Buying a home in Houston soon? When applying for a mortgage, doing a bit of homework will not only ensure that the process is smooth with no pitfalls, but can potentially help you save money and obtain a mortgage that is manageable. Your level of income, your credit score, your spending and saving habits are the main factors that will create an image for mortgage lenders.
Jumping from renter to Houston home owner is a leap that can be stressful and daunting. Here are effective tips that you should implement to make sure that the road to home ownership is a smooth one.
Examining Your Credit Report
Once a year, you can obtain a free copy of your credit report. Your credit report will not only have scores associated with all three credit bureaus – Transunion, Equifax, and Experian – but also a list of accounts associated with them.
Do not wait until your lender checks your credit for you. By obtaining your credit report before hand, you can note any incredulous accounts that can be charged off, quickly gaining a few points in your credit score.
Note that the higher your credit score and the more comprehensive your credit history is, the more manageable the terms of your mortgage will be. There is no quick fix to improve your credit score, which underlines the importance of obtaining your credit report as soon as possible before taking any action. Low utilization on your credit cards, paying more than minimum payments, and responsible use of credit are the safest and quickest way of increasing your credit score.
Choose the Right Mortgage
If your credit score is around the 620 to 680 range, then you may qualify for a Federal Home Mortgage Loan, or a FHA loan. This type of loan is insured by the federal government and has a relatively low down payment requirement. However, you will have to deal with the added expense of private mortgage insurance.
Higher credit profiles will have access to many different loan programs, typically referred to as “conventional loans” which will very in cost. A fixed-rate conventional mortgage is usually preferred, since the interest rate will stay the same for the life of the loan. You also will have to decide on a 15 or 30 year mortgage. 30 year mortgages are traditional and have lower monthly payments than a 15 year old loan. However, a 15 year old term will be over in half the time. These are considerations that you need to factor in.
Choosing the Right Lender
Applying for mortgage loans will cause a hard inquiry on your credit report. Too many inquiries in a relatively short period of time looks bad to lenders. Thankfully however, most borrowers can apply with more than one lender during a 15-30 day window without it negatively impacting their score. (Be sure to ask the lenders about this.) Regardless, to make the home buying process smoother, when applying for a mortgage loan, it’s recommended to use a targeted approach. Check with your preferred Houston lenders to see if you prequalify – always inquiring if it will leave a hard inquiry on your credit report – and make sure that their terms are acceptable to you. Then you can make a formal application to a few targeted mortgage lenders.
How Much of a Downpayment
The larger the down payment, the more options you will have. A larger down payment will allow you to experience lower monthly bills, as well as improve the confidence of would be mortgage lenders.