Understanding the mortgage loan process can make the home buying experience less daunting. There are contract terms to learn and different types of mortgages to choose from, but being equipped with the right resources and information can ease the application process. Get started with this basic mortgage information and checklist.
Determine if you’re ready to get a mortgage loan
Unlike renting, owning a home allows you to build equity. In addition to being a place to live, your house is an investment.
However, homeownership comes with more responsibility than renting, so make sure you answer these questions before applying for a mortgage:
- Do you have a stable income so that you can afford your monthly house payments?
- Are you prepared for unexpected home repairs?
- Do you plan on living in the home for several years?
If you answered yes to all of the above questions, then the next factor you need to consider is your credit score.
Know your credit score
Your credit score plays a major part in determining what interest rate you receive when getting a mortgage. The higher your credit score, the lower (and better) your interest rate will likely be. A lower interest rate means lower monthly payments so you can pay less on what you borrow.
Review your credit score with the three major credit bureaus (Equifax, TransUnion and Experian). Verify that your credit history is accurately reporting credit card and loan payments or other debt.
If your credit score is lower than you’d like it to be – and you have some time before you apply for a mortgage – you can try to improve it by paying down debt. If you haven’t built up much credit, consider getting a new credit card, making your payments on time and paying your balance in full.
Compare mortgage loan types
Compare the three types of mortgage loans to determine which one works for you:
- A fixed-rate mortgage, offers a set interest rate over the life of the loan.
- An adjustable-rate mortgage (ARM), usually offers a lower interest rate for the first few years of the loan before being adjusted.
- A jumbo mortgage, applies to mortgages greater than $424,100.
Be sure to take your down payment amount, income level and long-term financial outlook into account.
Get pre-qualified for a mortgage loan
Did you know you can apply for a mortgage before you even have a house picked out? In fact, it’s a good idea to get your mortgage lined up so that sellers know you’re a serious buyer.
Getting pre-qualified for a loan also lets you know how much you can spend.