Things to Know Before Applying for a Mortgage
One of the first things to know before applying for a mortgage is exactly what a mortgage is. As Investopedia explains, a mortgage is a loan that is typically used to purchase or maintain a home or property. If approved, the property serves as collateral for the loan, and the borrower repays the lender in a series of regularly scheduled payments.
You’ll want to make sure things are in order before approaching the lender so that the application process goes smoothly. Having certain information at hand also helps ensure that you’re prepared to provide your lender with necessary facts and to ask good questions so that you can get the information you need to make smart decisions. The following are several important things to know before applying for a mortgage.
The State of Your Credit
Before heading to your lender, check your credit score. As MyFico.com explains, it’s a three-digit summary of your creditworthiness that tells your lender at a glance how likely you are to repay a financial obligation. It affects your ability to get the loan, the type of loan that you are able to get, and the terms that you’re offered.
Debts Also Matter
As The Truth About Mortgage indicates, carrying a large amount of debt can be problematic if you hope to qualify for a home loan. Paying down other debts before you apply will increase your odds of getting approved. It can also boost your credit score, which can help you score better loan terms and make borrowing more affordable.
Your Options for Home Loans
Home loans come in a variety of shapes and sizes. Having so many options to choose from may seem a bit confusing at first. However, it’s actually an advantage. When you sort through the choices, you’re sure to zero in on a loan product that’s a good fit for your needs and circumstances. The Balance offers a quick overview of some basic considerations:
- Loan Type: There are several government-backed mortgages. These are home loans insured by a government agency. Popular examples include FHA loans, VA loans, and USDA loans. This government backing reduces the risk to lenders and allows them to provide special services, but it often comes with certain requirements that must be met. Conventional loans offer an alternative. They are loans without government backing.
- Interest Type: Fixed-rate loans are home loans that stay with the same interest rate for the life of the loan. Many people find comfort and safety in this predictability. Adjustable-rate mortgages are loans that stay the same for a fixed period before beginning to shift with the market. These loans typically start out with a lower interest rate at the beginning, but many people seem to find the risk unsettling.
- Loan Term: The term is the length of the loan. Terms of 15 and 30 years are popular, but other lengths are possible.
What You Can Afford
According to Nolo, you can figure out how much you can afford to spend on a home with a little math. Grab a calculator, and figure out what 28 percent of your gross monthly income is. Generally speaking, experts say that a person’s monthly mortgage payment shouldn’t be more than that, but your situation may be different. If your financial situation is unusual or complex, speaking with a financial advisor may be helpful.
When you’re ready to apply for a home loan, the friendly, knowledgeable experts at PrimeLending Kansas City are here to help you with useful answers and first-rate services. Contact us today to explore the possibilities.