Home buying is a tedious process that takes time and is a major financial responsibility. You need to understand your financing options even before start searching for the properties because you have to deal with the mortgage lenders.
The lender or broker is the person or institution that helps you understand how to plan the budget for making the purchase. A successful mortgage approval depends on finding someone who is communicative and is willing to help. However, you have to ask some important questions to ensure that you are going to get the best financial solution.
What is the interest rate?
Your credit and the amount of the loan will determine the interest rate offered by the lender. The rate and two other factors – the loan term and mortgage balance – are vital in calculating the final payment that you will pay per month. The monthly installment will be proportional to the rate and balance.
If the offered amount is way higher than your expectation, clean up your credits and apply again for a revised rate.
What are the qualifying requirements for the mortgage?
The broker assesses many aspects before approving the loan. Your current income, credit history, employment record, liabilities, assets, etc. will play vital roles in deciding your eligibility. So, learn about those requirements before beginning your house hunt and work on them to make the figures look impressive.
You will face less strict guidelines if you are a first-time homebuyer, a veteran, or are going to apply for a government-sponsored mortgage program.
What type of mortgage is it?
The loan can be of two types – fixed-rate and adjustable-rate mortgages (ARMs). The first one can range between 10 and 30 years, and its rate will be the same for the entire period. On the other hand, the other type offers a regular change of rates after an initial period.
An ARM might be a good choice if you don’t plan to live in the same house for your entire life. However, you have to ask the lender about the loan’s margin, the factors related to rate changes, and the interval of changing the rates to see if you can afford the calculated monthly installments.
What documents will I have to provide?
You need to keep some paperwork ready to speed up the whole process. The broker is likely to ask you to show the proofs of income and assets. The official papers that you have to submit are recent pay stubs, W-2 record, tax returns, bank statements, and more. Sometimes, you might be even required to show the proof that you are capable of paying the down payment and the closing costs.
What factors can affect the approval?
The lender may take more time in approving the loan if your financial status alters or is likely to change because of a personal affair. The determining factors, for example, could be a change in marital status, credit history, or your income. Avoid such a hassle by trying to keep the financing state unchanged until the sanction of the loan.
Don’t let the experience with the lender ruin your home buying journey. Have a good understating of your credit score, learn about the mortgage options, and prepare the right questions. You’ll surely find the rate you are expecting.