Finding the best mortgage lender is a crucial step in the homebuying process. But with so many institutions available, how can you get started, let alone know which lender is right for you? From understanding the terms of your loan to comparing rates, these six tips can help you choose the best mortgage lender. Mortgage lenders consider factors such as a strong credit history, a stable income and employment, a savings margin, an adequate down payment and the ideal type of loan. You should have your first conversation with a mortgage lender six months before you plan to buy a home. Even so, if you know you're going to apply for a loan soon, it's helpful to take steps as soon as possible to improve your credit rating.
Lenders prefer borrowers who have a long history of on-time payments. The fewer late payments you have on your credit report, the more attractive you'll be to a mortgage lender. So, it should come as no surprise that your payment history accounts for 35 percent of your total credit score, more than any other individual factor. Most mortgages pay off over 15 to 30 years. Therefore, mortgage lenders must ensure that their borrowers will have a stable source of income to repay the loan during this time.
Lenders use the number to find out if you have an unsustainable level of debt. The higher your debt-to-income ratio, the more difficult it will be for you to meet your obligations every month. Generally speaking, most mortgage lenders want borrowers to have a DTI of less than 36 percent, including the monthly mortgage payment. In addition, they also want to make sure that specific housing expenses (mortgage, home insurance and property taxes) don't exceed 28 percent of their total monthly gross income.
In addition, the more you deposit in a home, the greater your upfront net worth. If you're applying for a conventional loan and you're putting down a down payment of less than 20 percent, the lender will likely charge you private mortgage insurance to cover the risk. Unfortunately, some consumers still believe in the myth that a 20% down payment is needed to buy a home and delay their homebuying plans while saving. That said, a higher down payment will translate into a lower monthly payment.
Your lender may even offer you a supplemental loan, which can help you avoid PMI if you can make a 10% down payment on a conventional mortgage. However, there's no way to avoid FHA mortgage insurance unless you choose a different type of loan, since it's mandatory regardless of the amount of the down payment. Some lenders allow you to lower your interest rate by buying “points.” For every mortgage point you buy, you'll lower your interest rate by up to 0.25%. In the case of a conventional loan, completing the homebuying process, from application to closing, could take around 43 days.
Refinances take one more day, so plan for 45 days if you want to replace your current loan with a new one. During that time, make sure you know how to receive updates from the lender and how to submit any documents they request from you. That way, you won't delay the process unintentionally. How many loan options do you have? They rely on brokers or the institution to help borrowers apply for a mortgage and complete the approval process.
So how do lenders determine the risk you pose? This is what mortgage lenders look for when they assess the risk of different borrowers who apply for a mortgage. Mortgage points (sometimes referred to as “discount points”) are an optional charge you can pay at closing to “buy a lower interest rate” and save on the total cost of the mortgage loan”. Prepayment penalties allow mortgage lenders to recover some of the money they would have earned with your loan if you had continued to make monthly payments until the end of the loan term. In general, each loan option affects your down payment requirements, the total cost of the loan and the monthly mortgage payment, so it's important to consider your needs and financial situation when choosing a mortgage.
While the above list of common mortgage questions may make it seem like mortgage lenders can ask you whatever they want, there are some legal limits, according to Darrin Q. However, you should also ask your mortgage lender about the annual percentage rate (APR), as it provides information about the total cost of borrowing money. Some mortgage brokers work primarily with specific financial institutions and promote lenders with whom they have long-lasting relationships. They usually work with mortgage brokers and other lending institutions (small banks, credit unions, etc. The down payment is the amount of money you pay in advance, reducing the amount you need to borrow for a mortgage).
Be sure to ask your mortgage lender (or broker) a lot of questions about income requirements, the types of loans you qualify for, and how much you have to save for a down payment and closing costs. However, a mortgage broker works with borrowers to help them compare prices and find the right lender for their circumstances. As a result of the services that brokers provide, you pay them a commission, which is a percentage of the final amount of your mortgage. We've put together 14 essential questions to ask your lender or mortgage broker so you can rest easy knowing you're ready for what lies ahead.
Mortgage brokers are licensed independent professionals who act as intermediaries between lenders and borrowers...
