Buying a house is a daunting task. There are many things you will need to organize before you plan to buy your house. Huge investment is involved in this task and you should take each step carefully so that you don’t get into any trouble. The first thing you need to worry about is getting a mortgage loan. Various banks offer different kinds of mortgage loans. The terms and interest rates of these loans vary. You should be well educated about mortgage loans before you apply for one. Most people only have a basic idea about this loan. They only think of it as a long-term loan that you pay over 25 to 30 years at a specific interest rate. While this is true, there are some other details that you should know about as well. Here are some of the things you didn’t know about mortgage loans.
You mostly pay the interest at the beginning
When you get a loan, there is a principal amount and interest amount. When you start repaying your loan, you mostly pay the interest amount first and then the principal amount. So, it is highly recommended that you give extra repayments at the beginning so that your interest amount is paid off fast. This way you will be paying less interest overall.
You can shop around without affecting your credit score
It is perfectly fine to visit multiple lenders and see your chances of getting a mortgage loan at a preferable interest rate. It is a misconception that your credit score will be affected if the lenders keep on checking your credit score. You can have maximum five credit checks without affecting your credit score negatively. It is a smart decision to compare the mortgage rates of different lenders before applying for one.
Mortgage rates are not constant
Mortgage rates don’t stay constant; not even for a day. The rates fluctuate and it can drop or spike any time. The lenders use a ‘lock-in’ option whereby the buyers can get the interest rate they see at the time of the application. You should also know that the rates and fees vary among lenders.
There is room for negotiation
The rate that a lender offers isn’t fixed. You can negotiate and bring the rate down. You will need to have good knowledge about the market so that you can convince the lender to give you a loan at a lower rate. You should check out what the other lenders are offering. You can also negotiate the terms of the loan.
It is not mandatory to work with realtor recommended by your mortgage broker
The mortgage broker and realtors have a good business relationship. Your mortgage broker may recommend you a realtor that you might work with to buy a house. But it is not a rule. You might choose someone from your own connection rather than that recommended by your mortgage broker. It won’t affect your loan application or the home buying process.
Even with a poor credit score you can get a loan for buying home
If you have low credit score then it’s likely that you will be turned down by many lenders. But this doesn’t mean that you won’t be able to buy a house. There are different programs offered by the government and other organizations that offer free don payment. You can get Federal Housing Administration (FHA) loans.
You might need to pay Private Mortgage Insurance (PMI)
As a rule of thumb, you are required to pay 20% down payment for your house. However, if your down payment is less than 20% then you need to get a PMI, otherwise, your mortgage application won’t be approved. One trick is that you can take to mortgages to avoid getting a PMI.
You have the right to protect your privacy
The lenders are not allowed to share your information with third parties. But you should inform them that you don’t want any of your private information to be outsourced. Otherwise, they might do so and increase the risk of identity theft.
Huge down payment is not a prerequisite for getting mortgage
The general rule is to pay down payment worth 20% of the home’s selling price before you can get a mortgage. However, you can still get a mortgage even if your down payment is a lot less than this amount. Your mortgage application will be accepted with as little as 3% down payment. But you need to shop around and find out which lenders are willing to offer you such low rate of down payment.
Self-employed buyers find it difficult to get a mortgage
It is difficult for self-employed buyers to get a mortgage. The income figures on the tax return of self-employed buyers can be misleading as most of them deduct a huge part of their income. The mortgage applications of self-employed buyers are more carefully scrutinized to see if they can be qualified for a mortgage.
One thing you must ensure that your credit score doesn’t get lower before your loan closes.Before you apply for a mortgage loan, your lender will look at your credit report. They will do so again before the loan closes. So, you should make sure that there is no significant change on your credit report. Even applying for a new credit card will affect your score. So, you should avoid such thing. Mortgage application process is very complicated. Most people have very poor knowledge about it. Mortgage is a loan that you will have to pay for a long time. You should be aware of all the little things about it so that you can make a sound decision. Learning more about mortgage will save you a lot of money and you will be able to buy your home without much hassle.