Get your finances dialed in:
Your credit score is an important factor that lenders consider when evaluating your mortgage application. With a higher credit score, you’ll have more loan options and may qualify for lower interest rates. Before shopping for lenders, find out your credit score and make sure your credit reports are accurate. You can check your credit score for free using websites like NerdWallet, and you can receive free copies of your credit reports from each of the three major credit bureaus through the AnnualCreditReport.com website. If you find any errors on your credit reports, be sure to dispute them. In addition to improving your credit score, you should also work on reducing your debt and improving your debt-to-income ratio (DTI). A good DTI ratio for a mortgage is 36% or lower.
Learn what kind of mortgages are available and best for you:
There are several different types of mortgages to choose from, each with its own set of features and benefits. For example, you might consider a VA loan, which is available to active and veteran military members and does not require a down payment; an FHA loan, which has lower credit score requirements and requires a down payment of 3.5%; or a conventional loan, which is geared towards borrowers with good credit and may require a down payment of as little as 3%. You should also consider the term of the loan, such as a 15- or 30-year mortgage, and whether you want a fixed-rate mortgage, with a consistent interest rate and monthly payment, or an adjustable-rate mortgage (ARM), with an initial fixed-rate period followed by periodic adjustments.
Compare rates from multiple mortgage lenders:
Once you know what kind of mortgage you want, you should shop around and compare rates from multiple lenders. You can search for mortgage rates online or through a mortgage broker, but keep in mind that the rate quotes you see are estimates and may change once you apply for a loan. It’s a good idea to get quotes from several lenders and compare them to find the best deal.
Get preapproved and ready to shop:
Before you start shopping for a home, it’s a good idea to get preapproved for a mortgage. This means that a lender has reviewed your financial information and is willing to lend you a certain amount of money based on your credit, income, and other factors. Getting preapproved can help you narrow down your search to homes that are within your budget and can also give you an edge when making an offer on a home. To get preapproved, you’ll need to provide information about your income, debts, and assets, such as your Social Security numbers, bank account information, and tax returns.
Compare loan estimates:
Once you’ve applied for a mortgage and provided certain information to a lender, you’ll receive a loan estimate that outlines important details about your loan, including the interest rate, fees, and closing costs. It’s a good idea to compare loan estimates from multiple lenders to find the best deal. Be sure to pay attention to the annual percentage rate (APR), which takes into account the interest rate and fees, and the total interest you’ll pay over the life of the loan. You should also consider any prepayment penalties or restrictions on refinancing. Once you’ve found a lender and mortgage product that you’re happy with, you can lock in your rate to protect yourself from rate increases while your loan is being processed.