How to Get a Mortgage: 5 Critical Tips
3. Shop around
Being smart about how to get a mortgage means shopping around. Don't just accept the first mortgage you're offered, assuming that they will all be roughly the same. They won't. Do check with your own bank(s) first, as they may give you a bit of a discount on the interest rate because you're a customer. But check with other banks, too -- and with credit unions, which often offer lower interest rates.
Exploring options with a mortgage broker can be smart, too. He or she will likely offer a wide range of loans, and may be especially helpful if you have an underwhelming credit record. Visit Bankrate.com, too, where you can look up the best rates in your area and beyond.
4. Get pre-approved, not pre-qualified
Once you know which loan you want from which lender, don't wait until you find the home of your dreams to start the paperwork. Get pre-approved for the loan before you go shopping. This has several advantages. First, while working with a loan officer, you can determine just how much home you can afford to buy. You can also work this out on your own, and it's a vital first step, lest you start looking at homes out of your reach and end up with a mortgage payment that strains your finances.
Second, being pre-approved for a loan makes you a stronger buyer. If you're competing with anyone else for a home, then being pre-approved for a mortgage may give you an edge. Another contender, after all, may not end up getting approved. Pre-approval means the lender will have looked at your credit score, your employment, your financial health, and perhaps some tax returns -- and found you creditworthy.
Don't buy more house than you can afford.
5. Put down 20% or more
Finally, aim to put down 20% or more on your new home. Putting down less means you'll have to take on an extra loan in the form of private mortgage insurance, which will increase your monthly payment. A low down payment might also result in a higher interest rate, too.
And if home values drop during your ownership period, it could leave you with an "underwater" mortgage, meaning that you owe more than the home is worth. That's not good, especially if you need to sell the home at such a time.
There's a lot to learn when it comes to how to get a mortgage and buy a home. These are five critical tips, but if you read up more on the topic, then you may save yourself even more.
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