Questions to ask when shopping for mortgage
Purchasing a home is one of the major financial commitments that a person makes in his entire lifetime. It is in fact the most expensive investment a lay person makes. Given its importance, home purchases are complex, complicated and overwhelming at times. This is the case especially for first-time purchasers.
Purchasers often go through several decision making steps in order to get the best out of the deal. From mortgage comparison to getting advice from a broker, there is a lot to consider. However, here are some questions to ask when shopping for a mortgage to make a better purchase:
- How much can you afford?
This is the first and foremost question to take into account. An affordability calculator helps the purchaser to stay within the budget and invest in mortgage policy accordingly. Take into account recurring expenses and other monthly expenses to get an overall idea. Moreover, some mortgage types have eligibility cutoffs that is related to the ratio between total monthly income of the purchaser and total debt amounts.
- How much is needed for down payment?
There is a prevalent misconception that 20% of the down payment is needed for a home purchase. 20% down payment is a lot of money which makes it obstacle for most of the public in order to purchase a home. Conventional mortgages can be accessed with 3% down payment as well. Similar is the case with different kinds of mortgages. Purchaser needs to conduct a thorough research on down payments to get a better deal.
- What is the interest rate?
Different lenders offer different rates. This is the reason why it is necessary to inquire into the interest rate. Make sure you contact different lender, either by yourself or through brokers, to get a better idea. Also make sure whether the interest rate is fixed or adjustable. With fixed interest rates, the amount of interest remains same through, whereas, the amount of interest is adjusted according to lender’s cost of credit in adjustable interest rates.
- Does credit score matter?
As a general point of view, credit scores matter a lot. If you have a better credit score, there are chances of getting better interest rates. However, there are good interest rates as well for people with bad credit scores. Credit record is usually taken into account when applying for a mortgage, but there are other things as well that lenders usually consider. Debt-to-income ratio and cash reserves are some of the things that lenders take into account.
- Is a pre-approval required for mortgage?
Even though it is not a requirement but is highly recommended to do so. Pre-approval means getting conditional commitment from lender. Given the tight and stringent housing supply, being pre-approved means that the purchaser is serious about the transaction. In order to get pre-approved, lender is provided with information about assets, credit history and debts. This is necessary for proper analysis of financial profile in order to determine creditworthiness.