Use these four tips to quickly start your home loan process and find the best lender for you.
1. Get your credit score in shape
Not everyone can qualify to buy a home. You must meet certain credit and income criteria to ensure that mortgage banks can repay the loan.
A low credit score indicates that the loan is risky, which means a higher interest rate on your home loan. The higher your credit rating and the more payments you make on time, the more power you have to negotiate for better interest rates with potential lenders. If you score less than 580 points, you usually find it difficult to qualify for most types of mortgages.
First, make sure that your credit reports are accurate and error-free to increase your credit rating. Get your report from the three main credit bureaus: Equifax, Experian, and TransUnion. Everyone should provide you with a free copy of your report every 12 months.
Then try to pay off the debt at high-interest rates and reduce your total debt as soon as possible. By reducing your debt, you improve your debt-to-income ratio. If you pay for credit cards and recurring loans before buying a home, more money will be free for the down payment.
2. Know the credit outlook
If you know the best players, you can find your way into the crowded credit arena. The most common types of lenders are:
Credit unions: These member-owned financial institutions often offer low-interest rates to shareholders. And many have relaxed membership restrictions, so you can probably find one you can join.
Mortgage bankers – work for a specific financial institution and loan packages to accommodate the bank’s underwriters.
Mail-order lenders: Mail-order lenders are often local mortgage lenders who have the resources to make your loan, but rely on a portfolio of other lenders such as Chase to sell your loan immediately.
Savings and Loans: Formerly the basis of home loans, S&L are a bit difficult to find today. But these small financial institutions are often community-oriented and are worth looking for.
Mutual savings banks – Another type of savings banks such as savings and credit institutions. Mutual savings banks are locally oriented and often competitive.
Check that each lender you are considering is registered in the state where you are buying. You can do this by registering the multi-state licensing system nationwide. Also, look for the Better Business Bureau for unbiased reviews and information.
3. Get approved in advance
If you receive a previous mortgage approval letter before looking for a property, you have an advantage in bidding against other buyers. The letter shows the seller that you are a serious buyer who’s loan is likely to be terminated. This is proof that a lender has assessed your finances and calculated how much you can borrow and therefore how much you can pay.
If you are pre-approved now, you will save time later. When you are ready to bid on a home, lenders already have the information they need to process your home loan.
To obtain prior approval, you must provide your lenders with your financial information. Here is a list of the requirements of a lender:
- Social security numbers for you and each co-borrower
- Bank, savings, check and investment account information
- Debt outstanding, including credit cards, car loans, student loans, and other balances
- Two-year tax return, W-2 and 1099
- Salary and employer information
- Information on the amount of advance you can make and where the money comes from
Get pre-approved by more than one lender. You can then compare the loan estimate forms for each form to determine who is offering you the best rates and terms.
4. Compare the interest rates of different mortgage lenders
First, look for the best mortgage rates online. Please note that the offer presented online is an estimate. A lender or broker should collect your credit information and process a loan request to provide a specific interest rate that you can then block when you are satisfied with the product.