Tips for Getting a Mortgage

When you are buying your first home and go to take out a mortgage, it is a daunting process. Most likely you are dealing with terms that you don't have a good understanding of, reading pages upon pages of terms and conditions that mean very little to you but still sound frightening, filling out massive amounts of paperwork, and preparing to take on debt equivalent to three years' income. It is a challenging proposition whatever way you cut the cake, but here are a few tips to make it a bit easier.

First, get pre-approved. Many people don't know that there is a difference between pre-qualification and pre-approval, but there is. Prequalification is a casual process, which involves the lender finding out a much money you make a larger down payment would be willing to make, giving you some sense of how big lender could get it. Preapproval, on the other hand, means that youth actually applied a loan. You've given the bank your tax returns, pay stubs, and other information, they have found out your credit score, and offered you a loan. Without pre-approval, most people selling homes won't look seriously at your offer.

Second, do what you can to improve your credit score. Your credit score, which you can get online for around fifteen bucks, is a three digit number that will determine much about your life. Find out what it is six months in advance. If it is not great, do what you can to pay down your debt, make your payments on time, and dispute any errors. With a bad credit score, you won't get good rates.

Once you know your credit score, shop around. Many foolish people with good credit wind up with subprime loans, paying extra interest for loans meant for people with bad credit. In fact, most offers you will receive will be well above what you could get if you shopped. In shopping around, also see if there are any special home buyer programs in your area. These are usually run by state or local governments, and if they apply to you, they could get you a much better rate than you might otherwise end up with. One final point on this subject would be to avoid unnecessary fees. Some lenders, looking to squeeze a little more money out of you, may charge you a "document processing fee" of $150 to print something out. Ask about every charge, and negotiate. If the lender is unwilling to negotiate, look elsewhere.

Don't borrow too much money. A good rule of thumb would be to figure that you can pay 25% of your income for your loan. Banks will let you borrow closer to 35%, looking to get you into a bad position and take advantage of you. Don't let them.

Finally, think carefully about how large a down payment you can afford. Moving is expensive, and things will come up! Washing machines break, things get lost, and problems arise. Also, when taking this into consideration, consider closing expenses, too. Expect to pay attorney fees, taxes, title insurance, homeowner's insurance, as well as various fees the bank will throw at you. Moving is expensive!