A Roadmap to Finding the Right Mortgage Loan
If you’re ready to buy a house, first you’ll need to figure out how to pay for it.
When you need financing from a lender, you’ll be offered a number of different loan types, all with various structures—and their own pros and cons. To find a mortgage loan, you’ll want to consider your circumstances, your budget, your credit score, and your location.
The right loan is out there—consider this a roadmap to the front door of your new home.
You'll have your mortgage for the long term, so make sure it will work for you.
What you want and need will be the chief determiners in finding the right loan. Try and set some goals for yourself that will help you understand what loan features are most important. Think about what kind of lender you’d like to work with; chances are, you’ll be working together for years. Some wants and needs to consider are:
- Having the lowest monthly payments possible
- Paying off the loan in X years
- Working with a lender that knows you and is accessible
Just based on the examples above, you can see how it is vital that you know what you want before you start your loan search. If you want the lowest rates and payments, you may find that at a big, national lender—but you might not get a lot of personal attention. If you want to pay your loan off faster, you’ll find that a structure with higher monthly payments gets you to your goal.
To get a feel for individual lenders, it’s in your best interest to shop around. Compare as many lenders as you can to see what and how their loans vary, as one may be preferable to another. When comparing loan estimates, look mainly at the interest rate you’ll be charged, and any points and lender fees for the loan. By meeting with multiple lenders, you’ll also have an idea of who they are and how they work—and whether you want to work with them.
Obviously, how much you have to spend will factor into how much house you can buy. But do you really know what your home-buying budget is?
For many buyers, the largest bulk payment they make will be the down payment. With traditional loans, you’ll need to pay between 10 and 20% of the total cost before you even make your first mortgage payment. If you’re looking at a $200,000 house, that means you’ll need a check for between $20,000 and $40,000, just to secure your financing.
That’s where loan programs with lower down payment requirements may be most suitable to your needs. The top loans with reduced down payments include:
Meet with lenders to discuss your situation.
Your Credit Score
Your credit score is going to be an important factor in deciding what kind of loan you can get. Lenders want to see a steady history of regular payments and responsibility, and whether or not you are already carrying debt. The higher your score, the better rates you’ll be offered; the lower your score, the higher the chance that you don’t qualify for a mortgage.
Lenders typically consider scores above 750 to be ideal, which means you can qualify for preferential terms. Those with scores under 580, on the other hand, will struggle to be eligible with any lender.
Start your loan search by getting your credit in shape. Monitor your credit reports, and make all payments on time. Pay off any large debts as much as you can, as this will decrease your debt-to-income ratio—a significant consideration for lenders.
Ultimately, what kind of mortgage you get and who you get it from will depend on your location. If you live in a rural area and can qualify for a USDA loan with the local bank, your process will be relatively simple and straightforward. If you live in a big city with a competitive market, you may need to provide even more justification for your application, but you’ll also have a broader choice of lenders.
The first step in any home buying process should be checking your credit, so you know what potential lenders will see. Get your credit report today to see where you stand.