Buying a new home or refinancing your mortgage can put you on the right track toward building wealth and a secure financial future. So it makes sense to put some effort toward getting the best mortgage you can. Searching for low rates is where most homebuyers begin. These next steps will help you get the best mortgage and buy a home to reach your dreams and goals for 2022.
Steps to Buy a Home and Get the Best Mortgage in 2022
There are three main pockets that lenders evaluate when it comes to your mortgage: your credit score, annual income, and your total assets.
Your debt-to-income ratio (DTI) measures your monthly income against any recurring debt obligations and is one of the biggest factors that affects your mortgage offer. The lower your DTI, the better the mortgage rate you’ll be offered.
To get a great mortgage, it’s a smart move to focus on building your mortgage profile in these areas. Here’s the breakdown.
1. Boost your credit score
Raising your credit score is a smart strategy that almost always helps you qualify for a better mortgage. When you have a credit score above 740, you’ll be offered lower rates, betters terms, and a higher loan amount.
Paying down high-rate credit cards and lowering your high-interest balances will improve your credit score the fastest. You can also download your free credit report and take a look for errors or omissions. Fixing errors and updating your information can help improve your score quickly.
In short, lenders give the best competitive loan terms to qualified borrowers with higher credit scores, low debt-to-income ratios, and verified income.
However, a low credit score won’t keep you from getting a mortgage in most cases. Just remember, you’ll have a higher mortgage rate and less favorable terms if you carry a low credit score. So do what you can to improve your credit score before you apply for a mortgage.
2. Build your employment resume
Okay, not a resume exactly. But lenders want to see verifiable income that is steady and career-based. If you have steady employment and a career that’s moving upward, this will be an easy pass. But if not, here are some tips:
- If you’re a recent graduate, try to secure a formal job offer in writing
- If you’re self-employed, make sure to have at least 2 year’s taxes to verify income
- If you have gaps in your work history, having a steady career path helps
- If you’re recently unemployed, try to secure a new job offer (even if it doesn’t start right away)
Finally, remember to include all types of income when you apply for a mortgage—investment income, RSU or ESPP shares, spousal support, child support, and rental income.
3. Save up for a solid down payment
However, putting 20% down will give you more leverage and make you a sought-after borrower. When you put 20% down, you’re automatically released from paying PMI (private mortgage insurance), and you’ll also fall below the 80% loan-to-value ratio that lenders prefer.
In short, the bigger your down payment, the better loans terms you’ll be offered.
4. Find a mortgage broker who specializes in custom mortgages
No homeowner should settle for a one-size-fits-all mortgage. A few costly variables could end up costing thousands, even if a lender promises a low introductory interest rate:
- Origination fees
- ARM adjustment terms
- Private mortgage insurance
- Prepayment penalties
- Balloon payments
- APR vs. mortgage rate differences
Working with a mortgage broker who builds custom mortgages on a regular basis can get you a better home loan, hands down. A qualified mortgage broker will look at your whole profile — the purchase price and appraisal, along with your credit score, income, debt-to-income ratio, assets, employment history, and your down payment.
Finally, make sure your mortgage broker has experience writing specific types of loans that interest you. For example, some lenders don’t write enough jumbo loans to be competitive, while other brokers don’t write government-backed loans (FHA loans, USDA loans, etc.).
In short, find out early if there are any limitations to the types of loans you can qualify for if you decide to use a specific lender.
In most cases, working with an experienced mortgage broker who works with you toward your goals will get you the best mortgage and the strongest loan terms. We work with multiple lenders across California, Oregon, Washington and Colorado to secure competitive quotes and make sure our clients get the mortgage they deserve. Our goal is to save you money and help you reach financial freedom. Give us a call to get started.