First Step: Get your Own Finances in Order
Do you feel ready to stop renting and start owning a home, but are concerned with high mortgage rates? The first thing you need to do before adding another financial commitment is to assess your own current financial status. Not only will this prepare you for financial planning that mortgages require, but actively working on and improving your finances will improve the mortgage rates that you will have access to.
Ask yourself these questions:
– Do I have any debt?
– What do I have for savings? (or, do I have savings established at all?)
– How is my credit score?
– Do I have a well-paying job?
– Do I have any additional financial commitments that I need to resolve or address before adding another?
Do you feel well prepared for taking on a mortgage considering all of these variables in your budget? If not, it would be a good idea to rebuild your credit and eliminate as much of your accumulated debt as possible before even considering an application for a mortgage. All of these factors will significantly affect your mortgage rates. If you consider any aspect of your financial situation as a current problem, do everything you can to address these concerns before pursuing mortgages.
If you’re happy with your current credit score, your debt is well-managed, and you have a comfortable amount of savings accumulated, now is the time to begin your mortgage application process.
Second Step: Apply for a Preapproval Letter
The first large step towards getting a mortgage is to begin the preapproval process. So, you will need to prove with substantiated information that you’re a satisfactory candidate for a mortgage, who can reliably and regularly pay your mortgage payments. You’ll need to connect with a local lender (independent mortgage brokers are highly recommended for first-time home buyers, so their questions and concerns can be addressed personally) to begin the application process for a preapproval letter.
The preapproval letter is necessary, as many real estate agents won’t show houses and properties to you without it- real estate agents need to confirm that you can purchase a home before beginning what can be a long laborious process of finding a home that’s the right fit for you. In the long run, the preapproval process saves you time, and can manage your expectation as far as what to expect in the rest of your mortgage application process.
A Preapproval letter will consider many factors:
- Your current income and expenses
- Your credit score (and credit debt, if any)
- Your current student loan debt
- Any recent unsatisfactory activity from your bills, lenders, credit and debit cards.
- Your current assets and liabilities
These are all factors that would be considered in the actual mortgage application process, so it’s good to address these issues early so you and your lender know what you bring to the table as a borrower.
Third Step: Negotiate your Mortgage via a Mortgage Broker
Now that you have a preapproval letter, you’re clear to meet with real estate agents, and choose your next home. Once you’ve come to a decision, you’ll need to start your mortgage application process. Your real estate agent may have connections to a broker, but it’s encouraged that you do your own research. If you have local contacts, friends, or family, asking for a recommendation is always a great option.
Once you connect with your broker or loan officer, they will review your information from your preapproval letter, in order to dictate terms of your mortgage. This is where the pursuit of the best mortgage rates come in; loan officers are only able to offer the loan and mortgage options that their employer offers, whereas a mortgage broker can negotiate with multiple sources in order to provide the best rates for you. Brokers can also navigate any issues there may be with your financial history, or consider financial issues that you’re currently facing.
Utilizing a broker instead of a bank will help you save on certain fees that banks tend to add on to mortgages- ask your broker to negotiate these fees and rates:
- Origination fees
- Application fees
- Appraisal fees
- Underwriting fees
- Down payments
Fourth Step: Don’t Settle for any Mortgage Schedule that doesn’t work for your financial situation.
There may be additional fees, rates, or other concessions to consider with your broker, and it can never hurt to request that your broker negotiate terms and conditions until you’re satisfied. Don’t hesitate to ask your broker for advice, they’re familiar with all variables, pitfalls, and changes that are part of the mortgage application and negotiation process. Don’t sign off on any agreement until you’re satisfied with how a new mortgage schedule fits into your budget looking forward.