Top Five Things to Do

Here are five important things to remember as you prepare for your securing your new mortgage.

Check your credit report.

Three or four months before you plan to apply for your mortgage, get a copy of your credit report and check your score. This gives you time to correct any reporting errors and prepares you for what interest rate you can expect.

Think beyond the interest rate.

When shopping for a mortgage you should always compare interest rates. Compare the annual percentage rate (APR) too. APR combines the loan’s interest costs with the other fees charged by the lender over the life of the loan and then expresses it as a yearly percentage. However, it is important to remember that the cost of a loan is more than just interest. You may have to pay discount points to get that low rate, increasing your up-front costs. Low initial rates in an adjustable-rate mortgage could lead to rising payments in the future. 

It’s more than the monthly payment.

The monthly payment is important to any mortgage decision, but it’s not the only factor to consider. Consider the interest rate, the length of the loan and the loan type (fixed or adjustable rate). Don’t overpay for your loan even if the monthly payment fits your budget.

Don’t cancel your credit cards.

It sounds crazy, but keep your credit lines open and active as you prepare for your home purchase. It is good to get excessive debt under control before you apply, but do not cancel your credit cards. Decreasing your available credit can actually reduce your credit score.

You may need cash for closing.

There are costs for the final transfer of the property to you (closing) that may need to be paid in cash, although some loans allow you to roll the costs of closing into the new loan. Don’t wait until the last minute to figure out where the money is coming from. When you start looking at refinancing, remember you will need from two to six percent of the loan amount for closing costs. On a $150,000 mortgage, 5 percent is $7,500.