10 Tips for Your First Mortgage

You have checked your credit report and determined that now is the right time to buy. You’ll be in the know if you follow these 10 steps before visiting your mortgage broker.

1. Start by checking your credit report

You should do the same thing. It’s important to monitor your credit regularly when you are trying to prove to a lender that you have the credit worthiness necessary to get the best rates. Your credit report should be as accurate as it can be. You also want to ensure that your credit scores are what you want them to, and that no one else has access to your account. Here is a link to more resources on credit reports

2. Get things in order

You’ll know how you are doing if you keep a regular eye on your credit score. Dispute any errors with the three credit bureaus to get them corrected. Monitoring your score will help you determine if your debt-to credit ratio is high. Take immediate action if you notice accounts you did not open or addresses you don’t recognize. This could be an indication of identity fraud.

3. Do your homework

We all shudder at the thought of “homework”, but the rewards are much greater than learning the periodic table or geometry theorems. Get the best deal possible when you are looking for a new home. You will be living with this financial commitment for many years. Before you sign anything or commit, do extensive research on loans, brokers and rates. The hard work you put in now will be rewarded with better rates and terms down the line.

4. Realistically assess what you can actually afford

Keep your foot on the ground. Home ownership is the American Dream, but it’s not the only one. Calculate your calculations according to the rate you can get if you are looking for a mortgage that requires a 20% deposit and you have only 5%.

5. Understanding how lenders operate

Credit scores are a reflection on the lenders’ confidence in you to repay. They use them as a basis for determining your loan amount and rate. The higher your credit rating, the more likely you are to be able to obtain the loan amount and interest rate that you desire.

6. Determine how you will finance your project

After researching the different types of mortgages available, decide which one is right for you. A 15-year loan or a 30-year adjustable or fixed rate mortgage? A fixed-rate mortgage may be right for you if you want security and the assurance that your payments will not increase. Consider an adjustable-rate mortgage if you think mortgage rates will fluctuate in the future and want to have more flexibility.

7. The more you pay, the greater your options

Realistic thinking is important. The more you pay, within the realistic limits of what you can manage, the better the terms. It seems that the days of no down payment, particularly on a mortgage are fading. You will pay less per month if you put more money down upfront.

8. Check for prepayment penalties

When choosing the perfect mortgage, you should also consider whether you will be penalized if you pay off your mortgage early. Some homeowners will double their payments in order to pay off the mortgage sooner. This can be done regularly or whenever they receive a windfall. Make sure that you are not penalized for reaching your goal earlier!

9. Mortgage applications should be targeted rather than thrown out at random

When you apply for any loan, even a mortgage, a “hard inquiry” is made by the lender. This appears on your credit history and temporarily lowers the score. If you apply for multiple mortgages within a two-week period, it counts as only one inquiry. But if you keep going and contact as many lenders as possible over a longer time period, your credit score will be negatively affected.

10. “Not now” does not mean “never”.

Despite what might seem like mortgage rates that are once in a lifetime, home ownership is not an option for everyone at the moment. Don’t worry if you are in this category. The economy is still in flux and your financial situation could change. Also, remember that many home buyers got into over their heads during the current mortgage crisis. Timing is crucial when it comes to making a large purchase, like buying a house.