Getting your first mortgage is a big deal, and sometimes a difficult one. However, whether you are buying your first house or opening a second mortgage for refinance reasons, here is a guide to gaining that mortgage without intimidation.
What Is A Mortgage?
Basically, a mortgage is a loan used to purchase a home. Sometimes, a mortgage is taken out to refinance an existing mortgage to increase a home's equity (the worth of your home when used as collateral for a separate loan). Then, you make payments back to the lender with a bit of interest tacked on. Eventually, you will complete the payments, the house will truly feel like yours, and that extra sum of money that used to go to the mortgage payments will be up for spending or saving!
What Do I Need To Get A Mortgage?
To get approved for a mortgage, it is very helpful to have a consistent job and an outstanding credit report. A few more documents you need are:
- Several years of tax returns
- Months of bank statements
- Letters of wherever big sums of money (like a down payment from your parents) come from
- A list of all of your assets and debts
A Quick Fix
However, not everyone has a steady career that seems reliable to lenders (lenders are hesitant about self-employed, part-timers, etc.), or maybe your credit score looks subpar. If that's the case, start looking for mortgages at least one year before you need it, and work on cleaning up your credit score, which symbolizes how responsibly you will make your mortgage payments. Improving your credit score not only enhances your options of mortgages, but also lets you borrow more money with a lower interest rate.
Improve Your Credit Score
At least six months before applying for a mortgage, improve your credit score to heighten the chances of mortgage approval by utilizing the following tips:
- Pay off any other debts
- Do not use your credit card for expensive purchases
- Do not take out other loans
- Cancel any credit cards or accounts that aren't in use
- Make all payments on time
Of course, to buy a house you need money — a lot of it. Expenses that you would never think of arise when buying a home, and mortgage lenders want to ensure that you have enough to cover all of the following:
- Down payment
- Closing costs
- More than one year's worth of taxes and insurance
- Home inspection
- Appraisal costs
- More money just in case you lose your job
Where Do I Get A Mortgage?
First become confident in your finances and be ready to look for a home, and then seek an official lender to prequalify you for a mortgage. This way, you know which price range of houses to search for. Unlike applying for a regular mortgage, prequalifying for a mortgage does not take too much time because a background check and confirmation of every detail on your application is not necessary. A lender simply looks at all of your qualifications and gives you an estimate of how much money you can spend on a house.
Sources to Obtain a Mortgage
After some house shopping, there are quite a few different sources for obtaining a mortgage such as:
- Credit unions
- Mortgage brokers
- Online mortgages
Once you find a mortgage lender suitable for you, and the house of your dreams, pay the largest down payment affordable in order to reduce the interest and future payments. According to US News, the down payment should be no less than 20% of the entire mortgage.
Overall, with responsible financing, some saved cash, a reliable credit report and a new home in mind, you won't have any problems obtaining a mortgage. Good luck!