There are several important factors you should consider before you refinance your mortgage this year, including current rates and your financial situation.
Buying a home can be a great way to build wealth over time, in addition to putting a roof over your head. By owning real estate, you can take advantage of an increase in property value over time as well as an increase in home equity.
But before you buy a home, you need to take a few things into consideration first. Reputable lenders look at a list of criteria to decide how much they’ll loan you.
This list Includes:
- Credit score
- Employment History
- Existing assets
- Car leases or loans
- Credit card balances
- Debt consolidation loans
- Home equity loans
- Installment loans
- Student loans
- Other monthly debts
- Size/source of your down payment
Considering this list, there are certain considerations that you should make before applying for a mortgage in Washington, Colorado, Idaho, or Oregon.
Get Your Credit Score in Check
If your credit score is lagging, it’s time to start beefing it up now before you apply for a mortgage. Your credit score tells lenders what type of borrower you would be, and if your score is too low, you’ll have a tough time getting approved for a home loan.
Not only that, but a lower score will likely mean a higher interest rate if you are able to secure a mortgage. And a higher rate means more money paid out over the life of your loan.
Before you apply for a mortgage, be sure that your credit score is in good shape. If it’s not, you’ll want to take steps to improve it.
Determine the Type of Loan You Need
There are several different loan options available, and the one you choose should be best suited for your financial situation and what you’re most comfortable with. Here are just some examples of the type of mortgage you may want to consider:
Fixed-rate versus adjustable-rate mortgages – A fixed-rate mortgage comes with an interest rate that remains unchanged throughout the mortgage term, while an adjustable-rate mortgage is one in which the interest rate fluctuates at different intervals.
Conventional versus government-backed mortgages – A conventional mortgage is one that the government does not back and requires a down payment of 20% in order to avoid Private Mortgage Insurance (PMI). Government-backed mortgages, such as FHA loans and VA loans, allow for smaller down payments.
Determine the Term Length
The term length will determine your monthly payment amounts and the overall cost of the mortgage by the time it’s paid off.
A short-term mortgage – such as a 15-year fixed-rate mortgage – will allow you to pay your mortgage off earlier and will help you save money in interest paid, but the monthly payments will be higher to achieve this feat. A long-term mortgage – such as a 30-year fixed-rate mortgage – will allow you to have lower monthly payments, which can make things easier to budget, but you’ll pay more interest overall and will take longer to pay off the loan.
Save Up For a Down Payment
A down payment is required for most mortgages in WA, ID, CO, or OR, which means you’ll need to save up for a down payment before you apply for a mortgage. The down payment is based on the type of mortgage that you choose, the purchase price of the home, and your financial health.
To illustrate, let’s compare an FHA loan with a conventional mortgage. With an FHA loan, you can put down as little as 3.5% as a down payment, while a conventional mortgage requires a 20% down payment. If the house you plan to buy is $500,000, you would need a down payment amount of $17,500 if you go with an FHA loan, and $100,000 if you go with a conventional loan.
Based on these numbers, you’ll need to save up the specific amount required for the type of mortgage you want to apply for and the price of the house you intend to purchase.
Need a Mortgage Loan?
Sammamish Mortgage is a local mortgage company serving the broader Pacific Northwest region, including Washington state, Idaho, Colorado, and Oregon. We are proud to offer a wide variety of mortgage programs and products with flexible qualification criteria. Please contact us if you have any questions or are ready to apply for a home loan.