Taking out a mortgage is a significant financial step that involves thorough preparation. It’s particularly difficult in today’s environment of heightened interest rates and grave uncertainty, making it all the more important to prepare properly and shop around.
With the help of Financer.com, here are some of our top tips when taking out a mortgage.
Improve Your Credit Score
With a mortgage crisis brewing in the UK and several US banks already failing, it’s not an easy time to get accepted for a mortgage.And, given that your credit score is one of the first things lenders look at when considering you for a mortgage, this is something worth focusing on.
This three-digit number represents your creditworthiness based on your past financial behavior. In order to get a higher credit score – which could potentially land you better terms (i.e. lower interest), there are a couple of things to do: pay all bills on time, make use of a credit card (but do not overuse), and lower your debts.
Save for a Significant Down Payment
While some loan programs offer low down payment options, saving for a larger down payment can be advantageous. The down payment can influence your loan terms, including interest rates and private mortgage insurance. A larger down payment could reduce your total loan amount, because you’re now lower risk. This is particularly important given the current high-interest rate environment – even if you don’t get better terms, you will still have less principle to pay interest on.
Shop Around for Options
Different lenders can offer vastly different mortgage rates and terms. It’s essential to shop around and compare offers from various lenders to ensure you’re getting the best mortgage rates in Canada (or wherever in the world it is you are). Contact multiple lenders, including banks, credit unions, and online lenders, to gain a clearer picture of your options; or, use the Financier as mentioned at the start. Consider not just the interest rates but also closing costs, loan terms, and lender reputation.
Make Use of Different Mortgage Types
Depending on your financial situation, different types of mortgages may suit you better. For instance, an adjustable-rate mortgage might offer lower initial rates, which could be beneficial in a high-interest rate environment, as well as more immediately benefiting from any drops in the Fed rate. Or, you might consider an interest-only mortgage for a few years to keep payments low initially. Remember, each mortgage type has its pros and cons, and it’s important to understand these fully before making your decision.
Get Pre-approved
Pre-approval is a process where a lender checks your credit and financial health to determine how much they’re willing to loan you. It’s a powerful tool in your home buying journey as it gives you a clear idea of your budget and demonstrates to sellers that you’re a serious buyer. Furthermore, being pre-approved can speed up the mortgage approval process once you find a home you want to buy.
In conclusion, securing a mortgage requires a multifaceted approach, encompassing everything from your credit score to the type of mortgage you choose. Just remember the risks of today’s market and not to overstretch yourself with a mortgage you cannot afford.
