Before purchasing a home it is imperative to get your financial house in order. One of the first steps should be to get a copy of your credit report. There are different ways to do this, but we recommend the following:
Free Annual Credit Report is a no charge website that provides a limited copy of your credit report, this is not as in depth as other websites, but as the name indicates, there is no charge. They will provide you with information obtained from each of the three major reporting agencies.
FreeCreditReport.com 877-322-8228 https://www.annualcreditreport.com/cra/index.jsp
Contact the major credit reporting agencies directly. There are three major credit reporting agencies, Equifax, Experian and Trans Union. Different lenders contract with different reporting agencies so it is helpful to have a copy of a report from each to insure there are no errors, although theoretically, the information should be the same.
Trans Union 800-888-4213 http://www.transunion.com/
Equifax 800-685-1111 http://www.equifax.com/home/en_us
Experian 888-397-3742 http://www.experian.com/
Your Credit Rating
Credit ratings are based upon financial information provided by banks and other lending institutions, based on your performance on past loans, credit cards, and bank accounts. If you've made timely payments and properly managed your bank accounts, you should have a good credit report.
Lenders will use these ratings to evaluate you as a borrower. The higher your credit rating, the lower the risk of your defaulting on a future loan, and consequently, the lower the interest rate that you will be charged.
Many experts recommend checking your credit report annually to insure there are no errors. Inaccuracies can be corrected, but only if you are aware of them.
Before deciding on a lender it is important to shop around and get rates from at least three different sources. We would be happy to provide recommendations from our list of preferred lenders. Rates are negotiable, and even though two mortgage brokers may be offering you a loan from the same lender, the terms may be entirely different. If you are not planning on staying in your home for a long time, it will not pay to buy down the interest rate by paying points. Using our mortgage calculator, run the loan at different rates and see how long it takes to amortize any points paid. In order to find the best home loan, keep in mind that interest rates, closing costs, and other fees all factor into the long term cost. If you already have a mortgage, start by contacting that lender.
Mortgage loans are available from many sources, including:
- Credit unions
- Savings and loan associations
- Mortgage brokers
Once you have selected a lender it is time to get pre-qualified and then pre-approved. What's the difference you ask? Pre-qualification is an informal decision made by a lender based on information you have provided. This will normally be offered in the form of a letter from a lender stating what mortgage amount you have qualified for. This letter is useful and should be included when making an offer on a home, the sellers will feel more comfortable knowing they are dealing with a serious buyer. We caution you however that when you include a pre-qualification letter, it is only for the loan amount required for the purchase price you are offering on the home. If you include a letter that shows you are pre-qualified for a loan well over the purchase price, the sellers may interpret this to mean you are prepared to pay more for the home.
Pre-approval is a written guarantee from a lender that they will grant you a loan for the stated amount. In order to obtain the pre-approval the lender will require bank statements, W2's, pay stubs and additional documentation to substantiate your ability to repay the loan. In this market, anticipate that you may have to provide this information at the time of the application, as well as just prior to close.
Here's a tool that will help you quickly calculate your mortgage payment. Simply enter the loan amount, interest rate and length of the loan.
Mortgage calculators can only estimate your monthly loan payments. You will also have to factor in property taxes, insurance premiums, mortgage insurance if required and homeowners association fees.