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10 Mortgage Tips for Homebuyers and Homeowners

10 Mortgage Tips for Homebuyers and Homeowners

The post 10 Mortgage Tips for Homebuyers and Homeowners by Sarah Horvath appeared first on Benzinga. Visit Benzinga to get more great content like this.

From undergoing a credit check to submitting bank statements for underwriting, getting a mortgage loan can be an intimidating process. But with a little preparation and planning, you can find an affordable home loan without jumping through endless hoops. Use these mortgage tips to improve your home loan or refinance application.

5 Mortgage Tips for Homebuyers

When you apply for a mortgage, you’ll first go through a preapproval process. During preapproval, potential mortgage lenders will determine whether you qualify for a loan. If you qualify, the mortgage lender will send you a preapproval letter that tells you how much you can afford to borrow. If you accept the loan, your mortgage lender will verify and finalize your loan information and verify the data you submitted on your application.

As you approach the preapproval process, know that there are a few steps you can take to improve your chances of getting a loan, including:

1. Get Your Credit Report

Your credit report is a statement you receive from major credit monitoring bureaus that details how you use credit. When you apply for a mortgage loan, your lender will ask for access to your credit report, which will show them any loans and lines of credit you have open in your name. Your credit report also contains information about events like evictions, bankruptcies and past-due credit card payments. Mortgage underwriters use your credit report to determine how likely you are to pay back any money they lend you.

Before you apply for a mortgage loan, get a copy of your credit report. You are entitled to one free copy of your credit report from each of the three major credit reporting bureaus once every 12 months. Visit AnnualCreditReport.com to get your free credit reports and read through each item to be sure it’s legitimate. If you find an item you don’t recognize, contact the credit reporting bureau that issued the report to dispute it.

2. Reduce Your Debt

One of the first things mortgage lenders will look at when you apply for a home loan is the amount of debt you have outstanding. If you have more debt, you’ll have a harder time getting a mortgage because borrowers with more debt are statistically more likely to miss a payment on their loan.

In the months before you apply for a mortgage, take steps to reduce your debt. Make sure all your accounts are up to date and create a debt-reduction strategy to slowly lower the amount of money you owe over time. Putting just $20 extra a week toward your student loans or credit card bills can help improve your chances of getting a mortgage.

3. Know Your Loan Options

There are multiple types of mortgage loans, and the loan type you apply for will determine things like your down payment and the interest rate you pay on your loan. Some of the most common types of mortgages you’ll have access to as you shop include:

  • Conventional loan: Conventional mortgages are the most common type of residential home loan. To qualify for a conventional mortgage, you’ll need a down payment of at least 3% of your loan value and a credit score of 620 or higher.
  • FHA loan: Federal Housing Administration (FHA) loans are government-backed loans for buyers with lower credit scores. To qualify for an FHA loan, you will need to have a credit score of at least 500 points and a down payment of 10%. If you have a credit score of 580 points or higher, you can get an FHA loan with a down payment of 3.5%.

Other options for mortgage loans include Veterans Affairs (VA) loans for members of the military and U.S. Department of Agriculture (USDA) loans for those living in rural areas. Research the multiple types of loans and know your options before you apply for financing.

4. Boost Your Credit Score

In addition to looking at your overall credit report, mortgage lenders will also want to view your credit score. Your credit score plays a major role in your ability to get a home loan and will help determine your interest rate, the type of loan you qualify for and more. You can quickly boost your credit score by:

  • Making more than one payment per billing cycle
  • Remaining current on all of your accounts
  • Paying down maxed-out credit cards first
  • Avoiding applications that impact your credit

It may take multiple months of consistent positive credit habits to see an impact on your score. Remain consistent for the fastest results.

5. Know What You Need to Succeed

Most mortgage lenders are clear about their qualification criteria — and not every mortgage lender has the same loan requirements. Research the specific lender you’re applying with and be sure you meet the requirements before you apply. This helps you avoid damaging your credit report — and being unpleasantly surprised when you receive a decision.

5 Mortgage Tips for Homeowners

Congratulations! You’ve been approved for a mortgage loan, and you’re ready to move into your new property. Now that you’ve signed on the dotted line, it’s time to manage your loan, refinancing if and when necessary. Use these tips for better mortgage repayment or refinancing if you already have a loan.

1. Keep a Record of Upgrades and Improvements

Unless you’re moving into a brand-new property, chances are that you might want to make improvements or renovations of some kind in your new home. Keep documentation of bills paid to contractors and companies you hire to renovate or improve your home and take photos of the areas being worked on before and after the work is completed. Having detailed documentation of all improvements you make to your property after moving in can ensure that these upgrades are reflected in your home’s appraised value should you decide to sell or refinance.

2. Know Your Equity

Your home’s equity is the percentage of your home loan that you have paid off. Essentially, it is the portion of your home that you truly “own,” as you’ve paid your lender back for what they contributed to the purchase of the property. Most homebuyers have some form of equity in their property because they made a down payment. For example, if you buy a home with a 20% down payment, you will have 20% equity in your property when you walk away from the closing table. As you make payments on your loan over time, your equity will grow until it hits 100% and you’ve paid off your loan in full.

Most mortgage lenders require you to have some form of equity in your property in order to refinance. Many require at least 20% equity — if you have less than 20% equity, you’ll need to pay private mortgage insurance (PMI) on your loan. If you’re taking a cash-out refinance, your lender might require you to have more equity in your property to qualify. Contact your mortgage lender and request a loan statement to review how much equity you have in your property before you refinance.

3. Be Present for Your Appraisal

Like when you bought your home, you’ll need to get a new appraisal before you can complete the refinancing process. But now that you own the property you’re interested in getting an appraisal for, you have a major advantage — you can now be present during the appraisal process. Being proactive during your appraisal helps maximize the possibility that your home will receive a high-value appraisal.

Before your appraiser arrives, be sure you have documentation on all upgrades, renovations and improvements you’ve made to the property since moving in. Make sure your appraiser notes them as they tour your property. Make your home as comfortable as possible before the appraiser arrives. While appraisal rates have nothing to do with the tidiness of your home and whether you have pets running around, these factors can subconsciously influence the way your appraiser thinks about your property, leading to a lower valuation.

4. Be Sure Extra Payments Go to Your Principal

If you have extra funds, you might want to make an extra payment on your mortgage loan to reduce the total amount you pay in interest over time. While most mortgage lenders no longer penalize you for paying down your mortgage ahead of time, be sure to specify that you’d like your extra payment applied to the principal balance of the loan. Some lenders will automatically apply any extra payments made on your account to the next month’s payment, which doesn’t reduce your total interest paid.

5. Remain Proactive When Refinancing

Most refinance processes take 30 to 45 days to close from start to finish — and it’s normal to be anxious during this period. Remain proactive and respond to lender inquiries as quickly as possible to help your refinance close with fewer hold-ups.

5 Tips for Those Closing Mortgages or Refinancing

As you get close to finishing your mortgage or refinancing, all that’s left to do is attend a closing meeting and take control of your new property or loan. Use these tips to approach the closing process in a smarter way.

1. Don’t Come Empty Handed

Getting to the closing table can be an exciting process, but you don’t want to show up without the documentation you need to get the keys to your new home or the terms of your refinance. Before you lock the door and head to closing, make sure that you have:

  • A copy of your closing disclosure
  • A photo ID (a driver’s license, military ID or passport will suffice)
  • A photo ID for everyone else included on the loan (like a spouse)
  • Proof of an active homeowners insurance policy (required to get a mortgage loan with most lenders)
  • A cashier’s check or proof of electronic transfer of funds for any closing costs or down payment you owe

If you’re buying a home for the first time, you might also want to bring along your real estate agent to make sure the closing process goes smoothly.

2. Review the Property Before You Sign

If you’re in the process of buying an existing home, you may have asked the seller to make improvements or repairs to the property before you close on your mortgage and move in. Stay in communication with the seller of the property to make sure that any repairs or replacements are finished well before you arrive at the closing table. When the homeowner confirms that the agreed-upon repairs are complete, ask to visit the property yourself before closing to be sure the job was finished professionally.

3. Understand ‘No Closing Cost’ Refinances

When you buy a home, you’ll need to pay for closing costs. Closing costs are expenses you pay to your lender in exchange for arranging and preparing your loan. Some examples of closing costs you might pay when you buy a home can include:

  • Appraisal fee
  • Down payment
  • Inspection fees
  • Underwriting costs
  • Title insurance and title search fees

Closing costs usually equal between 3% and 6% of the total value of your home loan, so they can be costly. While there is no way to avoid closing costs when buying a home, your lender might offer you a “no closing cost” loan when you refinance. With a no closing cost refinance, you don’t need to pay your closing costs at your closing meeting. Instead, your lender will add your closing costs to the outstanding principal of your loan.

Take a look at an example of how a no closing cost refinance works. Imagine you are refinancing a home loan with a $100,000 principal balance to take advantage of lower interest rates. Your lender tells you that you will owe $2,000 in closing costs at the time of closing, or you can take a no closing cost refinance, which allows you to pay $0 in closing costs at the meeting. In exchange, you’ll accept a loan with a balance of $102,000 — your original principal plus your closing costs. You’ll pay your closing costs down over time the same way you pay your principal balance.

As you can see, no closing cost refinances are not free. Though you don’t pay when you close, you’ll pay a higher premium each month, and you’ll pay more in interest over time because you accepted a higher loan balance. While no closing cost refinance can be useful if rates are low, be sure to use them with caution.

4. Stay Consistent With Credit

By the time you get to closing, your underwriting process is already complete. But it’s still a good idea to remain judicious with your credit use to avoid creating an unexpected delay in closing. As a general rule, you should avoid applying for any items that might impact your credit report as you approach closing — like loans or new credit cards.

You should also avoid closing old lines of credit during the buying or refinancing process. This might seem counterintuitive — if you need great credit to apply for a home loan, doesn’t closing old credit card accounts indicate fiscal responsibility? The truth is that lenders don’t look at the number of accounts you have open when you apply for a loan. Instead, they look at the amount of credit you use versus the total credit you have available. If you close an unused credit card, you’re removing an available line of credit, which reduces your credit score.

Have an old card that’s just too tempting to carry in your wallet? Lock it in a desk drawer or cut it in half while you wait on your loan closing to avoid overspending without needing to close the card.

5. Prepare to Manage Your New Loan

After you complete the closing process, it’s your responsibility to manage your new loan. Review the details of your home loan and how your current payments differ from past housing expenses. Take a look at your budget and decide how much money you’ll need to set aside to be sure your mortgage is paid each month. Don’t forget to include necessary additional expenses that come with owning a home, like property taxes and homeowners insurance.

Compare Home Loan Options

By following these tips and taking a proactive approach to your mortgage journey, you can make confident decisions that align with your financial goals and secure a mortgage that is right for you. Remember, seeking advice from professionals and conducting thorough research will empower you to navigate the mortgage process successfully.

The company you choose to provide your mortgage loan will set the requirements you must meet to qualify. Benzinga offers insights and reviews on the following home loan and refinancing loan providers. Consider beginning your search for a mortgage with a few of the links below.


Get started

securely through Rocket Mortgage’s
website

Avg. Days to Close Loan

30

Minimum Credit Score

580

1 Minute Review

Rocket Mortgage is one of the best mortgage lenders on the market, making it easy to apply for a home loan entirely online. Its streamlined preapproval process and quick access to customer service set it apart from other online lenders. Rocket Mortgage offers a large variety of mortgages and is backed by the largest mortgage lender, Quicken Loans. Whether you need help or know exactly what you’re looking for, Rocket Mortgage matches you with the right mortgage type and helps you quickly complete your online application.

Best For

  • Homebuyers who are looking to complete the mortgage application process on their own
  • Homebuyers who have found their dream home and are looking to move through the approval process quickly
  • Homebuyers with good credit scores looking to review their mortgage options
  • Current homeowners looking to refinance within the next few months
Pros

  • Rocket Mortgage allows you to move at your own pace, guiding you through each step of the process. After you answer all the application questions, Rocket Mortgage lets you know if you’re approved and show your personalized mortgage recommendations
  • You can submit checking and savings account information, tax returns and other financial documents online — a feature that sets Rocket Mortgage apart from online competitors
  • RateShield allows you to lock in your Rocket Mortgage approved rate for up to 90 days
  • The home loan application process can be completed in minutes, allowing you to find out if you qualify for a mortgage right away
  • The online software allows you to navigate through the entire home buying process, from approval to home closing. Once you’re approved and you make an offer on your home, Rocket Mortgage offers online tools that will help you move through the rest of the closing process
Cons

  • While Rocket Mortgage has customer specialists ready to answer your questions and provide guidance, if you prefer sitting across from a person when filling out financial forms, this lender might not be right for you
  • You can’t easily view all of Rocket Mortgage’s home loan options prior to applying. It offers conventional, FHA, USDA and VA loans, but you’ll need to apply to find out more about the mortgage types within these offerings and which ones you’re eligible for


get started

securely through Angel Oak Home Loans’s
website

Disclosure: Angel Oak Licensing and Disclosure Information

Avg. Days to Close Loan

30

Minimum Credit Score

600

1 Minute Review

Angel Oak Home Lons is a unique platform that allows you to get your mortgage with just a bank statement. However, the bank also allows you to take out loans using asset qualification, ITIN and more. You can also get FHA, conventional and jumbo loans along with loans for portfolio purchases.

Best For

  • Bank statement home loans
  • Multiple loan options
  • Online information
Pros

  • Asset qualifier home loans
  • ITIN home loans
  • Investor home loans
Cons

  • Bank statement loans not available for all buyer types


get started

securely through CrossCountry Mortgage’s
website

Disclosure: Available in: CA, CO, CT, DC, FL, GA, IL, MD, MA, MI, NH, NJ, NY, NC, OH, PA, RI, SC, TN, TX, VA, WA 

Avg. Days to Close Loan

30 – 40

Minimum Credit Score

620

1 Minute Review

CrossCountry Mortgage offers standard products like conventional loans, VA loans, Jumbo loans and FHA loans. It also has more specialized products like bank statement loans, asset qualifier mortgages and no doc investment property loans. If you’ve had a hard time finding a mortgage due to erratic income, being retired or buying an investment property, CrossCountry Mortgage is worth a look.

Best For

  • Self-employed professionals
  • Retirees
  • Investors
  • Condo buyers
Pros

  • Wide variety of mortgage products
  • Niche products like bank statement loans
  • Works with many state home buyer assistance programs
Cons

  • No online approval

Frequently Asked Questions

Q

What can I do to improve my chances of getting approved for a mortgage?

1
What can I do to improve my chances of getting approved for a mortgage?
asked
A

1

To improve your chances of getting approved for a mortgage, you can work on improving your credit score, paying off debt, saving for a down payment and getting your finances in order before you apply. Working with a reputable mortgage lender can help you navigate the process and increase your chances of approval.

answered

Q

Should I make a 20% down payment on my mortgage?

1
Should I make a 20% down payment on my mortgage?
asked
A

1

Making a 20% down payment on your mortgage can help you avoid paying private mortgage insurance (PMI), but it is not always necessary and may not be feasible for all borrowers. It really depends on your financial situation and goals.

answered

Q

What can I do to improve my chances of getting approved for a mortgage?

1
What can I do to improve my chances of getting approved for a mortgage?
asked
A

1

To improve your chances of getting approved for a mortgage, you can work on improving your credit score, paying off debt, saving for a down payment and getting your finances in order before you apply. Working with a reputable mortgage lender can help you navigate the process and increase your chances of approval.

answered

The post 10 Mortgage Tips for Homebuyers and Homeowners by Sarah Horvath appeared first on Benzinga. Visit Benzinga to get more great content like this.

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