What To Do Before Picking A Lender

What to do Before Picking A Lender

Before Picking a Lender Get Your Financial House In Order

Buying a home is probably one of the largest, most significant purchases of your life, so when you need to get a mortgage, you want to make sure you're getting the best lender and the best deals. How do you do it? These four tips and advice will help you choose a great lender and get the best deals.

Once you follow these financial tips, you will be ready to learn how to pick a lender you'll be thrilled to work with.

1. Build Your Credit

Your credit is a significant factor for your everyday life, especially for big purchases, such as a car or a home. If your financial situation is less than perfect, take the time you need to fix it. You need to know where you stand with your finances, and you can do this by getting your credit reports and checking your credit score.

Did you know you can get your credit report for free once a year? This free credit report includes reports from each of the main reporting bureaus, including Equifax, Experian, and Transunion. If your credit is less than perfect, the good news is it can be improved.

Check your credit report for errors and correct them. You can pay off any accounts you have in collections and pay off any high balances you may have, which will help boost your credit. Do you have active credit accounts?

If so, pay your balances down to at least 30 percent of your available credit and make your payments on time. Having a good credit score is only winning half of the battle. Having a good credit score shows you are financially responsible but lenders are interested in seeing if you are able to handle an additional expense, such as a mortgage.

2. Creating a Budget

What to do Before Picking a LenderCreating a budget is important for maintaining financial stability. Having good credit can get you approved for a loan amount that's much more than you may be able to pay while still trying to live comfortably. It's best to practice smart money habits. Creating a budget lets you know how much you can afford for a home. It is part of being a fiscally responsible homeowner.

To get the most accurate idea about what you can afford, you need to factor in all of your monthly bills. Monthly bills, including your rent, utilities, cable, gas, subscriptions, and any other recurring payments, like student loans, you may have. 

If you are a parent that holds a student loan in your child’s name, for example, you also have refinancing options to get you the lowest interest rates. A lower interest payment expands your budget and helps you pay the loan off faster. Student loans, like parent plus loans, can affect the outcome of your efforts to acquire a mortgage. Parent plus loan rates can be customized to your needs and help you work towards that goal.

If you have other financial goals, such as a savings goal you want to meet by a certain time, factor the amount you are contributing to your savings account in your monthly budget. Making a line-item budget may be in your best interest to get a clear picture of the bills you're paying, when you need to pay it, and how much needs to be paid.

When lenders pre-approve you for a loan, they consider financial factors, such as the amount of revolving debt you have, your gross income, and the number of outstanding loans, as well as their amounts. They will also consider your monthly bills and the amount of these bills. If they are going to do it you should as well. Budgeting becomes of paramount importance when you are buying a house.

3. Know and Understand Your Options

If you want to find the best lender, you need to speak their language. Do you know the different types of lenders and mortgages that are available? Researching your options is always a good idea. When you think of buying a home, does putting a down payment of at least 20 percent enter your mind? It should because you will avoid what's known as private mortgage insurance or PMI for short.

Private mortgage insurance is a needless expense you should try to avoid if possible. Those who have private mortgage will look to end it as soon as possible. So if you have been saving your money and have about 17-18 percent to put down, it might be worth it to continue to save before purchasing a home. The difference in monthly PMI payments can be substantial on a monthly basis.

Today, conventional loans are approved with as little as three percent down. Government-issued loans may also be an option, which may require only a 3.5 percent down payment or no down payment may be required.

You should look over all your options and compare costs of each program whether it is conventional, FHA or something else.

4. Consult Your Real Estate Agent

A good real estate agent can network with other professionals and help you find the lender that can best meet your needs. The good news is a real estate agent will not limit their networking efforts to only their in-house lenders, which gives you the best opportunity to find someone that can help, as well as reduce your closing costs.

Most real estate agents either will work with a mortgage broker who has access to multiple lenders or will have a few local lenders they refer to. You should never just go to one lender. It makes sense to shop multiple resources.

Your real estate agent can be a gem in this situation.

Final Thoughts

Picking a lender is an important part of the home buying process. You will more than likely be stuck with the terms on the mortgage you receive for at least a few years. The terms you get can play a significant role in your monthly expenses. Make sure you spend the time thoroughly researching lenders and their various mortgage programs.

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If you purchased the house with less than a 20% down payment, the lender probably required you to buy private mortgage insurance. This also is true for any refinancing loans with less than 20% equity. Private mortgage insurance protects the lavender from the elevated risk presented by a borrower with a small down payment.

Offset Mortgages

Offset mortgages can save an individual a great deal of money. They can either shorten the term and enable you to be mortgage-free sooner or help you in reducing the monthly payments. But still many of us fail to understand this concept. In fact, some are not even aware of its existence.

Typically, loans available to buyers looking for a mortgage on second property, such as a vacat