Mortgage Basics: How To Get A Mortgage
By Lisa Smith
Once you've learned the terminology and figured out how much you can afford to spend on a new house, the next thing you will need to do is get a mortgage. Because you will be borrowing money, lenders will examine your credit score, a metric used by lenders to determine the likelihood of an individual paying back the money he or she has borrowed.
Clean Up Your Credit
Higher credit scores translate into the ability to borrow more money at lower interest rates. To make sure you get the best possible deal, you should check out your credit score by ordering a copy of your full credit report. (The free reports that you can get list your creditors but don't list your numerical score, often referred to as a FICO score). Check your score well in advance of when you need the loan, so that you will have time to take any necessary steps to improve your credit prior to applying for a mortgage or fix any inaccuracies that may have occurred. (To learn more, read Consumer Credit Report: What's On It and The Importance Of Your Credit Rating.)
If your score is lower that you would like it to be, spend six months making all loan payments on time, paying down or paying off the balances on your credit cards, closing cards that you don't use, and refraining from opening new cards or incurring other debt. Keep in mind that good credit is not built overnight. It's better to provide creditors with a longer historical time frame to review: a longer history of good credit is always favored over a shorter period of good history. (For related reading, check out How Credit Cards Affect Your Credit Rating.)
Pre-Qualification and Pre-Approval
To get a good idea of how much you can borrow, a lender can pre-qualify you for a mortgage. To pre-qualify, you meet with a lender and provide information about your assets, income and liabilities. Based on that information, the lender will provide an estimate how much money you will be able to borrow. Knowing this amount beforehand will allow you to determine the price range of homes before you go house hunting.
The entire pre-qualification process is informal. The lender does not verify the information provided, does not charge you a fee and does not formally agree to approve a mortgage for the amount you are pre-qualified to borrow.
However, if you are serious about buying a house, you will want to get pre-approved for a loan. With pre-approval, the lender checks your credit, verifies your financial and employment information and confirms your ability to qualify for a mortgage. Pre-approval strengthens your position to make an offer when you find a property that you like. Sellers are generally more willing to accept offers from pre-approved buyers, because it shows that the buyer actually possesses sufficient resources available to purchase the house.
Lenders, Lenders Everywhere
Turn on the television, read the newspaper, or just drive down the street and read the signs along the roadway, and you will quickly see that there is no shortage of businesses that want to give you a mortgage. Banks, mortgage brokers and online vendors are all working hard to capture your attention and offer you the opportunity to borrow some cash from them.
Banks are the traditional source of mortgage funding. They offer face-to-face service, recognized name-brands and fees that are generally competitive with other lenders. What they may lack is a broad variety of loan programs, which may mean that they may not offer the lowest interest rates or the lowest fees.
Mortgage brokers generally offer a large variety of loans, which includes loans for people with bad credit. Variety also often results in the lowest interest rate and the most convenient one-stop-shopping for comparison purposes. Because you can physically meet with a broker, the face-to-face service is another plus. In the minus column, mortgage brokers are often more expensive than other funding sources.
Mortgage Basics: Conclusion
Online mortgage providers offer a large variety of loans, convenient round-the-clock shopping and instant comparisons between multiple loans. They often lack personal service - in some cases even reaching a human being by telephone can be nearly impossible to do in a timely manner.
As the variety of lenders suggests, there is no single source of mortgage financing that works best for everyone. Searching for the best deal among all of the potential providers or working with the provider that best meets your personal needs from either a comfort perspective or loan type are both viable ways to address the issue.
Time to Shop
Once you've chosen a lender and received your pre-approval, you are ready to shop. Unlike a trip to the mall or even a trip to the car dealer, home shopping can often involve hundreds of hours and months of effort. Don't get discouraged if you don't find the house of your dreams on your first try. Take your time, tour a lot of properties and don't spend your money until you are sure that you've found a place that is right for you.
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