Do you want to buy a new home but aren’t sure how to get a mortgage? In this post we’ll explain steps 1-5 to getting a mortgage. In the next post we’ll take you through steps 6-10 so you can be fully prepared to finance your new home.
1. Figure out how much you can spend on a home
The first step to getting a mortgage is to find out how much money you’ll need to buy a home. That depends on how much home you can afford. Lenders will want to make sure your mortgage payment is below 28% of your monthly income and that your total debts are less than 36% of your income. Use an online mortgage calculator to find out what you may qualify for based on your income, savings and other debts.
2. Check your credit
Check your credit reports for errors and find out what your credit score is before you start house-shopping. Having a good credit score helps you get approved for a loan and get the best interest rates. A credit score of at least 620 is required to qualify for a conventional mortgage. A score over 740 gets you the lowest interest rates and shows the mortgage lender that you pay your bills on time and have low debt relative to your income. Pay down as many debts as you can before you apply for a mortgage.
3. Save for a down payment, closing costs and emergencies
Start saving for home-buying expenses as early as you can. Aim for a 20% down payment in order to avoid the extra monthly expense of PMI (private mortgage insurance). You can buy a home with less money down if necessary, especially if you use a special program such as a VA or FHA loan. Save an additional 2-5% of the projected home value to cover closing costs. Lastly, save an emergency fund of 3-6 months expenses.
4. Comparison shop for your loan
Check with several lenders to see what size loan you qualify for and where you can get the best deal. Pay attention to the interest rate, length of the loan and total loan amount including interest as well. Taking out a shorter term loan, for example 15 years instead of 30, will make the payments higher but can save you hundreds of thousands of dollars over the life of the loan.
5. Choose a shortlist of potential lenders
Now it’s time to choose several lenders to approach for a loan. Build your list by talking with people you know, asking your real estate agent and doing online research for reviews and information. In our next post we’ll tell you what to do when you have your list ready!
Bonus Tip: Consider a preferred lender
If you’re planning to purchase a new home directly from a builder, be sure to ask your sales rep about special incentives for financing your home with one of their preferred lenders. Many builders, including TimberCraft Homes in OKC, work with preferred lenders to offer the best mortgage deals for their customers.
Now that you’re well on the way to knowing how to get a mortgage, call TimberCraft Homes today at 405-784-7245 to get the most recent updates on available new homes in OKC.
