Things You Should Know About When Getting A Mortgage

Before you apply for a mortgage, it is important to understand the steps in the process. These steps include Preapproval, Down payment, monthly payments, and Origination fees. This will make the process less stressful and easier. Read on to learn more.

Preapproval

Getting preapproval for a mortgage is an important step before shopping for a house. Your debt-to-income ratio, or DTI, will be a factor in determining your ability to make payments on a mortgage. This includes credit cards, auto loans, and student loans. Your lender might reject your application if your ratio is too high. It is important to reduce your debt before you apply for a mortgage.

Once you have preapproval, you can begin looking for homes. To determine how much you can spend on a home, you can use a mortgage calculator. It’s helpful to see what your lender’s standard interest rate will be for the home you’re considering. Preapproval will let you know if there are any credit issues. If your application is denied, you can find out the reason and seek additional assistance from a mortgage professional.

Down Payment

Making a down payment for a mortgage is an important step when purchasing a home. Not only does it reduce the amount of money the lender has to provide for your purchase, but it also reduces your monthly payments. The down payment is usually paid in cash or wire transfer.

Conventional mortgages require a minimum of 20% down payment. However, the percentage required depends on your credit score and the type of property you’re purchasing. A government-backed loan, for example, may require only 3% down payment. For first-time buyers, the down payment may be as low as 3.3%, provided you have enough money to pay for the property.

Monthly Payments

There are many factors that can affect the monthly mortgage payments. Usually, the monthly payment consists of the principle amount of the loan plus interest. The payment amount will vary depending on the length of the loan, the down payment, the price of the home, and the interest rate.

You can choose to make extra payments, like a bi-weekly payment or a lump sum, for a longer time. This will pay down the principle faster. You can do this without negatively affecting your monthly payment. Plus, you won’t incur prepayment penalties and can spread out your mortgage payments over the year.

Origination Fees

Many mortgage lenders charge an origination fee, but you can negotiate to reduce or eliminate this fee. You may be able negotiate a lower fee if you have good credit and a large down payment. However, keep in mind that some lenders may try to offset this fee with other costs.

Mortgage origination fees can be confusing because they can come in different forms, including processing fees and underwriting fees. These are fees that you pay to the lender in order to process your loan documents and ensure you qualify. The origination fee is usually paid at closing.

Debt-To-Income Ratio

When applying for a mortgage, the lender will consider your debt-to-income ratio (DTI). This ratio is a measure of how much debt you have and how much income you have. A DTI below 36% is a good goal. You can lower your DTI by cutting down on unnecessary expenses.

The DTI is calculated when you take your monthly gross income and divide it by the amount of your debt payments. This gives lenders an idea of how much you can borrow. When you have a lower DTI, your chances of getting a loan are greater. Lenders will look at both the front-end and the back-end DTI ratios to determine how much you can afford to borrow. The front-end DTI will include property taxes and mortgage payments. The back-end DTI includes other debts such as homeowner’s insurance or homeowners association dues.