Purchasing a new home takes a major commitment; especially when you’re trying to finance the home as cheaply as possible. Banks and lenders seem to be all over the board when it comes to interest rates and amortization periods – making your decision a tough one.
Fortunately, we’ve compiled eight ways to secure cheap financing for your new home. Follow these tips before securing your lender, if you’re hoping to save some money on your mortgage.
1. Make sure your credit score is excellent.
The key to securing low-interest financing starts with your credit score; looking at not only your total debt ratio but your employment too. That’s why it’s critical to stay on top of any changes to your credit – reporting them immediately if they’re found incorrectly on your report.
Accidents within your credit report can and do happen – whether that’s a mix-up in reporting or a forgotten account that’s gone into collections. Take the time to go through your report and fix any outstanding issues before you try and find a lender.
2. Create a Sizable Down Payment
Banks and lenders like to see a commitment from their customers – which starts with the long-term savings goal. Instead of opting for the standard 3.5% down payment, aim to save 20% of your home’s value.
For the maximum return on your investment, invest the savings into a high-interest account that remains untouched over a period of time. It’s important to remember that while saving the money for a down payment might be difficult; showing the lenders you’re committed to purchasing a home is the ultimate goal.
By having the 20% of the value, you’ll not only show the banks your commitment to your debts, but you’ll also reduce the overall mortgage costs too. This means you’ll have fewer mortgage payments, lower interest on the loan and a higher likelihood of securing financing.
3. Consider Long Term Mortgages
Although amortization periods can be as little as five years if you’re willing to extend the repayment period to 30 years – you’ll pay a lower amount of money per month than the shorter time frames. The drawback to extending your term is paying a higher interest rate total on the mortgage amount.
4. Build Loyalty with a Bank or Lending Institution
Having other services with a lending company shows a long-term commitment to the company overall, which many banks like to see at the time of approval. By having other services (like short-term loans, banking accounts, or insurance) with a banking or financial institution, they’ll be able to see your long-term history through the accounts. Short term loans can also give them a bigger picture of your payment history as well – so make sure any payments are current and up-to-date.
5. Look Beyond the Interest Rates
If you’re looking to secure cheap financing, it’s important to look past the interest rates of the loan. Many times, it’s not necessarily the interest that will affect your total payment; it’s the additional fees that can add up quickly. Read through the contracts carefully, looking at underwriting costs, document preparation fees, and any other expenses within the contract. Compare the total monthly payment (or mortgage amount) with some other lending institutions.
6. Be Honest on Your Loan Applications
It’s important to be open and honest with a lending company – especially if you’re trying to secure a mortgage. Avoid inflating your monthly income, savings accounts, investments or the like – it’ll only cause you problems when it comes time to an approval.
Lending companies like seeing a clear ability to pay down the debt; looking at the total picture of repayment, instead of specific numbers. Lending institutions also like seeing stability with employment, showing a regulated monthly amount coming in every month too.
Make sure that you’re honest about how long you’ve worked for a company, as they’ll pull your information up on the credit report (or through CRA websites). Make sure you’ve been consistently working for the last 24 months to improve your chances of approval – and receiving cheap financing. Fudging your monthly income or inflating the amount of time you’ve been with a company can result in delayed approval or automatic rejection.
7. Find a Co-Signer for the Mortgage
If you’re finding it difficult to secure cheap financing, consider asking a friend or family member with great credit to co-sign on the application. Many times the added applicant can help improve the overall credit allowance, giving you a higher approval rate than using a sole income alone.
It’s important to remember, however; the person co-signing on the loan will be responsible for the debt in the event you default or declare bankruptcy. Make sure you have a clear guideline of how much you can afford (even if you’ve been approved for more) to limit the risk of defaulting.