Getting a mortgage is a convenient and manageable way to buy a home. In fact, you’ll find that a majority of homeowners in the U.S. purchased their houses in one way or another using a mortgage. The fact is, a house is a substantial life-long investment, and good houses don’t come cheap. A mortgage can help you acquire a new home and can be a crucial part of your home-buying process.
Mortgages, however, are a fairly complicated financial matter. Whether you are looking for a standard residential mortgage or one tailored to low-income housing, financial institutions like GBTI Bank have programs designed for specific needs. Be sure to contact the lender and ask questions to identify the program that is right for you and your situation.
Lenders look at various factors to determine your lending risk, and financial ability to make mortgage payments on time. Qualifying for a mortgage is one thing, but settling on the agreeable mortgage terms are another issue. Lenders determine your loan terms depending on several factors that indicate your financial performance and situation. Based on these checks, here are six useful tips to help you score the best mortgage rates possible.
Improve Your Credit Score
Your credit score represents your likelihood to pay loans, and pay on time. Lenders use your credit score to determine your lending risk. If your credit score is anywhere below 620 on the FICO scale (subprime), lenders may consider you a high-risk borrower. With such a poor score, you might struggle to get a mortgage at all, let alone favorable terms.
If you do get a loan with a poor credit score, it’s likely to come with many strings attached and high-interest rates. Work on improving your credit score before applying for a mortgage to get lenient terms and low rates.
Make a Huge Deposit
The larger your down payment on the property, the better the terms on your mortgage. A sizable deposit lowers your loan-to-value ratio, which is one of the key considerations in risk assessment. Plus, you also get a smaller loan as top up, which means the payment period is shortened.
In addition, making a down payment of below 20% of the value of the property may attract mortgage insurance. The insurance premiums can be added to your mortgage, further increasing its cost.
Stick to The Banks Appraised Value
Once you apply for a mortgage, your bank or lender will appraise the value of the property before negotiating terms. Stick with your lender’s appraised value during closing; the lender will use that value to determine the amount loanable and some of the terms. This is particularly helpful if the lender’s appraised value is significantly lower than the asking price on the property. In such a case, you might end up on the losing end of the deal.
Increase Your Income
The lender might tell you that your income is not high enough to grant your negotiating power on the mortgage terms. If your income is below a certain threshold, most lenders may not even be willing to offer you a mortgage. Lenders also like to see consistency in your employment history and a steady income.
If your income is too low, try and find ways of increasing your earnings. The term “low income” is being used relatively in this context. It might not be the actual income that’s low, but your expenses could be too high – leading to the same results so, if you can’t get a better paying job, because obviously you would if you could, try minimizing your expenses.
Go for an Adjustable-Rate Mortgage
Mortgages are, by definition, long-term loans, with most being 30-year fixed-rate mortgages. However, if you feel that you can clear the mortgage in less than 30 years, then you should consider taking an adjustable-rate mortgage (ARM). You can choose a repayment period, typically anywhere between five to fifteen years. Keep in mind, however, that although you might get a significantly lower initial interest rate, the rates can vary with time.
The adjustable rates on ARMs can be a deal-breaker for homeowners with a low-risk tolerance. The next best thing is a 15-year fixed-rate mortgage. In this case, the rates do not change, the interest is lower, and you get to clear your loan in half the time.
It’s always a good idea to shop around for the best mortgage deals before settling on a particular lender or bank. Although the mortgage industry is reasonably standardized, that doesn’t stop different lenders from tweaking their service to attract a particular segment of the market. Plus, many banks often offer generous mortgage discounts to their loyal customers. Compare as many offers as possible from different lenders and select the one that best suits your situation.
Mortgages can be quite confusing at times; getting the best mortgage terms may involve a lot of digging, self-re-evaluation, and self-adjustment. Taking a mortgage is a big decision, and as such, you need to ensure that you at least get the best deal possible.