3 Things to Know Before You Apply for a Mortgage
Posted on: 28 February 2017
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Applying for a mortgage should be one of the first things you do when you start house hunting. It's better to apply early on and be pre-approved than to find a house and then have to wait for your mortgage application to be processed. But applying for a mortgage is not always as straightforward as you might think. Here are three things to know before you apply for pre-approval.
You don't have to spend the amount you're approved for.
When you pre-apply for a mortgage, the lender will give you an amount that is the most they are willing to lend you. For instance, they may tell you that you're pre-approved for up to $190,000. This does not mean that you must—or even should—buy a home for that much.
In fact, in most cases, you'll want to buy a home that costs significantly less than the amount you're pre-approved for. This number just represents the amount the lender is willing to give you; not the amount you really can afford to spend. Analyze your budget to determine what you can really afford to spend on a home; most experts recommend dedicating no more than a third of your monthly income to house payments.
It's best to apply to a few lenders.
Don't just apply to one bank and accept whatever rate they offer you. Different lenders look at different criteria when determining how much to lend and at what rate. For instance, one lender may look only at your credit score, while another may also consider your length of employment. It's best to apply to several different types of lenders—like a big bank and a credit union. Then, you can choose to take a mortgage through the lender that offers the best rate.
A 30-year mortgage is not your only option.
A 30-year fixed mortgage has become the standard in the real estate industry. This means that you'll pay the mortgage off over a period of 30 years. While this works well for many people, it's important to realize it's not your only option. You may want to look into 15 and 20-year fixed mortgages, too. Your monthly payments will be slightly higher, but you'll pay a lot less interest in the long term.
If you have any additional concerns or queries about applying for a mortgage, talk to a real estate company. They can let you know what has worked well for other potential home buyers in similar situations to your own.