When it comes to homeownership, around 64% of people are unsure or wrong about what’s needed in order to qualify to purchase a home. Financial literacy is key in order to buy a home.
That’s why it’s crucial to always talk to a lender about applying for a mortgage. However, how do you find the best lender for you?
Don’t worry with this guide you can find out! From checking your credit scores to comparing lenders, you can find the best lender in no time.
Now, are you ready to get started? Here’s an in-depth look at how to pick a mortgage lender:
Check Your Credit Score
Before you start diving in too deep, you first want to check your credit score. Having a good or excellent credit score will suggest to lenders that you can be trusted to pay on time. By having such a score, lenders will feel delighted to do business with you and perhaps even provide you with a complimentary rate to make a better deal.
However, if you don’t have such a high credit score try to make on-time payments or pay payments in full to boost your credit score. Although a credit score alone won’t impress lenders.
Lenders also want to see how you can manage your current debt along with an additional mortgage payment; thus, they’ll conduct a debt to income search on your finances. This means they’ll add your monthly bills and divide it by your monthly income to receive a percentage. Most lenders want to see a percentage around 43.
To keep your debt manageable, try not to make expensive purchases or take out any loans for at least four months before seeking a lender.
Understand the Difference Between APR and Interest Rates
Before you begin looking at your options, you should understand the basic terms of borrowing money. After all, there’s a major difference between interest rates and APR.
Interest rates are the amount you pay for the amount of money you borrowed. For example, if you borrowed $2,000 at a 5% interest rate, it suggests that you’ll pay $50 in interest.
While APR or annual percentage rate is the entire charge of borrowing money. Along with interest, APR also includes fees such as a mortgage introduction, which is usually charged by the lender.
The fact is that interest rates and APR are always a little different. However, you should look at the APR when thinking about a lender’s offer. After all, it may just surprise you at how much APR can vary between two loans with the same interest rate.
Understand Your Options
The best way to find a good mortgage lender is to understand your options. Do your research into the various types of mortgages and the down payment requested.
While traditionally, people assume you have to put 20% down, that’s not always the case. Some lenders offer loans with a 3% down payment. Although, with such a low down payment, lenders usually increase interest rates and demand mortgage insurance.
Instead of settling right away, talk to different lenders. Whether they be from different credit unions, banks, or even online sources. Then, gather the information and compare lenders to ensure you’re getting the best terms and rates.
You may even find a lender who communicates in a style you like. For example, a lender who is direct, honest, or looking out for your best interest versus someone who simply wants to upcharge you.
However, another option to keep in mind is to work with a mortgage broker. A mortgage broker assesses your application and gathers rates from various lenders who match your classification. If you’re even in need of a mortgage broker, JakeTaylor.com, is an experienced and reputable company that can help you.
Getting preapproved is one of the best ways to find out the exact loan price since lenders conduct a lengthy review of your finances. Lenders may request different documentation in order to get preapproved. Although here are the general documents a lender will ask for:
- Driver’s License
- Pay stubs for the past month
- Tax returns for over two years
- Social Security Number
- Bank statements for the past two months
- Income and Employment history
- Down payment amount and source of payment
However, be cautious just because you get preapproved doesn’t mean you’re free and clear. Lenders can always re-check your finances, employment history, or even your credit during this process.
For example, if you change jobs that can alter your entire financial future and can even thwart your chances at receiving a loan. Instead, try not to change jobs or move large sums of money during the purchasing process.
Read All Paperwork
Mortgage paperwork isn’t the most exciting reading material. However, it’s crucial that you read each document to ensure there aren’t any errors or upcharges.
Make sure you pay close attention to your monthly payments, interest rates, loan fees, and closing costs. These costs shouldn’t increase if your finances stay relatively the same.
However, lenders may offer to decrease the amount of cash due at closing by offering credits. Be careful though, sometimes credits come with a high-interest rate, meaning you’ll pay more in interest over the course of a loan.
Although, don’t hesitate to ask questions if you don’t understand certain languages or fees. If you spot errors like a wrong bank account, misspelled name, or a wrong address, let a lender know immediately. It’s better to get ahead of such issues since it will save time and even money in the long run.
How to Pick a Mortgage Lender Today
Picking the right mortgage lender comes with understanding homeownership. That’s why it’s essential to understand your options before you go to a lender. Thus, have a basic knowledge of your credit score, interest rate, APR, and what amount you’re willing to put down as a down payment.
Just remember, before you settle, make sure to compare lenders that way, you can ensure you’re getting the best deal possible. For more information about how to pick a mortgage lender, visit our website today. We look forward to helping you.