These days, very few people can afford to buy a home without taking out a mortgage loan. Choosing the right home mortgage is one of the most important financial decisions you will have to make in your life. Choosing the wrong mortgage for your financial situation can saddle you with high payments, inflexible terms, and a higher cost for your home than you might have originally anticipated. With all of the permutations of mortgages available, finding the best one for you can be tricky and somewhat nerve-racking. The five steps discussed below can help guide you through the difficult process of finding and securing the best home mortgage for your needs.
One of the easiest ways to figure out how much of a mortgage you can afford, is to use a home mortgage calculator. There are many bank and financial institutions online that can give you a general idea of how much you can afford to borrow, based on your income, credit score, current interest rates, and how much of a down payment you can afford to make.
The cost of your mortgage is dependent on the amount of money that you borrow as well as the interest rate that you agree to pay. Banks and lenders calculate the interest rate that they are willing to offer you based on your credit score, but not all banks and lenders use the same criteria for assigning an interest rate to you. If you take the time to shop around, you may find that loan offers vary by as much as a full percentage point, which can translate to a difference of hundreds of dollars per month, and tens of thousands over the life of the loan.
Once you have compared typical loan rates and have narrowed your choices down to the best options, you want to obtain loan quotes from several different lenders. Requesting a loan quote does not obligate you to anything, but it does give you a start on negotiating the best mortgage loan deals available. You can either submit a loan quote request online, or in person at a bank or lender’s office. Generally, you will be required to submit basic information about yourself, usually just including your full name and social security number.
A prequalification is one of the most potent bargaining tools to use when you are shopping for a new home. While it is not an actual loan offer, it is essentially a letter from a bank or lender that says they are willing to lend you up to a certain amount of money for a house. The prequalification letter is the first step in getting a mortgage. Having a prequalification letter in hand will let realtors know that you are serious about buying, and that a bank is willing to lend you money. This will put you in a much better bargaining position when you find the house that you want to buy.
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