With interest rates at record lows, many consumers are looking to buy their first home or refinance the loan on their current house. Purchasing a home is one of the biggest financial decisions you’ll make during your lifetime, and it’s not a simple task. Spend time preparing before you choose a mortgage product and sign on the dotted line. Here are five tips to make your road from renter to owner less bumpy:
Create a housing budget. Knowing how much you’re able to spend on your home puts you in a better position. If you can afford it, negotiate for a larger down payment or a shorter loan term to reduce overall interest costs.
Review your credit. It is recommended to use annualcreditreport.com to verify that you don’t have any errors on your credit report before you apply for a mortgage. If your credit score is lower than you’d like, work on lowering your debt ratio to compensate. This number is the percentage of your income that goes toward repaying debt each month. A lower debt ratio usually results in a lower interest rate for loans.
Get preapproved. To improve your changes at getting a lower interest rate on your mortgage, ask to get pre-approved first. Usually a free service, loan pre-approval will boost your credibility with real estate agents and sellers because it shows you’re able to get financing and are serious about buying a house. It will also make the process of applying for your mortgage faster, especially if you obtain the loan from the same bank that pre-approved you for credit.
Negotiate. Discuss the price of the loan with both the bank and the seller. Some sellers are willing to cover various closing costs and fees, reducing the overall cost to you.
Many of these tips also apply for consumers looking to use today’s low interest rates to refinance a current mortgage. Whatever your ownership status, these tips can help you walk out of the bank with a great rate and the keys to a new home.