7 Tips for Finding the Right Mortgage
7 Steps to Your New Mortgage
If you’re considering the purchase of a new home, or the refinancing of your current one, doing so in this year of COVID can be a combo of good news – bad news. In spite of economic upheaval, the housing market has remained strong, and partly because of the economic state of affairs, interest rates have been kept historically low and accessible.
It also means that lenders are being more cautious with the 2008 housing crisis still in the rearview, therefore qualifying may involve a few more hoops to clear. So, what steps should you take to find the best mortgage or refinance? We offer seven mortgage shopping tips for a successful transaction:
1 | Evaluate Your Objectives
The desire to purchase a new home may seem straight forward, but there are always individual motivators. In many cities, the rental market has exploded making it financially more feasible to own than rent. A change in family, work or lifestyle in 2020 could also be a factor in upsizing or downsizing homes.
Current homeowners are finding the lower interest rates a fantastic reason to refinance their current mortgage. Are you looking to reduce your monthly payment to provide more cushion going into the new year? Reduce your term so you can pay off the loan sooner? Or perhaps you’re hoping to tap the equity that’s built up for cash to use on a much-needed home improvement project?
Whatever your personal objectives are, you’ll want to sit down and evaluate what you hope to achieve with a new or refinanced mortgage.
2 | Determine the Right Type of Loan
Based on your personal situation and goals, you can then determine the right type of mortgage to pursue. Qualifications for certain programs may be based on your credit rating, military service, or the value of your prospective or current home. A lender can help you answer those questions, but here is an overview of mortgage types to review:
An FHA Loan is a government backed program from the Federal Housing Administration. FHA loans can be more accessible to those with a lower credit score, down payment, or loan-to-value ratio (LTV), which makes them very popular for first-time buyers as well as those refinancing their current mortgage.
Veterans and active military personnel can greatly benefit from a VA Loan program. Purchasing through the Veteran’s Administration can be done with zero down payment and as low as 0% interest. Refinancing with the VA offers great rates, savings, and flexibility.
Most borrowers are familiar with Conventional financing, which can be an optimal way to go if qualified. Whether purchasing or refinancing, conventional loans offer competitive rates, varied term options, as well as eliminating the need for pricey mortgage insurance. A strong credit rating, stable employment or income, plus a well-balanced debt-to-income ratio are typically required to qualify.
Refinancing your current mortgage means replacing it with a new loan so many of the same guidelines apply. You can refinance via FHA, VA or through a conventional, fixed rate program, based on the qualifications mentioned above. The most popular option is a Cash-Out Refinance, which pays out the difference between the new mortgage and the appraised value of the home.
3 | Be Prepared
Once you’ve established your objectives and determined the best type of mortgage for your circumstances, there are other steps to take to be suitably prepared to apply. If you’re purchasing, obviously saving an adequate down payment is important. Refinancers will want to get an idea how much equity they’ve accumulated since purchasing. This can be done with a general online calculator for your comparable neighborhood values.
Either way, credit will play an important part in qualifying so check your current FICO score. You can check your rating through various bureaus for free and you can also see if there are any errors to resolve before applying. Keep making payments on time and avoid applying for any new credit before proceeding with the mortgage process.
Any mortgage application will eventually entail significant paperwork requests, so it’s a good idea to get your tax returns, pay stubs, bank statements, asset documents, etc. in order ahead of time.
4 | Secure the Best Interest Rate
When a fraction of a percent in interest can save (or cost!) a homeowner tens of thousands of dollars over the life of a loan, it’s wise to find the best rate possible. Of course, the feds, the mortgage lender, and other factors impact the rate, but you have some agency over it as well.
Your credit standing has a lot of influence on the interest – higher score, lower rate – however an average or lower than-average score doesn’t preclude you from buying or refinancing. Most lenders will work with folks at all levels. Meanwhile, make sure your payments are on time and try to keep your debt ratio below 30% of total available credit.
In addition, lenders will look at employment, income, assets, and if you’re refinancing, the amount of equity in your home compared with the loan amount.
5 | Find the Best Lender – for YOU
There are several avenues of borrowing to buy or refi, and they don’t all lead to a bank. These days you have options that include big commercial banks, local banks, credit unions, mortgage brokers, private lenders, and even online lenders. While there are pros and cons to each, most offer competitive interest rates in today’s market.
The most important thing is to find the best lender for your particular situation and needs. Ask your friends and family for recommendations and don’t be afraid to shop around. A trusted mortgage lender can make all the difference in your home-buying or refinancing experience.
6 | Know the Numbers
Besides the loan amount and the interest rate, you’ll want to know the additional numbers in your mortgage equation. For either purchase or refinance, these may include:
Closing costs and title fees, which vary by lender and mortgage.
Appraisal fees; usually established by independent professionals.
PMI – private mortgage insurance may be required on FHA loans based on credit, down payment, etc.
7 | Lock It In
If you’ve taken the necessary steps to find the right mortgage for your goals, prepared your credit and appropriate documents, ran the numbers, and found the best rate and ideal lender, then it’s time to lock it in!
The team at EnTrust Funding (ETF) knows the value of your time and money and can help make the decision to proceed even easier. Contact us today to discuss any additional questions you may have before locking in the right mortgage refinance!