Everyone wants to own a home, but most of us will need a mortgage to make homeownership a reality. Prior to 2008, just about anyone could get a mortgage even if they had horrible credit, this irresponsible lending created the financial meltdown we are still trying to recover from. There are mortgages out there, but unless you have a 20% down payment, the lender will need the mortgage to be insured by the Federal Housing Authority (FHA).
In order to qualify for an FHA-insured mortgage, you will need a minimum credit rating of 580, but most lenders will only talk to you if you have a credit rating of 600 or higher. This credit rating will influence the amount of interest you pay on a mortgage – the higher your number, the lower the interest rate.
It would be prudent to obtain a free copy of your credit report from the 3 major credit-reporting agencies in the country. By law, they are supposed to give you a free copy once a year, but you must write them down for this and provide satisfactory identification to prove your identity.
When the report reaches you, take your time to review all the details of the report. If there are any errors in the report, it will negatively impact your credit score, making it harder to get a mortgage. These reporting companies must correct all valid errors, but you must notify them in writing before any action can be taken. These corrections may take a few weeks to take effect, so time is of the essence.
Once you’ve addressed your credit score, it’s time to look for a professional mortgage broker. These brokers work for you and have access to institutional lenders. The advantage of these lenders is the lower interest rate you will pay compared to your local bank. There are no fees when you deal with the mortgage broker, they are compensated by the lender if you decide to take out their loan.
Although you don’t pay the mortgage broker out of your own pocket, you will have to pay the closing costs, which could range from one to five per cent of the total mortgage amount. This is something your broker will discuss with you when they provide a Good Faith Estimate (GFE) that will clearly define the anticipated fees for the transaction.
In order to determine which lender has the cheapest mortgage, you need to look at both the closing costs and the interest rates listed. By comparing these, it will become clear who has the best offer on the market. With the Federal Reserve keeping interest rates at their lowest level in decades, you should be able to afford the home of your dreams.