Everyone wants to get the best mortgage rate available. But, looking around and researching all of your options in quest of the greatest offer might take time. And time is money in and of itself.
Fortunately, there are methods for shopping for a mortgage that is both speedy and thorough. Moreover, when discrepancies in mortgage rates of only one-eighth of a percent can add up to thousands of dollars over the life of your loan, being diligent is critical. The following suggestions will make your mortgage shopping easier while also helping you to swiftly and confidently get the greatest price on a house loan.
1 – Determine your financial capabilities
This is where you should begin. Don’t waste time looking for a loan you won’t be able to qualify for or looking for a home that is out of your price range.
Many borrowers make the error of estimating what they can get approved for without taking into account the whole cost of the monthly mortgage payment. Taxes, homeowner’s insurance, and mortgage insurance, which are often included with the mortgage statement, can easily account for one-quarter of the monthly expense.
How much money can you get? Your total monthly debt payments, including your mortgage, auto payments, credit cards, student loans, and any other debt, should not exceed 41% of your gross monthly income. You can sometimes go higher by making a larger down payment. Monthly debt does not include invoices for continuous monthly expenses such as utilities, internet service, cable TV, and the like.
2 – Understand your credit score
With a FICO credit score as low as 620, you can often qualify for a mortgage if you meet other criteria such as income, debt load, and down payment. Your credit score, on the other hand, can influence the interest rate you pay, the size of your down payment, and even the sort of loan you choose.
Conventional mortgages sponsored by Fannie Mae or Freddie Mac are typically the first choice for borrowers with credit scores of 720 or above because they provide a solid combination of cheap rates and acceptable terms. Yet, once scores fall below 600, those rates increase significantly.
The FHA, on the other hand, does not use risk-based pricing. Thus a 640 credit score will result in the same mortgage rate as a 740 credit score. Yet, the extra fees connected with an FHA loan may be higher than those associated with Fannie/Freddie loans.
What is the takeaway? If your credit score is 720 or higher, you should choose a Fannie/Freddie mortgage rather than an FHA loan. If your credit score is 680 or lower, you should consider an FHA loan. That can be a toss-up in the middle.