Meta Description: Are you in the market for a new home? If so, you’ll need to find the right mortgage that fits your budget. Here are some tips to help you shop for a mortgage:
Every home buyer has their own unique set of circumstances. Some are first-time buyers with limited experience in the home buying process, while others may be seasoned pros. But no matter where you fall on the spectrum, shopping for a mortgage is likely to be one of the most important – and stressful – steps in buying a home.
With so many different mortgage products available, not to mention hundreds of lenders to choose from, the process can be overwhelming. But it doesn’t have to be.
If you’re prepared and do your homework, shopping for a mortgage in Massachusetts or other states in the US can be relatively painless. Here are a few tips to help you get started:
- Know your credit score
Your credit score is one of the most important factors in determining your eligibility for a loan and the interest rate you’ll be offered. So, before you start shopping around, it’s a good idea to request a copy of your credit report from all three major credit bureaus (Experian, TransUnion, and Equifax). You’re entitled to one free report from each bureau every year, so take advantage of this.
Once you have your reports, check them for any errors or inaccuracies and dispute anything that doesn’t look right. This can help improve your credit score and make you a more attractive borrower in the eyes of lenders.
It’s important to know how much you can realistically afford to borrow before you start shopping for a mortgage. This will help you narrow down your options and avoid being approved for a loan that’s more than you can comfortably handle.
A good rule of thumb is to keep your total monthly housing expenses (including your mortgage payment, property taxes, and insurance) at or below 28% of your gross monthly income. And your total debt payments (including your mortgage, car loans, student loans, and credit card debts) should be no more than 36% of your income.
- Get pre-approved for a loan
Once you know how much you can afford to borrow, it’s time to get pre-approved for a loan. This is different from getting pre-qualified, which is simply an estimate of what you might be able to borrow based on your financial situation.
Getting pre-approved means that a lender has reviewed your financial information and is willing to extend you a loan up to a certain amount. This can give you a leg up when you’re ready to make an offer on a home, as it shows sellers that you’re a serious buyer with the ability to get financing.
- Compare mortgage rates and terms
Now it’s time to start shopping around for a mortgage. There are a number of ways to do this, including working with a mortgage broker or going directly to lenders.
When you’re comparing rates and terms, be sure to look at the annual percentage rate (APR) rather than just the interest rate. The APR includes the interest rate as well as any fees or points that are required to get the loan, so it’s a better representation of the true cost of the loan.
And don’t just focus on the interest rate – be sure to compare the other terms of the loan, such as the length of the loan (15-year or 30-year), the amount of the down payment, and the loan’s prepayment penalties.
- Read the fine print
Once you’ve found a loan that you’re happy with, it’s important to read through the fine print before you sign anything. This includes the loan’s terms and conditions as well as the lender’s disclosures.
Pay close attention to the interest rate, the length of the loan, the amount of the down payment, and the loan’s fees and points. You should also make sure you understand any prepayment penalties or other restrictions that may apply.