One of the most important steps in buying a home is finding the right mortgage and the right lender. A mortgage is a major financial commitment and it is in your best interest to make the best possible choice.
Here are the things to keep in mind when you’re looking for a lender.
- Check your credit report
Lenders will look at your credit report to gauge whether or not you will be a good borrower. And what’s on your credit report will also affect the interest rate that you will probably get. You will want to review your report before applying for a loan so you can correct whatever errors may be on it and so you’ll have an idea about the size of the loan you can probably get.
- Build your credit score
The lower your credit score, the higher the interest rate will probably be. You’ll want to have a higher credit score so you can get a lower interest rate. There is no one “good” score – it will vary by lender – but if you’re in the 700 to 749 range, then you’ll likely have no problems getting approved for a loan. If your score is below 650, however, you may have a tough time qualifying for one.
If your credit score isn’t that great now, you can still improve it. You need to take action to improve your debt-to-income ratio. Make sure that your credit report is free of errors. Pay off high-interest debts. Avoid making big purchases and taking out other loans. Also, if you don’t have enough for a down payment yet, it’s a good idea to use this period to beef it up.
- Know which lender type works for you
You can choose from different types of lenders. The most common include the following:
- Credit unions
As member-owned financial institutions, they offer favorable interest rates to shareholders. However, you need to be a member if you want to apply for a loan.
- Mortgage banks
These are financial institutions that do direct lending and offer their own set of loan products.
- Correspondent lenders
These are lenders that fund loans in their own name, but don’t service them. They sell the loans to a direct lender, which does the servicing.
- Shop around for rates from at least three lenders
Get several quotes from different lenders to compare costs. As a starting point, search for mortgage rates online. Remember that everything is negotiable.
- Prepare the necessary documents
Once you have locked in on a suitable lender, you will want to be ready with the necessary documents. Every lender will have different requirements, but in general it’s a good idea to prepare the following:
- W-2s (two years’ worth)
- 1099 form.Borrowers who are self-employed need to submit their current year profit and lost statement.
- Paycheck stubs
- Tax returns
- List of debts and assets
Choosing the right lender and mortgage can be a time-consuming process, but it’s not something you will want to rush. Let me help you out. Call me at (760) 622 5087 or send me an email today.