Tri-City Area and Real Estate Blog

The complex process of applying for a mortgage is made simpler once broken down into steps.   To simplify that aspect of achieving Home Ownership, here is a checklist for you:

• Determine Your “ Mortgage Limit” – (How much mortgage you can afford)

One of the first steps in the home buying process is to determine how much home you can    afford.  A financial institution’s mortgage limits will take into account a variety of factors, such as your income, debts, your down payment, and more.  In determining a borrowers’ mortgage limit, the general rule is a monthly mortgage  payment (including principal, interest, property taxes and insurance) should not be more than 25% to 28% of your monthly pre-tax income. FHA loans set the  mortgage limit at 29%.  You can increase your mortgage limits by lowering your debts before you begin shopping for a mortgage.

• Check Your Credit

Why? When obtaining a mortgage, your credit may be the most vital piece of financial information you have to obtain a mortgage with the best interest rate.  Borrowers with high credit scores, between 760 and 850, can expect lenders to offer them lower interest rates and more loan choices. Scores of 620 or lower care considered  below prime and those borrowers can expect to be quoted significantly higher interest rates and may be offered fewer varieties of loans.

• Determine The Type of Loan For Your Needs:

You will be paying this mortgage for 15 years or more.  So it is important to determine the right one. When considering a mortgage option, look at the total cost of the loan.

Fixed Rate Mortgage—which are currently the most popular loans, offer no surprises.  Your monthly payment will remain the same over the life of the loan.  This is optimal for planning and budgeting.

Variable Rate Mortgage– With this option, you pay a lower rate in the beginning, which offers low payments, but over time that rate increases which can cause the monthly payment to      skyrocket and cause the homeowner to struggle.   If you do not plan on living in the home for a lengthy time, or expect a larger income in the    future, this may be a good option.

Insured Mortgage– The Veterans Administration and the Federal Housing Agency offer insured mortgages through lenders.   Standards on these insured mortgages are a bit looser than those from traditional lenders. (you may be able to get a loan with a smaller down payment. This can be a great option if you can afford a monthly mortgage payment but are struggling to save for a down payment)

• Get Pre Approved

Save stress and know what you can afford by getting pre approved.  Pre-approval puts you closer to a actual loan and means that the lender has completed a credit report, checked your debt-to-income ratio, and has done a more in-depth analysis of your financial situation to determine your loan amount.  Don’t confuse this with a pre qualification, which is very informal discussion where no facts are checked and the loan amount is not “approved”

• Lock In Your Rate

When you receive a quoted rate from a lender it means very little until it’s actually locked,” by a bank/lender.  When you “lock” in an mortgage rate, you are guaranteed the interest rate and it’s terms.  You must also choose a lock term.  The most common lock term is 15-45 days, which is the average time it takes for a loan to close.   You always have the option to extend your rate lock at a minimal cost if the loan closing process gets delayed.