If you are a run-of-the-mill Joe or Jill, buying a house is probably the single largest financial commitment that you will make during your lifetime. What makes the stakes even higher is the fact that most of us plan to buy a house only once in our lifetime; hence getting it right the first time around becomes even more important. However, getting the best deal is never that easy as multiple factors play a role in determining how high or low your mortgage payment would be. The following are a few tips to get the best possible deal on your mortgage.
A High Credit Score is an Asset
It all starts here, doesn’t it? A few late and missed payments later, you suddenly find that your credit score has tanked and you are being denied or being charged prohibitively high interest rates for additional credit – be it a credit card or a mortgage. In this regard, a high credit score can play a key role in securing you the house of your dreams backed by an affordable mortgage. But to get to the point where your credit score becomes an asset, you need to start with the simple things, make all your payments – phone bills, rent, credit card dues, etc. on time and definitely no missed payment. Then there’s the matter of outstanding debt obligations, the lower the outstanding credit in your name, the better off you will be when it comes to handling the mortgage. It is therefore best to get a copy of your credit report and check your score before you apply for a home loan.
Compare Multiple Offerings
In case you haven’t been living under a rock, you know that there are choices aplenty when it comes to choosing a mortgage – perhaps one too many. This even after the fact that, subprime lending has been relegated to the position of a historic misadventure. But apart from being spoilt for choice, this also can be the source of a bit of confusion as every one of those will differ in one way or another – interest rate, lock-in details, tenure and so on. Then there is the common mistake of comparing based on only a single criterion such as the interest rate. Don’t make that mistake and compare available options based on multiple criteria such as processing charges, loan tenure and interest rate before zeroing in on an option that suits your requirement. A number of websites offer you the option to check your mortgage options.
Ensure that Multiple Credit Checks don’t happen
Here’s another common mistake that many prospective applicants make – they apply for multiple mortgages thinking that they can pick the one that offers them the best deal. The problem with this is that, all of these separate applications lead to separate credit checks. Whenever a prospective lender checks on your credit score, it counts as a hard look and future lenders who check your credit report will be able to see the details of these checks. When multiple credit checks show up on your report within a short time period, it will portray you as a credit hungry individual and reduce your chances of being approved for a mortgage. But it does not end there, in case one or more of these lenders rejects your application, your credit score will take a nose dive and make it even more difficult to get approved for credit in the future.
The Home Equity Conundrum
Home equity or down payment is among the most important considerations when you are planning to get a mortgage. The logic is simple, the more you pay as down payment, lower your mortgage payments will be. The normal down payment is 20% of the house’s purchase price. However, you can pay more or less as per your financial situation. That said, in case you go for lower amounts, your monthly mortgage payments will tend to increase and you will also be charged interest on this extra amount; so you can end up shelling out quite a bit by the time you pay off your mortgage.
Apart from the extra interest charges, there is also the matter of the private mortgage insurance, which is mandatory in case you make a low down payment on your new house. If not anything else, it will just add to your mortgage burden in the long term. The ideal way to deal with this conundrum is to make as much of a down payment as possible without completely hampering your budget and also finding an affordable house, instead of your dream home.
Choose your mortgage tenure wisely
It is only natural that you explore multiple tenure options when you are seeking a home loan that works for you. If you seek a longer mortgage term, individual EMI payouts will be lower as compared to a shorter one. But the lower EMI payout comes at a price. The longer your repayment term, the more your absolute interest payouts i.e. the more expensive your mortgage. So be very careful when making this decision, as you need to look out for a tenure which minimizes your interest payout while ensuring that your individual EMI payouts are not prohibitively high. Using a home loan EMI calculator would definitely help you make an informed decision regarding the most affordable tenure for your home loan.
Qualification for Special Programs
God might have created everyone equal, but the man made financial sector works a bit differently. Some groups of individuals qualify for a reduced rate of interest based on meeting some predetermined qualifying criteria. Find out if you or your spouse qualify for any such programs, as this will make it a lot easier for you to afford your dream house. Some of the leading schemes with regards to a mortgage include VA loans, FHA loans, USDA loans, first-time home buyers program and so on. Information regarding these and other special programs can be found online as well as through various state-sponsored and federal agencies.
Get the Closing Cost Issue Sorted
The moment you finalize or close the purchase of your house, you have to deal with closing costs. These costs are usually equal to 3% of the home’s purchase price and comprise multiple factors including processing charges, appraisal costs, fee for title insurance and charges for underwriting. If possible do include this in your research for the cheapest mortgage. However, more often than not, the charges are similar, no matter which lender you decide to go with. But trying never hurt, so do take some time to shop around for the lowest closing cost before making this key financial decision.
You are well within your rights to look for details not just when you are indulging yourself during a festive sale, but also when you are purchasing a new car or a house. So make the most of available resources and follow the seven key tips mentioned above to get the best mortgage deal that you can afford. Keeping in mind that your mortgage is a long term financial commitments, even small savings over the term can accumulate into quite a corpus, which adds to your savings and can be used for other investments as well as luxuries in the future.