The average person moves 11.7 times in their life. You might move more or less than this number, and you might need a new mortgage for some of these moves.
Getting a mortgage is a routine process when buying a home, but many people find the mortgage loan process somewhat confusing. One thing people often wonder is what type of mortgage program they should use for their home purchase.
If you want to buy a house with a mortgage, you’ll need to choose the best mortgage program for you. How do you choose the best one? Here are some tips to help you know exactly how to select a mortgage program that benefits you.
Set Your Budget
Before you rush to a lender to learn more about mortgage programs, you might want to follow this vital mortgage tip: set a budget. Setting a budget is probably one of the best things to do before you analyze your options.
You can set a budget for your house purchase by doing several things. First, carefully review your current budget to set a maximum monthly amount for your payments.
Next, you can talk to a financial planner or advisor for information on setting a budget. You can also talk to a lender to determine how much you can afford.
Setting a budget before doing anything else protects you from overspending. It also guides you to the right home and loan program.
Determine Your Down Payment Amount
Next, you’ll need to determine how much you can afford as your down payment. Almost all mortgage programs require down payments. The difference with most programs is the amount you need.
Some programs might require up to 20% down. A conventional loan is an example of a loan type that requires this much down. You can also pursue loan programs that might require only 3% down. An example of these are conventional or an FHA loan which requires 3.5% down.
The amount of money you have available for your down payment opens up more options for you or limits your options. If a program requires more than you can offer, you will not be able to use it.
If you currently don’t have a lot of money for your down payment, you might want to consider waiting for a few months before applying for a loan. You might have enough time to save more money to use for this purpose by waiting a little longer. Gift funds are also an option if your credit and income are good.
Consider Your Credit Score
The next thing you must consider is your credit score. Every loan program available has requirements relating to credit scores. Some programs offer loans to people with just OK credit, while others help people with excellent credit.
If you haven’t viewed your credit score in the last few months, now is a good time to look. You’ll need to know what your score is before talking to a lender, as this will play a significant role in qualifying for a loan.
Conventional loans are often the best option for people with high scores. People with lower scores might benefit from pursuing a USDA loan, VA loan, or FHA loan.
If your score is a lot lower than you thought, you might even benefit by working on it before applying. If you can improve your score enough, it might open up more options for you to choose from.
Compare the Pros and Cons of Different Mortgage Programs
After completing the first few steps, you can start comparing the pros and cons of different mortgage programs. As you compare these, take note of the fees that come with each type.
For example, some loans might require paying private mortgage insurance (PMI). Typically, you will only have to pay PMI if you borrow an amount that exceeds 80% of the home’s purchase price. Some loans don’t require PMI, though.
Another fee you will see with loans is a funding fee. For example, if you are a veteran and not 100% disabled, and choose a VA loan, you must pay a one-time funding fee. You won’t pay this fee with other programs.
Comparing the fees is a great idea when choosing a mortgage program. Comparing the interest rates is also a wise move.
Choose a Bank or Broker
If you’re wondering how to find a mortgage lender or where to look, you should know that you can choose from two main types. The first option is a bank, and the second option is a mortgage broker.
You will find several primary differences between using a bank and broker, and you might want to research this a bit before deciding which type to use. Both options offer mortgage loans, but they operate differently.
A bank provides in-house loans, which means they have one set of criteria they use when reviewing loan applications. If you don’t meet their eligibility standards, you won’t qualify for a loan.
On the other hand, brokers are middlemen that work with many lending institutions. As a result, brokers search through many lenders to find the best loans for their clients. When working with a broker, you might receive multiple offers for loans.
One other difference is the timing. Brokers can generally work through the loan process in about half the time it takes a bank. If you want to get through the process quickly, choose a broker.
Work Through the Preapproval Process
Once you understand the basic principles of loan programs and how they work, you can apply for a loan preapproval. A loan preapproval provides a way to ensure that you qualify for a loan, and you’ll need this to start shopping for a house.
A preapproval helps you learn how much you can borrow, what loan program you will use, and the terms of the loan. Once you get preapproved, you must work hard to protect your job, finances, income, and credit.
Any changes to these areas of your life could result in losing your ability to get a loan.
Get Started Today
Now that you understand the top factors to analyze when choosing a mortgage program, you might be ready to start the process.
Starting this process is easy and straightforward, and you can begin by contacting us. We can review your financial information and credit to help you find a mortgage program that offers the most benefits to you.