1. Save for a Down Payment
The best way to help yourself get a mortgage is by saving money for the down payment. Your goal should be to put 20 percent of the value down on the purchase of the home. For instance, you should save $25,000 before purchasing a $125,000 home. While you can purchase a home for zero, five or 10 percent down, you will have to meet stricter credit requirements and will receive a higher interest rate based on the amount of the down payment. For example, with 20 percent down, you may qualify for 5 1/8 percent interest, as opposed to a 7 1/2 percent rate with five percent down. This results in a difference of $55,699 for a $100,000, 30-year fixed-rate loan.
2. Establish Good Credit
Before you apply for a home mortgage, use smaller loans to establish a good credit rating. You need to show a history of borrowing money and paying your bills on time. You can use small car loans and credit card loans to prove you pay your lenders according to contracts. Pay car loans off ahead of schedule and pay credit cards off monthly to keep yourself in a good financial position. Also, make sure you pay other bills on time, such as utilities, cable/satellite television and student loans. The higher your credit score is, the lower your mortgage interest rate will be. Avoid making a big purchase, like a car, right before applying for the mortgage, because it lowers your borrowing power.
3. Start With a Relative
If you have a relative who can lend you the funds needed for your first loan, discuss your lending needs with him. You should be able to get a good interest rate without the time-consuming process involved with commercial lenders. Set up some kind of penalty in the loan contract to force yourself to pay the loan on time every month.
4. Choose a Lender
You need to sort through the various options to get a mortgage, including local banks, online banks, mortgage brokers and wholesale lenders. Local banks may have slightly higher rates but typically provide better customer service, and the lenders will walk you through the application process better than online banks will. Mortgage brokers specialize in creating home loans and will give you a good interest rate, but they will sell the loan to another financial institution soon after closing. Most lenders list daily interest rates on their websites, but these interest rates are for people with the best credit ratings. You fill out simple applications with several lenders to get an initial interest rate quote for the loan you want. After you choose the best deal, you will fill out a much longer application for the loan. When you are selecting a lender, you need to keep in mind most mortgages will be sold to mortgage buying organizations, like Fannie Mae and Freddie Mac. Because your loan must meet the guidelines to be sold to another institution, you will notice many lenders offer you the same basic deal for a mortgage.
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