If you’re ready to learn how to shop for a mortgage, here’s how to break down the process into five straightforward steps. One qualifying factor when getting a mortgage is your credit score. When you apply for a mortgage, your lender will check your credit history and score to assess how well you handle debt. A high credit score demonstrates your reliability and stability as a borrower. Checking your credit report ahead of time allows you to see how you look to lenders. It can also help you spot any errors on your report and get those fixed before they can affect your chances of getting a loan. For instance, you’ll need a score of 620 or higher for a conventional loan, while a Federal Housing Administration (FHA) loan requires a score of 580 or higher. Remember, a higher score usually means more lenders will want to work with you and potentially offer you better terms.1. Check Your Credit Score
If you find that your credit score is too low for a mortgage, you can raise it with a few different strategies. First, paying your bills on time is crucial, as late payments hurt your credit history and lower your score. In addition, paying off debts will improve your score. Lastly, it’s best to not apply for new credit cards and other loans while looking for a mortgage.
2. Review The Types Of Loans
Mortgages come in several forms, each with its own advantages and disadvantages. For instance, Department of Veterans Affairs (VA) loans have no down payment requirements but aren’t available to borrowers outside the military.
On the other hand, conventional loans are available to borrowers who pass the lender’s financial requirements. While a conventional loan is one of the most popular ways to finance a home, the different types of mortgage loans may offer better options for certain situations.
Conventional Loans
Conventional loans follow regulations set by Freddie Mac and Fannie Mae. These loans require a down payment of at least 3% and may have stricter financial requirements for borrowers than other types – like a minimum credit score requirement of 620.
FHA Loans
The Federal Housing Administration (FHA) backs these loans to alleviate the risk of lending to borrowers with less income and lower credit scores. They have less stringent financial requirements than conventional loans but require a down payment of at least 3.5% and mortgage insurance premiums (MIP) to offset risks.
VA Loans
Available solely to active military members, veterans, and eligible surviving spouses, VA loans don’t require a down payment, mortgage insurance costs or a specific credit score – though most lenders will have a minimum requirement. These loans may provide lower interest rates and additional assistance for disabled veterans.
USDA Loans
The United States Department of Agriculture (USDA) provides mortgages for low- to moderate-income families in designated rural communities. These loans have no down payment and low interest rates, making them a good option for those who live in eligible locations and fall within the income limits. At this time, Rocket Mortgage® doesn’t offer USDA loans.
Familiarizing yourself with these loan types will help you understand which fits your unique situation. Then, you can approach lenders for the loan type that suits your needs.
3. Gather The Required Financial Documents
Make sure you have the documents needed for an application on hand when you approach lenders so they can preapprove you for a mortgage. The following documents are essential:
- Bank statements from the last three months show your monthly income and ability to make a down payment and subsequent mortgage payments.
- Pay stubs from your employer demonstrate consistent income sufficient to pay a mortgage.
- Personal identification, such as a driver’s license or passport.
- Your two most recent W-2 forms or tax returns to demonstrate financial stability.
- Investment account statements to give a fuller picture of your financial strength.
- Documents showing your monthly debt payments, such as statements about your auto loan or student loan payments. These are essential for determining your debt-to-income ratio (DTI), a metric lenders use to determine your capacity to take on additional debt.
- A gift letter if a friend or family member is helping you with the mortgage or down payment.
4. Obtain And Compare Quotes From Various Lenders
Although going with the first lender is tempting, it pays to shop around. Speaking with several lenders allows you to assess the loan amount, interest rate, loan terms, financial requirements and closing process that fit you best.
For example, a lender with a mortgage rate lock policy can help you keep a low interest rate offer while you search for a home.
You can use a few strategies to find a lender. First, you could ask friends or family members who recently bought a home about the lender they used. In addition, your real estate agent might have advice on the best lenders in your area. Lastly, you can search online and find rates from lenders’ websites. Whatever lender you look into, make sure you take a look at their reviews and any accolades they’ve received to make sure they offer great customer service as well.
You can obtain a quote from Rocket Mortgage online. When you apply through our streamlined process, you’ll receive information on your interest rate, monthly payments, rate lock options and more.
5. Select A Lender and Secure Your Rate
Once you compare and contrast mortgage offerings, you can select a lender that suits you and your financial goals best and secure financing. Your lender can provide an estimate of how much you may qualify for and your interest rate as well as options for an adjustable-rate mortgage or fixed-rate mortgage. You can use these numbers to set a housing budget while you look for your new home.
