One of the realities of life is that you will likely need a mortgage loan in order to buy a house. That means you will have to meet with several mortgage lenders and be approved for a loan. Your best bet, in many cases, is to get a fixed mortgage.
A fixed mortgage has an interest rate that remains the same over the life of the loan, allowing you to plan and budget more efficiently because the amount of your mortgage payments do not change. With a fixed mortgage rate, you are protected from the risk of potentially rising interest rates in the future.
However, obtaining a fixed mortgage can be tricky in some instances. Before jumping headfirst into loan applications, you must be sure that you are ready to take-on a mortgage and you must be able to show the lender that you’re an acceptable risk. Below are some tips that can help you get approved for a fixed mortgage.
Improve your credit score
Particularly these days, it is important to have good credit. The higher your credit score is, the lower your risk is as a borrower. A solid credit score can help you get the best possible loan terms for your fixed mortgage. A weak credit score may not completely ruin your chances of getting a fixed mortgage, but you will not be able to secure the best interest rates.
Save up for a down payment
If you can gather the funds for a substantial down payment (20% is considered ideal), it will be easier for you to get a fixed mortgage with favorable terms. In general, the bigger your down payment is, the less risk you represent. A sizeable down payment shows the lender that you are financially responsible (able to manage and save money) and gives you immediate home equity. While FHA loans have a minimum down payment of 3.5%, most fixed mortgages require at least 5%-10% down. For a new construction loan ― if you are building your own house ― you may need to put 20% down.
Pay down other debts
Your debt-to-income ratio (what you earn compared to your debt obligations) is an important part of getting approved for a fixed mortgage. By paying down your debts (e.g., student loans, car loans, and credit card balances) you can also improve your credit score. The smaller your debt load is, the better chances you have of obtaining the lowest fixed mortgage rate.
Have documentation ready
You will need proper documentation of your income, assets, and debts in order to prove that you can repay the fixed mortgage according to the loan terms. If you have your papers in order and ready to go, you are more likely to be approved in a timely manner. Some mortgage application documents that you may need to provide include tax returns, paystubs, W-2s, bank statements, and more.
If you want the best fixed mortgage rate, you will need to show you’re in a stable financial position and that you are not a significant default risk. If you are fiscally responsible, and you can prove it, you will be able to obtain a low fixed mortgage rate with good terms.