Thanks to the internet, it is now easier than ever to apply for a mortgage loan with various lenders. That doesn’t mean that you should jump online and start applying for all the mortgages which seem promising! If you go about it too hastily, you could end up paying much more for your mortgage.
Find Out Your FICO Score
If you are considering a mortgage, then you must know your credit rating, also called FICO score. If you have a good FICO score (over 670), then you are much more likely to be accepted and get better rates. If your FICO score is low (especially if it is below 584), then you should get your credit in shape before you apply. If you have any recent delinquent payments, then you should wait about 6 months before applying for the mortgage loan and be sure to make all payments on time. In the event that your credit score is low because of some mistake, dispute the mistake with the credit bureau so it is changed before you apply for the mortgage.
Only Make Serious Applications, and Make them Several Days Apart!
If you make several mortgage applications within a 14 day period, it could harm your credit rating. Two or three mortgage applications probably aren’t going to make a big difference. However, if you make over 10 applications in a few days, you could get denied or have your interest rates increased drastically.
Find Out the Costs of Your Mortgage
Before you apply for a mortgage, make sure you understand all of the terminology and what it means to how much you will pay for your loan. Spend some time imputing the various APRs and loan durations into mortgage calculators. Then, compare the overall, long-term costs of the mortgage loan. This way, you will really be able to fathom the difference between a 10-year mortgage at 6% versus a 15-year mortgage at 5%.
Determine How Much Debt You Can Afford
There are many mortgage calculators which will compute how much debt you can afford. These calculators will help you determine the amount of your monthly payments based on interest rates and loan durations. There are some things that these mortgage calculators can’t account for though, like future expenses (such as a new baby), job stability, or unexpected medical bills. Be realistic when figuring out how much debt you can afford and always make sure you are comfortable with the amount.
Mortgages are Ongoing Processes
After you apply for a mortgage, you need to be careful about all your financial activities. The mortgage process is ongoing from the point of application to the closing. If you incur any new debts or have late payments during this time, it can affect your interest rates or other aspects of the mortgage. Do not take out any payment plans (like those “no interest for 12 months on a new dining set!” deals), cease payments for other loans, or file for bankruptcy.