Mortgage rates are at historic lows. Are you prepared to take advantage of them?
By Madhusmita Bora
CTW Features
You have decided to buy a home, perhaps the most important purchase of your lifetime. The next challenge: finding a good mortgage to pay for your piece of the American dream.
The good news: there are many options. You can shop for a loan at the local bank, online lender or a lending institution out of state.
Here are seven key steps:
Check your credit
Squeaky clean credit is the first step to qualifying for good rates. When you start the home-buying process, the first step is to make sure there are no red flags on your credit report.
Paying monthly bills on time doesn’t automatically get you a stellar score. Factors such as amount of credit used in relation to available credit, or credit utilization ratio, can negatively impact your scores. It takes time to recover from bad credit, so start cleaning up at least six months before you begin shopping for a home.
“There are a number of free ways to check your credit,” says Ken Sears, director of housing finance and regional economics at the National Association of Realtors.
When in doubt, seek credit counseling to help you identify any weaknesses and figure out how to improve your scores.
Have all documents ready
Get your income and credit reports and collect all documents necessary. Prepare a credit file before you start interviewing with lenders.
“A good credit file makes it easier to shop and compete with different lenders,” says Rocke Andrews, president of the National Association of Mortgage Brokers.
Start early
Aim to get prequalified for a loan. This does not mean that you are approved for a mortgage, but it will allow you to begin a discussion about loan options.
You should explore all options for a mortgage and find the best deal out there. It’s important to know your budget before you start shopping for a home. Starting early also ensures that you seek out different options rather than signing the first deal you get.
“Shop around for lenders,” Sears says. “Set up interviews with a credit union, a mortgage broker and a retail bank and figure the rates that work best for you.”
Do your homework
Overall, mortgage rates are historically low, making it a great time to buy a home.
The average rate on a 30-year fixed mortgage was 3.58 percent for the week ending April 14, 2016. A year ago, the rate averaged 3.67 percent.
Make sure you educate yourselves on what works best for you: a fixed rate or an adjustable rate mortgage.
Find a mortgage professional
Talk to friends and family for a referral to a mortgage broker. That’s the best way to find your agent.
“Find someone with experience, someone whom you can trust to guide you,” Andrews, president of National Association of Mortgage Professionals, says.
Online reviews are also helpful. Check if the professionals you are interviewing have NAMB certifications.
“Talk to at least three people. Based on recommendations and your comfort level, pick one,” Andrews says. “An experienced mortgage professional will get you prepared and advise you on the timing and help you lock the best deal with knowledge and experience.”
Get estimates
New disclosures by the Consumer Financial Protection Bureau requires mortgage brokers to give customers an estimate. Ask for estimates so you can shop around.
Have your down payment ready
It’s ideal to have a 20 percent down payment, but not mandatory. The Federal Housing Administration requires a 3.5 percent down payment. Other lenders ask for at least three percent of the loan amount. Start saving up for closing costs. You should also shop around for any local down payment assistance programs.
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