How to Get the Best Deal on a Home Loan

For many people, one of the greatest achievements in life is owning a home. If you’re one of the lucky few, your savings or a financial windfall will cover the cost of buying your home, but if you’re among the masses, you will need to take out a home loan to pay for your dream home. Fortunately, a number of lenders specialize in home mortgages for consumers in all types of buying situations. But don’t rush in blindly. Make sure you’re armed with the right information to get the best deal at the lowest possible rate.

Analyze Your Financial Position

Before starting your home search, take an honest look at your finances. It’s important to know the cash you have available for a down payment as well as debt, income and asset information. Consider your current expenses and financial obligations in comparison to your income, and then do some research to come up with an estimate for your expenses once you settle in your new home.

Remember, once you become a homeowner, you pay property taxes and homeowner’s insurance, often as part of your monthly payment, but this charges could also require separate lump sum payments. Other expenses include the cost for regular maintenance, repairs and upkeep. These costs are all in addition to the repayment of the principal and loan interest.

Improve Your Credit Score

Lenders tend to be cautious when working with borrowers with lower credit scores, and some consider “lower” to be anything less than 720. Lower credit scores usually lead to higher interest rates on loans and additional paperwork. If your credit score needs improvement, work on raising it before applying for a loan to improve your chance of getting a better interest rate on your loan.

You can do several things to improve your credit score, including making all payments on time and reducing or eliminating as many balances as possible. You should always avoid letting credit card balances reach the card limits, even if you make payments on time. Your debt-to-credit-limit ratio affects your credit score, and high card balances drag scores down.

Keep in mind that improving your credit score doesn’t happen overnight. It takes time, and you have to be patient and consistent with good credit habits.

Don’t Open Other New Lines of Credit

As you prepare to apply for a mortgage, don’t request any other new credit lines. New loans and credit cards will impact your debt-to-income ratio, a significant factor in credit approval. You also don’t want numerous credit inquiries on your report during the loan application process.

Research Prospective Lenders

Choosing a lender is very critical in your goal to own a home. Check out numerous lenders, preferably at least five. You can start by searching for lenders with the best interest rates using resources like HSH or Bankrate.

Do the Comparisons

Interest rate quotes are a key element to consider. If you’re already an account holder with a particular bank, find out if existing customers receive loan incentives or discounts. Ask each potential lender to take you through the preapproval process so you know what to expect. Inquiries by different lenders may appear on your credit report, but these grouped inquiries have no impact on your credit score.

Apart from interest rates, ask about all loan fees, including application fees, processing fees, appraisal fees and closing costs. Compare the total estimated expenses for each lender to deterimine the total cost of the loan. Good Faith Estimates (GFE) are available after formally applying for a loan, but it doesn’t hurt to ask the lender to provide one at the preapproval phase.

Make sure all your questions are answered by your prospective lenders. If a lender refuses to respond to any of your questions, remove them from your list of possible lenders. Go beyond money matters and compare their accessibility and customer service. The loan application and approval process can be quite tedious, and you don’t want to encounter unnecessary obstacles along the way.

The Actual Application

Applying for a mortgage requires some preparation before acting. Don’t hesitate to ask questions, and take time to do some research. Consult financial experts and professionals as much as possible to ensure you have all the requisite information at your fingertips. If you do your homework well, you don’t have to worry about the final phase of applying for a home loan.