10 Essential Tips for Taking Out Your First Mortgage
January 29, 2020 | Posted by: Lucy Melino
Taking out your first mortgage presents a major financial commitment, possibly the biggest one you'll ever make, so it's crucial that you get the best deal available. Getting a mortgage is often not a quick and straightforward process either, particularly since the options available to you will vary depending on factors such as your income, credit score and any past or current borrowings you might have.
#1. Save Up a Large Down Payment
In almost all cases, you'll need to have a substantial down payment to pay towards the home you want to buy. Fortunately, those with higher down payments will be able to take advantage of better interest rates and a wider range of borrowing options.
#2. Choose the Right Mortgage Type
There is a broad range of mortgage options available, particularly to those with larger down payments and excellent credit ratings. Most importantly, you'll be choosing between a fixed- and variable-rate package.
#3. Understand the Extra Costs
When determining how much you need to borrow, you'll need to factor in the additional costs involved, most of which are unavoidable. Additional costs may include home inspections, legal fees, appraisals and real estate fees.
#4. Don't Borrow Too Much
It can make sense to borrow as much as you can if interest rates are at an all-time low, but only if you have something to invest the money in. If the home you're interested in buying needs a substantial amount of work done on it, make sure you get some estimates to find out how much you need to borrow.
#5. Check Your Credit Score
Your credit score determines your borrowing power, and this is one of the first things that potential lenders will examine when considering your application. You can check your credit score online for free using agencies like Equifax. If you have a bad or neutral credit score, your borrowing options will be fewer or even none at all, so it makes sense to work on improving it before buying a home.
#6. Don't Change Jobs
Potential lenders are likely to be turned off by applicants who have recently changed jobs, so it's wise to apply for a mortgage only once you've been in the same job for at least six months to a year.
#7. Eliminate Debts
If you have any existing debts, they may reflect badly on your credit score, in turn making it more difficult to get a good mortgage deal. You may also find yourself in a situation later where your debts have reached such a level that you can no longer afford your monthly mortgage payments. As such, you should always make certain your financial situation is stable and debt-free before making an application.
#8. Provide Proof of Income
All mortgage lenders require applicants to present proof of income so they can decide whether or not the client is able to make the monthly payments. If you're self-employed, things can get more complicated, particularly if you haven't been self-employed for a long time.
#9. Overpay When Possible
When choosing a mortgage deal, it is essential not only that you can afford the monthly payments, but also that you will have plenty left over. Since a mortgage is typically a very long-term commitment, you should try to overpay as much as comfortably possible, in order to eliminate the debt earlier on. Paying your mortgage off sooner will look better on your credit score and improve your long-term finances.
#10. Contact a Mortgage Broker
A Mortgage Broker's primary expertise is locating funding for mortgage financing. They know where the best rates can be found. What's more, they have the knowledge required to present a proposal for financing to lenders in the best way possible to successfully obtain mortgage financing.