Prior to shopping for a mortgage, it is imperative that your credit report and down payment are in order. Your credit scores, down payment, and debt to income ratio will determine which mortgage loan types are available to you. To check your credit, you can request a free credit report annually from freecreditreport.com. Once you have received a copy of your credit report, it is important that you thoroughly review the credit report, resolve any derogatory accounts and inform the credit bureaus of any inaccuracies. The money you intend to use for your down payment should be in your bank account for a minimum of 60 days or you will likely have to provide a paper trail of the source of any large deposits. Each loan type will have different approval guidelines, but for most mortgage programs the standard maximum debt to income ratio is 45% of your gross income. Depending on your income sources and deductions on your tax returns, the income used by your lender may differ from your calculation. Once you have your credit, down payment, and have accurately calculated your debt to income ratio, you should be able to determine which loan type best suits your situation.
Ask your friends and family for referrals when shopping for a mortgage. Create a list of lenders that your trusted colleagues recommend. When comparing mortgage loan offers, make sure you compare apples to apples. Compare similar rates, terms, and costs. Make sure you ask for a loan estimate, which should include all costs associated with obtaining the mortgage. If the lender just emails you the interest rate and estimated monthly payment, you will not have enough information to effectively compare mortgage options and costs from each lender. Interest rates will vary from lender to lender, make sure you ask what the costs would be if they all offered the same interest rate. Also, some lenders may offer no fee loans, where the lender covers the costs of obtaining the mortgage; keep in mind that this loan type is usually associated with a higher interest rate.
A home loan involves numerous fees from a variety of sources. Most lenders charge fees for similar services, but call them by different names. If you are unsure of the reason for the fee, talk to the lender so you can get a better understanding of why it is being charged and if the other lenders you are considering for your mortgage are charging a similar fee. Keep in mind that some lenders may also charge just a few larger fees and lump many services into it.
Reputation should also be a factor when choosing a lender. Check each lender’s online reviews and factor in your friends and family members experiences regarding the mortgage lenders they recommend. Just keep in mind, the first priority in obtaining a mortgage should always be to make sure you receive an approval and that the loan closes in a timely fashion.