It is fresh new years, so why not start investing in a new home? This sounds delightful, right? Unfortunately, not a very big number of people afford to buy a home entirely in cash. This means that even if you find the house of your dreams, you won’t automatically going to own it without some help.
So, the next logical thing you need to do is to get a mortgage. But how can you be sure that you pick the correct loan type for you and even more important, how can you decide with which company to go with?
Not long ago, I was in the situation of buying a house and of course, I had to apply for a mortgage. The trickiest part for me was understanding the process and finding a company to fit my needs and expectations.
This is why I decided to write an article and help the people who find themselves in this position in 2020. So let’s start!
What is a Mortgage?
Before detailing the process I’ve found to ease your search for money loaning companies, I feel the need to focus, just for a little while, on the subject of mortgage.
So, when you loan money to buy a house, you need to be aware that your mortgage payment will contain two parts: principal and interest. The principal component refers to the actual loan amount, while the interest one is an additional amount charged by the lenders.
The period of time you are given to pay the full debt depends on the sum you loan. During this period, you pay in monthly payments based on a preset schedule established by your lender. Also, there is the factor of the annual percentage rate (APR) that you need to take into consideration.
As you can imagine, not all mortgage products are the same. Some banks require a 20% down fee, while others claim 3% of the home’s price.
How to Pick a Mortgage Lender
Before finding the right mortgage lender for you, you need to understand that no one will give you a load if you don’t meet some criteria that state your capacity of paying the debt.
For that, you need to calculate what is known as the credit score, which measures how much risk of not paying back the loan you present. The higher the credit score, the better the chances of negotiations you have. So, to give you an idea, you will want to have a score greater than 580.
The next aspect you should be aware of is that there isn’t just one type of lender out there and this is why it makes it so hard to decide which one to choose. Here are the most common kinds:
- Mortgage bankers. They serve a particular financial institution and offer package loans given by the bank’s underwriters.
- Savings and loans. They were once very popular, but now they are kind of rare. However, you should know that these smaller financial companies exist and are usually community-oriented.
- Credit unions. These are member-owned economic organizations that often offer advantageous interest rates to shareholders.
- Correspondent lenders. They are often local mortgage loan firms that have the resources to give you a loan but rely on a pipeline of other donors.
- Mutual savings banks. Just as savings and loans, these are also mutual savings banks.
Be sure to make a list of every lender you find relevant for you and check to see if it is registered in the state where you are. For that, you can use the Nationwide Multi-state Licensing System Registry.
After going through multiple options, it is time to get your mortgage pre approval letter. I actually recommend you to do it before you find the house you want to buy. It will give you an advantage when bidding against other buyers. However, this is up to you.
So, to get pre approved, you will have to be able to provide your financial information to the lenders. Usually, you will be asked a series of details such as social security number, other loan details, two years of tax returns and of course info regarding your salary and employer.
Don’t decide on a lender just yet. Get pre approved by more than one. This way you can compare their offers and see which one is going to offer you the best deal.
Now let me tell you what I did. I made a list of lenders that I thought would suit my needs and with that list, I started to search their online mortgage rates. Of course, these are all estimates, but they gave me an idea of what each company could offer me, therefore I managed to make the list shorter.
Since I only had three options left, I physically went to talk to each company and asked them all the information I was lacking regarding additional fees, client support, and other similar things. In the end, for me, the decision was made based on the down payment requirements the company I decided to go with had. Again, this is a matter of preference. The choice is only yours to make.
I hope that you’ve found all the information here relevant and that I’ve managed to help you understand the process behind finding the best mortgage lender for you. May 2020 be the best year for finding a house!