Getting a Mortgage - Shop around for the Best Mortgage Rate
Mortgage rates vary based on factors such as type of mortgage, loan amount and purpose, location, type of financial institution, and others.
Factors That Financial Establishments Take into Account
Financial institutions are mainly interested in your ability to meet your financial obligations. This means that they will look at your FICO score, employment status and income, housing history, and other factors. Banks offer attractive mortgage rates to customers with excellent credit, low debt to income ratio, and high income in the form of salary, commissions and bonuses, interest income, dividends, and other types of additional income. Job stability and years at current employer are also important factors. To determine eligibility, banks also look at recent financial statements and balances on savings, checking, and other accounts as well as investments such as certificates of deposit, Treasury bills, stocks, and bonds. Loan providers are also interested in assets and investments such as life insurance policies, interest in retirement funds, real estate, vehicles, and other assets. Obviously, the amount of the down payment also plays a role. In addition to your background and financial circumstances, rates also depend on the state of the economy and current market conditions.
How to Get Competitive Mortgage Rates
If you have a fair credit score, the first step is to build a solid credit history. It is important to maintain a high score to qualify for the best mortgage rates. You may want to pay off high interest credit card balances and collections before you apply for a mortgage loan. Make sure you pay your utility bills in a timely fashion. Lenders also offer better deals to applicants who make a larger down payment. Financial institutions accept contributions by relatives, friends, and family members. However, banks usually require that applicants present a gift letter stating that this is not a loan that has to be repaid. A gift letter usually includes information such as the telephone numbers, current addresses, names, and signatures of all donors. Specify the source of the gift offered. Obviously, you should provide employment, financial, and personal information without hiding problems and flows because you risk getting turned down.
Get Paperwork Ready in Advance
It is a good idea to prepare your documents in advance. In most cases, you will need documents such as bank statements, tax returns, and pay stubs. If you plan to refinance, make sure you get an appraisal. This is one way to increase your chances of getting a lower rate. Other documents to present include canceled rent checks, rental agreements, investment documents, copies of divorce decrees, and other legal documentation. If applicable, supply documents such as bankruptcy discharge papers, proof of age for children if child support is counted toward additional income, and giftors’ account statements. Bringing the required paperwork early in the process speeds up processing and approval. Financial institutions also look favorably on applicants who present a letter which explains their financial circumstances. This shows how motivated they are. Finally, keep in mind that documents such as pay stubs expire after 60 days – make sure you bring updated documents only.
Financial Institutions That Offer Attractive Rates
Check with different lenders, including small and large banks, credit unions, and online banks. Online banks, for instance, offer better deals because they save on utilities, salaries, rent, and other expenses. Credit unions also feature attractive rates and deals because they are owned by union members. The reason why credit unions are able to offer better rates on loans and mortgages is that they do not operate on a for-profit basis. Profits and dividends are used to offer better earnings on savings accounts and lower interest rates on mortgages. Banks, on the other hand, offer a larger variety of financial products, including variable and fixed rate, all inclusive, first, conventional, and multiple term mortgages as well as bridge financing. The best thing about adjustable rate mortgages is that applicants are offered a low interest rate during the initial period. Beware of mortgages with low rates that tend to skyrocket after the intro period. Then, if you have a mortgage, remortgaging to a lower rate is one option to consider.
What Else to Keep in Mind
While competitive mortgage rates lower your monthly payments and interest charges, there are other costs to consider. Check details such as document preparation and underwriting fees, origination fees, discount points, and other charges. Ask about the closing costs charged by your financial institution and by third parties. The closing costs typically include charges such as application and attorney fees, appraisal and survey fees, inspection fees, points, and others.
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