier the process is likely to be. Also, keep in mind that if there is something about the process that you do not understand, please do not hesitate to ask for clarification. When borrowing a large amount of money, it’s important to know exactly what you’re signing up for, so feel free to look for more details along the way.