Ready to take the plunge into homeownership? Unless you’ve got quite a bit of savings (or very generous relatives), you’ll probably need a mortgage. But there are seemingly endless choices when it comes to selecting a mortgage lender, so how do you know which is right for you? Read on for tips to guide you through the process.
Consider All Your Options
Banks are the most traditional lender, since they typically provide the largest loans and offer the best interest rates. But you’ll need a great credit score to secure a mortgage from a bank. If your credit has seen better days, you’ll want to consider other options, including lenders that provide government-backed loans, like the Federal Housing Administration (FHA) or the Department of Veterans Affairs. Additionally, you can find lenders through your AAA membership, credit unions, or by checking out websites like LendingTree.com and INGDirect.com. These mortgage lenders are typically overlooked, but they can offer you special deals or lower rates, so they’re worth checking out.
Know Where You Stand
Before you meet with lenders, you’ll want to order a copy of your credit report from all three of the major credit report agencies, so you know whether your credit score is strong or could use a boost. Make sure you look over the report and address any errors and pay off anything that might negatively impact your credit rating before applying for a loan. The better your credit score, the better the loan you’ll be able to obtain.
You’ll want to meet with several different lenders to compare your options and find the best deal. It’s important to show up prepared, in order to ask the right questions and find out all the information you’ll need to make the best decision. So before you even think of speaking to a lender, figure out what you can afford and believe you’ll be able to afford in the future, how much you’ll need to borrow, how long you’ll want to pay off the loan for, and so forth. Then you’ll want to ask each lender about the interest rates, points, terms and the minimal down payments required, as well as all their mortgage fees. Each lender can offer something different, so it’s important to gather as much information as possible so you can compare each one.
Remember, the lender wants your business, so you have the power to negotiate a better deal. Explain to each lender that you are shopping around so you can find the best deal. The lender might make you a great deal if they don't want to lose you as a customer. Compare the interest rates, fees, terms and required down payment each lender offers and then choose the one that will work best for your current financial situation, as well as where you see yourself down the road. (Mortgages have 15- to 30-year terms, which means you’ll probably be paying this loan off for years or even decades to come, so make sure you take into account your current salary, savings and expenses, as well as your anticipated financial situation in the future when kids, grad school or raises may come into play.)
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