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You do not know how to get a loan to invest in real estate? Here’s a step-by-step guide.
Getting a home loan is far from easy. Indeed, we would tend to think that it is a detail among the many efforts that you will develop to own your first property. But it’s a little more complicated than you might imagine. Do not be afraid, nothing impossible of course, far from it. But if you do not know much, it will surely be necessary to educate yourself a little and take certain steps. But you probably already know that.
If you are here, you have taken the first step.
Ready to learn the basics? Here’s how to get a mortgage, step by step.
You must draw up a financial statement
Before getting a mortgage, make sure you are financially prepared to own a home. Do you have a lot of debt? Do you have enough savings for a down payment? What about closing costs?
A home is a major purchase, possibly the biggest you’ll ever make, so it’s no surprise that lenders take a serious interest in borrowers’ finances before granting home loans. If you have a lot of debt or don’t have a lot of credit history, you may need to improve your financial health before applying for a mortgage.
Understanding your income and debt in depth will help you know exactly what kind of home you can afford.
Also, be aware that lenders carefully review your credit score to determine your mortgage eligibility.
The interest rate you will be offered depends heavily on your credit score.
Check your credit score, and if it needs improvement, increase your credit before you start applying for a home loan. This can include paying off outstanding debt, disputing errors on your credit reports, and not opening new accounts.
Find the mortgage that best suits your situation
There are many types of home loans available. Which one is best for you will depend on your financial situation and your homeownership priorities.
Here are some of the loan options you can consider:
How to choose between fixed rate and flexible rate?
Fixed rate mortgages are popular because the mortgage interest rate does not change during the life of the loan. The rate you initially accept will be the rate you maintain until you sell the house or refinance it.
Variable rate mortgages have low introductory rates that start to be fixed, but then fluctuate upward. If you don’t plan on staying in the house for long, an adjustable rate mortgage could save you money.
How long do I have to commit to?
A 30-year mortgage is the most common term. Monthly payments are usually lower, but you will pay more interest over the life of the loan.
Short-term home loans, such as 10- or 15-year mortgages, are also available. You pay less interest, but the monthly payments can be high. Lenders may offer other options, such as 20-year mortgages, which fall somewhere in between.
Is it necessary to provide a deposit?
Some conventional loans may allow a down payment as low as 3%, but if your down payment is less than 20%, you will likely need to pay for private mortgage insurance as well. This monthly expense is typical of low down payment mortgages to protect lenders in case the borrower does not pay off their loan.
Once you get up to 20% of home equity, you can take steps to reverse your PMI.
Some government guaranteed home loans do not require a down payment, while others allow you to make lower down payments. Depending on the type of loan and the amount of your down payment, you will have different mortgage insurance requirements.
You need to learn about mortgage lenders
Look at several Banks to find the right one for you. There is a wide variety of lenders to consider.
If you are looking for a particular type of mortgage, you may want to focus on specialist lenders. For example, if you know you want a loan, a lender who focuses on working with military borrowers may better meet your needs.
No matter what type of loan you are looking for, you may want to consider:
- How you prefer to communicate with the lender. Do you want a face to face date, or are you comfortable with phone calls, emails or even texting?
- What are the minimum qualifications? For example, knowing a lender’s minimum credit score or down payment can help you determine if you’re ready to apply.
- Does the lender offer unique programs that meet your needs (for example, down payment assistance for first-time homebuyers)?
How do I get a prior agreement for my mortgage?
There are some great advantages to getting mortgage pre-approved. First, it shows sellers that you can make a solid bid up to a specific price. Second, it helps you figure out what your mortgage will really cost, since you’ll get details on the rate, fees, and expenses needed to complete the purchase.
It’s a good idea to get pre-approval from at least three lenders – you’ve already gone to the trouble of digging up all those pre-approval documents. Comparing rates could potentially save thousands of dollars over the life of the loan. Plus, if you get all of the pre-approvals within a short period of time (30 days, that’s for sure), that only counts as one serious request on your credit report.
Submit your most recent financial information
Even if you have been pre-approved, you will need to submit your most recent financial information when you officially apply for a home loan. I
f you are self-employed, you may need to provide additional proof of your financial stability, including a higher credit score or large cash reserves, and possibly income tax returns.
Within three days of receiving your request, your lender will give you a first loan estimate, which includes:
- How much will the loan cost.
- Associated fees and closing costs, including information on what costs you can purchase.
- Interest rate
How do I start taking out my mortgage?
Underwriting can be the hardest part of getting a mortgage, even if you’ve been pre-approved. We don’t have to wait any longer, this time to get the official approval of the loan. You may also find yourself working with an underwriter rather than the loan officer who has helped you so far.
During the underwriting process, the lender determines if you are eligible for the loan.
Factors assessed include:
- Credits and professional history.
- Debt-to-income ratio.
- Current debts.
The lender will review your credit report and request a home appraisal. An appraisal tells the lender the market value of the house because they won’t lend you more than what the house is really worth.
During this time, you will schedule a home inspection, which will look for any defects in the house. Depending on how it goes, you may want to negotiate with the seller for repairs or a lower price before closing.
During the underwriting process, you’ll want to avoid making changes to your finances, such as changing jobs or taking out another line of credit. The same goes for big purchases that increase your debt. Increasing your debt can lower your credit score, which could make the loan more expensive or even jeopardize your qualification.
Is it possible to reverse my decision?
You’re almost done, if you start having serious doubts at this point you can still walk away. You could lose your deposit, also known as serious money, if you decide not to close.
Don’t be afraid to ask questions. Getting a mortgage comes with a lot of paperwork. Take the time to understand everything. Know what you are signing and what you are paying.
The laws of your country determine who will be present at the close.
These people may include:
- Your mortgage broker.
- Your real estate agent.
- Your lawyer.
- The seller’s lawyer.
- A representative of the company
- The seller and the seller’s agent.
Due to the COVID-19 pandemic, your fence may look a little different. Electronic closure, where at least one electronically signed document, has become common. In many cases, an electronic lock also means that not everyone is physically present at the fence.
And that’s it – you’ve made it to the top, and the loan is yours. It’s finally time to move into your new home!