5 home buyer tips to get the best mortgage deal
5 Home Buyer Tips to Get the Best Mortgage Deal
Recent changes in real estate and finance regulations have made shopping for a home mortgage much more difficult for home buyers. Lenders are under strict new guidelines and mortage underwriters are scrutinizing even the most qualified mortgage loan applicants, causing delays and extra layers of red tape to get a home loan. Loans are available for the prepared home buyer who is ready to take advantage of the market. Here are 5 expert tips to help get the best mortgage deal when the time is right to buy:
Tip 1: Review and Optimize Your Credit
One of the first steps a loan officer takes when evaluating a borrower is to order a Tri-Merge Credit Report. This report collects credit history and data as reported by the three largest national credit reporting agencies. Negative items, late payments, age of credit data and credit usage all factor in to a borrower's credit score. Borrowers with credit scores as low as 620 may qualify for a home loan, but the best interest rates and terms are usually offered to those with credit scores above 740.
Before applying for a mortgage, take steps well in advance to correct negative items on your credit report. If past due or collections accounts show up on your credit report, consider working with a credible credit optimizaion company to help you evaluate the most effective steps to take to improve your credit score and position yourself for the best mortgage rates. You may save yourself tens of thousands of dollars over the life of your home loan.
Tip 2: Be Honest and Thorough in the Loan Application
Many problems with getting a loan approved through the underwriting process can be averted by working closely with a good loan officer. Don't try to cover up flaws in your credit history or withhold requested documents from the lender - they will likely turn up when the lender does their due diligence.
If you have additional sources of income that can be documented, such as overtime, bonus pay, rental income or additional family income, make sure to discuss this with your loan officer. Also make sure to document all of your assets, including 401(k), IRA, CD and savings accounts. The more assets you can show, the stronger your application will look to the mortgage underwriters.
Tip 3: Save for a Larger Down Payment
While it is possible to buy a home with almost no money down, a large down payment can make a big difference in what loan programs you may qualify for, and ultimately, whether your home loan application succeeds. Lenders often allow contributions and gifts from family members and employers, as long as the funds can be documented with a letter and are not considered to be loaned money. And keep in mind, the larger the downpayment, the lower the monthly mortgage payment and overall interest paid over the life of the loan.
Tip 4: Consider the Terms of the Loan, Not Just the Interest Rate
While shopping interest rates is important, mortgage lenders programs, fees, and quality of service vary wildly. Getting the best interest rate may not matter one bit if the lender cannot follow through with the loan when a buyer is sitting at the closing table. Look for a lender who can fund the deal with their own money (typically mortgage bankers and portfolio lenders), and make sure to compare the fees on the Good Faith Estimate to be sure of what the loan may cost you. An honest lender will openly share the estimated discount points, origination fees, underwriting fees and document preparation fees upfront - if they don't, run, don't walk, to the next lender.
Tip 5: Know Local Home Values and Be Ready for the Appraisal
Many homebuyers are finding their purchase contract in jeopardy due to home appraisal issues. Recent changes in appraisal standards have increased the overall cost of appraisals, as well as causing contract delays. Depending on the recent sales history of the home, local sales trends, and local foreclosure activity, some lenders are requiring multiple appraisals, which may cost the buyer additional cash out of pocket, or even worse, may cause the deal to fail.
Know your local home market and consult with a good real estate agent who can help provide market trends and identify potential risks. Communiciaton between your agent and home loan officer is critically important to make sure the purchase contract deadlines and loan requirements are satisfied well in advance of closing, to reduce buyer stress and to make the home buying process as smooth as possible.
For more information and additional tips to prepare for buying a home, contact Bryan Messick at 303-378-7677 or email BryanM@kw.com.
Bryan Messick, Broker Associate
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