Buying a new home comes with an exciting feeling especially if it comes at a good price. While most people may desire to own a home if they have the capacity, the cost of buying one makes it a bit difficult for people with meagre resources.
However, there are provisions that make it possible for people who desire to own a home but are unable to do so due to lack of immediate funds. Getting a mortgage helps in financing the purchase of a new home and this can only be possible when you are working with a legit mortgage broker.
When you decide to get a mortgage, you will find that there a plethora of financing options that are available and this can sometimes be overwhelming. To get through this situation, there are recommended mortgage experts who specialize in guiding potential home buyers to make sure they take the best decisions for themselves.
This article is written to explain how you can finance your home purchase with a mortgage broker.
Financing Your Home Purchase with a Mortgage Broker
The following are some tips on how to finance your home purchase with a mortgage broker:
Credit Report
Before you intensify your efforts to get a mortgage, take a moment to check your credit report. Your credit report plays a big role in getting approval for a mortgage. You can start by getting your reports from the relevant agencies and subsequently reviewing them yourself to know if there are bad credit inclusions that are unknown to you. Also check to know if your name, social security number, and address were accurately spelt out to prevent any discrepancy with the information you will submit upon application for a mortgage.
If you discover an error at the point of personal review, you can report it to the credit bureau. Do not make any application until you receive a feedback (usually comes within 30 days) from the bureau. Once this is corrected, you can go ahead and apply for a mortgage.
Set Your Budget
Before you start dreaming of a home, make sure it is within your budget. Make an estimate of how much home your budget can afford with the use of the 28/36 rule which refers to the applicant’s debt-to-income ratio.
Ideally, your “up front” DTI, which covers only your mortgage costs should be less than 28%. On the other hand, your “back-end’’ ratio, which covers your mortgage and other debt obligations, shouldn’t exceed 43%, although ideally it needs to be below 36%.
It is important that you calculate your DTI properly so you do not go for a house that will take up your total earning in a month. If you need help on how to calculate your DTI, you can check here.
Increase Your Credit Score
Credit scores are pivotal in securing a loan. This is because most lenders use it to ascertain the credit profile of the applicant. Most lenders approve a 620 to 640 score as the minimum while some mortgages backed by the government can give loans for a lower credit score like 500, provided the applicant meets some other criteria put in place. It is pertinent to note that your score determines how affordable your loan may be. A high score is likely to get an affordable loan more than a lower one.
One of the proven ways used in increasing one’s credit score is through full repayment of all outstanding debts in good time. The applicant’s payment history accounts for 35% of the credit score, while owed debt in relation to total credit extended to the applicant accounts for another 30% of the credit score.
Finally, avoid purchasing on credit some months before applying for a mortgage as it has a tendency of affecting your application negatively.
Set Loan Type
It is important that you evaluate the options available to determine the type of loan that best suits your needs. Basically, there are two types of home loans – Conventional and government backed. Conventional home loans are provided by credit unions, private banks, and online lenders. They tend to have stringent eligibility criteria and high interest rates.
Government backed loans are still disbursed through private lenders but with federal government insurance. If you do not have a good credit or you do not have enough funds for down payment, you can still buy a house with a government-backed mortgage due to its relative flexibility.
These are some of the tips that would help you finance your home purchase using a loan. However, if you wish to save up to purchase that dream house of yours and you need some tips, you can check here: https://www.financialexpress.com/money/how-to-save-money-for-buying-your-dream-home/1621755/.
Conclusion
Securing a home loan is one of the several steps in the entire home buying process that is considered to be very important for those who are using a mortgage system. While this may seem like an easy way to buy a home, it is expedient that you weigh your options carefully.
Rushing into decisions like this may lead to getting locked up in a repayment plan that spans into two decades and more, and you certainly do not want this for yourself.