For the vast majority of us, a home purchase is the largest single purchase we’ll ever make.
Mortgages are complex financial products, and it is easy to sign up for a loan that costs much more than you expect. Fortunately, there are a variety of tools available to help consumers. Here are the top 5 tools to help you understand your mortgage.
Mortgage Rate Comparison Tool:
A mortgage rate comparison tool lets you research the interest rate and loan terms a number of lenders would give you.
Each mortgage rate comparison tool will draw from its own pool of lenders, so you should consider using at least two of them rather than simply signing up with the best deal.
What information do mortgage rate comparison tools need? They ask for information such as your location, the loan amount, the loan type, the percentage down, and a ballpark figure for your credit score.
They will let you know which lenders will work with you if you are putting less than 5% down or have less than perfect credit. They’ll connect you with lenders who can give you a more accurate quote, though they’ll need more information to generate it.
Never enter personally identifiable information into the mortgage rate comparison tool; no real one will request your SSN, for example, just your approximate annual income and estimated credit score.
The Mortgage Calculator:
A mortgage rate calculator allows you to run the numbers in any type of scenario. You can see how much faster you’ll pay off the house if you put an additional $5000 down or how much lower the house payment will be if you get an interest rate a quarter-point lower.
Mortgage calculators allow you to eliminate the “analysis paralysis” and get through the math rather quickly.
For example, enter the interest rate, down payment, loan balance, and loan term. Then you’ll see how much the mortgage payment will be per month and how much you’ll pay over the life of the loan.
You can factor in private mortgage insurance, property taxes, and insurance to see what you’d pay per month to live in a given home. This also allows you to see how much you’d save if you put the 20% down necessary to eliminate PMI or bought a home in a town with a lower property tax rate.
Mortgage calculators can answer a number of questions. Is it worth it to pay the fees to refinance your mortgage?
How much would you save if anything if you pay the discount points for a lower interest rate?
How much home can I really afford? It is to your benefit to answer these questions before you talk to a realtor, much less a mortgage lender.
If you know the most you can afford to spend on a house including insurance and taxes, you can tell a realtor the most you can spend on a house.
Furthermore, you won’t waste time applying for a mortgage only to be rejected because it exceeds the debt-to-income ratio lenders will accept.
Consider drawing up a budget so that you can factor in debt payments like car payments and student loan payments to make sure you have enough money to pay the house payments along with things like maintenance.
Credit Reporting Tools:
Credit reports from any of the credit reporting companies will give you your credit score.
That is used by lenders to determine the risk of loaning you money and the interest rate they’d offer you if they would offer you a home loan. You should review your credit report before you start home shopping for several reasons.
First, this is the time to correct inaccuracies on the credit report like double entries for old debts. Second, you want to deal with any cases of identity theft or zombie debt on the credit report before it ends up hurting you. Or you may want to clean up old store credit cards you didn’t realize were delinquent.
Let’s suppose you’ve cleaned up your credit report. You can run the credit report with a different one of the top three credit reporting agencies without having to pay a fee.
Note that you can rotate between the credit reporting agencies every few months, essentially monitoring your own credit for free.
Mobile Mortgage Applications:
This is an increasingly popular option, though you can still fill out the mortgage application online or by pen and paper. But what is a mobile mortgage application?
You are able to upload documents like your pay stub and bank statements to get pre-approved for a mortgage. Note that this is more important than being pre-qualified.
The terms pre-approved and pre-qualified are often confused, but they matter a lot when you’re ready to go home shopping. Pre-qualified means they’ll probably accept your loan application.
Pre-approved means that you have been approved for a mortgage up to a certain amount at a given interest rate. Pre-approval means you can close on the house rather quickly.
Pre-qualified means you have to go through the mortgage process, delaying closing, while introducing the risk that you won’t be approved.
Many home sellers will limit showings to people who are pre-approved for a home loan that lets them buy the house. And a mobile mortgage app may be the best way to get that.
A Web Browser:
This isn’t very fancy, and it isn’t a relatively new app. However, it can be your best resource when you’re getting ready to buy a new home.
You could read more about the home loan process at the Consumer Financial Protection Bureau website. You could read reviews of mortgage loan apps before you download one and input your personal information.
Always make sure it is a legitimate app. Research the reputation of any lender you’re considering. Find out if they have hidden fees or restrictions customers weren’t aware of.
Or you may learn that their mortgage department often makes mistakes, whether they can’t handle escrow accounts right or are too slow to close on the loan, causing people to miss out on their dream home.