How to Get a Mortgage
A mortgage is a loan that helps people buy or refinance homes. In exchange for the money you borrow, you agree to pay it back over time – in monthly payments that include both principal (the amount you borrowed) and interest charges.
Mortgages come in different types, including fixed-rate and adjustable-rate loans. Understanding the differences can help you decide which type of mortgage is best for your needs and budget.
Types of Mortgage
The first step to getting a mortgage is deciding whether you want one that’s fixed or adjustable. Both have advantages and disadvantages, so it’s important to choose the right option for your situation.
If you choose a fixed-rate mortgage, your interest rate will remain the same for the life of the loan. This can make it easier to predict your payments, but it also means you’ll pay more in the long run.
Adjustable-rate mortgages, on the other hand, change your interest rate as a result of changes in market rates. These can be good for people who are planning to sell their home in a short period of time and need a lower rate than a fixed-rate mortgage offers.
Your credit score is also a factor when deciding which mortgage to apply for. The higher your credit score, the lower your interest rate will be.
A lender will also check your debt-to-income ratio to see if you have the financial capacity to repay a mortgage. This is calculated by dividing your total monthly debt payments, including your new mortgage payment, by your gross income.
Once your application is approved, you can start looking for a home to purchase. It’s a great idea to get pre-approved for a mortgage before you begin your search so that you know how much house you can afford and how much money the seller might accept in your offer.
The process of obtaining a mortgage can be complicated, but lenders are there to help. They will provide online support and have local branches you can visit if needed.
When preparing your mortgage application, you’ll need to supply a lot of information. Your lender will likely ask you for bank statements, tax returns, pay stubs and other documentation to help them understand your financial history.
This will give your lender a better sense of how you manage your finances and whether or not you’re able to handle a large amount of debt without falling behind on your payments. They will also look at your credit score to determine if there are any inaccuracies that could negatively impact your application and increase your interest rate.
Your lender may request a letter of explanation from you if they find something on your credit report that doesn’t match what you told them in your application. This isn’t necessarily a problem, but it gives you an opportunity to share additional details that could help your application be approved.
You’ll have to answer questions about your assets, including cash savings, savings accounts, checking and stock accounts, as well as non-liquid investments, such as cars or businesses you own. Your lender will also want to know about any other financial obligations you have, such as auto loans and credit card debt.