Getting a good mortgage deal is one of the most important parts of the home buying process. Read onto learn more about mortgages and how to get a great deal.
Buyers must review their personal finances
Buyers must look into their personal finances before searching the market for a mortgage deal or starting a house hunt. It’s best to sit down with a professional and go over bank statements, bills, previous loans, and most importantly, the debt-to-income ratio or DTI.
The DTI is an important factor mortgage lenders look at when they measure someone’s ability to make payments. It has two types: the front-end ratio and the back-end ratio.
The front-end ratio only measures the proposed housing payments against the buyer’s monthly income. Meanwhile, the back-end ratio measures the buyer’s monthly payments and the proposed housing payments against their monthly gross income.
Ideally, the buyer’s front-end ratio should be less than 28% and a back-end ratio of under 36%. A high DTI tells lenders that the buyer may have incurred too much debt to make mortgage payments. On the other hand, lenders tend to give those with a low DTI a low interest rate as a perk.
Get the credit score up
A buyer’s credit score is a crucial part of any mortgage loan application. This can very well determine one’s interest rates, as well as the loan terms. A low credit score tells lenders that there’s a higher chance a buyer would default on their loan.
A high credit score, on the other hand, gives lenders the confidence that the buyer can make their payments. With that, they can also be eligible for a lower interest rate.
If a buyer’s credit score isn’t ideal, there are ways to improve it. Start by checking the resulting credit report from a reputable assessor to see if there are any errors that may be dragging down the score. Also, avoid opening new credit accounts while paying off existing debt.
Have stable employment and income
Mortgage lenders are looking for candidates with jobs or a steady flow of income. If the buyer has been employed at the same company for two years or more, then they have a good chance of being approved for a mortgage loan.
Long periods of unemployment and declining income, on the other hand, can work against a candidate applying for a loan.
For those who are self-employed, some lenders may require income tax returns and other documents related to their business.
Shop around and compare rates
Once finances and credit rates are in check, the buyer can shop for the best mortgage deal. A mortgage is a major financial commitment so it is of utmost importance that one gets the best deal possible.
Go to different banks and lenders to discuss their offered interest rates and loan terms. Check out the different mortgage brokers in Northern Virginia and find one offering the best deal.Don’t forget to check other required payments like the arrangement fees, over-payment fees, and early repayment fees that could greatly impact one’s mortgage
After mortgage shopping at a number of financial institutions, list down and compare their rates and fees. Buyers can actually use this research to negotiate for a better deal.
Save for a big down payment
The bigger the down payment is, the less money needed to borrow. Applying for a lower mortgage amount can also give a lower interest rate. A lender will see this as a low-risk transaction so they’ll be more receptive to giving the buyer a better deal.
Traditionally, home buyers are expected to pay at least 20%down payment to get a decent mortgage. If a mortgage being applied for only has a 5% down payment, expect a higher interest rate. The buyer will be required to pay for private mortgage insurance, as well.
Have cash in reserves
Cash in reserves pertains to an amount saved in cash that is equal to house payments. These reserves cover money in the buyer’s money market funds, certificates of deposit, as well as their checking and savings account/s.
Any money they have in retirement accounts or the like are not counted because these can only be withdrawn after taxes and penalties.
When it comes to mortgages, the standard cash reserves one is supposed to have should be worth two months of payment. A buyer should have enough cash on hand after closing on a new home purchase and mortgage payment. This should cover interest, taxes, and insurance for at least the next 60 days.
If a buyer’s mortgage is considered to be of higher risk, then their cash reserve requirement should also be higher.