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Before You Apply For A Home Mortgage

Arm yourself with knowledge to save money by educating yourself before financing any major purchase. Here are three things you should know before you apply for a loan:

1. Your credit rating (FICO score).
As a rating of your credit worthiness, your FICO score is a basic building block in your search for a mortgage. It doesn’t matter whether you’re trying to buy a house, a car or a refrigerator, before they give you a credit line, lenders want to feel comfortable that you will pay it back. Your credit rating tells them your record of doing just that and thus if your credit rating is dinged, you might consider holding off on the purchase until you can improve your rating. The reasoning is simple, higher FICO scores can translate into lower interest rates and thus lower payments.

2. The cost of borrowing money.
Know and understand your interest rates, fees and other charges that make the amount of money you’re paying back higher than the amount you borrowed. Knowing the prevailing interest rate can help you choose among the vast array of lenders on the web. So can comparing the annual percentage rate (APR), which expresses a loan’s interest costs and other fees as a yearly percentage. APR gives you insight into the true cost of borrowing money.

3. What can you afford to borrow?.
Many online loan calculators are available to help you figure out your monthly payments based on amount borrowed, estimated interest rate, and the length of the loan. You do not want to be stuck paying more than you have to or more than you can afford for that matter. Lastly, look at your monthly expenses to see how much you can afford to pay. And always figure in such costs as rent increases or unexpected expenses that could hit down the line.