Owning a house is a dream followed by all in today’s world. There are ample reasons for the same. However, all would agree to the point that it is one of the safest investment options available in the current economic scenario which offer multiple benefits including tax benefits on the repayments made.
However, getting the loans is one of the major tasks and it requires one to do extensive research and study to get the best terms and affordable rates. Moreover, mortgages or the home loan decisions are long term decisions and even a small difference in the interest rates can mean a lot of savings for the borrowers. Getting a lower interest rate, flexible repayment terms and a reputed and reliable lender is not an easy task. So here are some of the tips which will help you through one of the toughest and the most valued decisions of your life.
Get hold of your credit score-
In the current times when the property rates seem to be sky high and still rising one has to settle for a mortgage loan to achieve their dream house.
Before you approach a lender, you must be aware of the things they require, the questions they might ask, the kind of documents they might ask you to submit and above all your credit score and report. Going prepared to the lenders will always help.
As a first step contact any or all the three bureaus for a copy of your credit score and the credit records. With a little research you can get an understanding of the way it works and how to check the correctness of the data and entries in your credit report. Scan the report for any discrepancies and if you find any contact our credit bureau with a written request for the removal of the same. Remember, wrong entries often pull your credit score down.
Once you have fixed the issues with the credit rating, it is suggested that you attach a copy of your credit score wherever you apply for a loan. This would prevent the lenders from making a hard pull on your credit score.
Since lenders take a look at the current score and not the old ones, get the recent one once you are out in the market applying for the loans for bad credit. An individual is entitled to free access to their credit reports from all the bureaus once in a year.
Even lenders respect the borrowers who come prepared with all the necessary documentation and the details. It expedites the lending and the approval process.
Down payment and your interest rate on the loan
Loan to value ratio or the LTV ratio as is popularly known decides the amount required by the borrower to pay as a down payment. In majority of the cases the down payment required is 20% of the value of the property which often comes out to be a large chunk of the money given the value of the houses in the current times.
However, there are a lot of borrowers who plan their mortgages in a way that they are successful in paying a higher down payment than the minimum threshold required. In such cases the value of the loans decreases and this means lower lending risk for the borrowers and hence they agree to a lower interest rate on lending.
Yet another factor which decides the interest rate is the kind of mortgage you are taking. Whether you are taking a new loan or a refinance will affect the kind of interest you get on the mortgages.
In case of the first time buyers, if you have a good credit score and have enough savings to pay a higher down payment, you can save on the interest rates.
For those who are looking to refinance their home and hold a higher equity; lower interest rates and flexible interest rates are easily available for them.
FHA loan options – These loans are government backed loans offered by the Federal approved lenders. It is best suited for those who are the first time borrowers of the mortgage loans, are looking for fewer complications and better interest rates. In addition to this one has to pay lower down payment too.
Decide on the loan tenure- Whatever the kind of loan, try and apply for a loan tenure which offers you an affordable monthly payment. One should account for the interest rate fluctuations too. These can be drastic and at times may see your monthly EMIs double on account of interest rate rise. Use of EMI calculators can be a great help. Longer tenure means lower EMIs but one has to pay a bigger amount towards the interest part too.
Clarify the applicable fees – One should research online and find out the fee charged by different lenders. There are several fine points associated with the lending agreement in which one often overlooks being lost in the hoopla of the lower interest rates advertised by the lenders. At times it may so happen that the interest rates charged by the lenders may not prove to be really attractive when compared with the applicable fees around.
Get pre- approved for the loans– When you are sure of a budget for the house you want to purchase, it is better to get your loan pre-approved. It requires less documentation and a day or two to get the approval. One will find it really helpful because once you have a loan budget you know the amount for which you can buy the house taking the down payment and the other associated charges with the mortgage loan into consideration.
So follow the aforementioned tips to get the best mortgage rates.