Snagging a great loan and setting yourself up for a smooth trip on the home buying journey doesn’t happen by accident.
As with most big decisions, you have to take small steps to start. When you’re looking for a mortgage, here are six smart tips to get you started on the right track.
Tip #1: Budget Wisely
Knowing the type of home and mortgage you can afford is all about budgeting. Search around for the kind of home you want in your area and compare prices to get a ballpark figure. Figure out the following for creating your budget:
- Monthly debts
- Estimated cost of living expenses
- Amount saved for a down payment
Then head on over to realtor.com®’s online mortgage calculator to get a feel for how much your monthly payments might be. Tinker with the interest rate a little bit to see how that can change and compare to the money you pull in each month.
To avoid a cash crunch, your mortgage payment shouldn’t exceed 43% of your monthly income.
Tip #2: Decide on a Mortgage Type
The type of home you want and any assistance you need will decide what type of loanyou’re eligible for. As an example, do you meet any of the following qualifications?
- A military veteran? Consider a Department of Veterans Affairs (VA) loan.
- A first time homebuyer with good credit? Consider a first-time homebuyer loan via the Federal Housing Authority (FHA). FHA loans require only a 3.5% down payment and typically come with good interest rates.
- Looking for a mansion? For really expensive homes—you might want a jumbo loan.
Tip #3: Mortgage Broker or Lender?
There are two ways to find a loan: dealing directly with the lender or seeking some help from a mortgage broker.
If you go the solo route, you have to do all the legwork and shop for a loan—which includes going from lender to lender, comparing interest rates and other loan terms.
If you enlist a mortgage broker, they do the legwork and will work with you to figure out which loan best fits your needs. But they typically charge 1% to 2% of the loan amount.
If you’re into research and tracking down information, by all means go solo. However, if the process seems too daunting or confusing, you might want to find a good mortgage broker.
Tip #4: Check Your Credit
Now’s the time to check your credit report for blemishes.
If you see something that doesn’t look right, ask to have it removed.
By law, you can obtain one free credit report from each credit report company—TransUnion, Equifax and Experian—per year. Go to annualcreditreport.com to get yours.