Applying for a loan can be draining

Going through the process of applying for a loan, whether it be secured or unsecured, is draining and anxiety-ridden. The mere fact that you are about to be in debt for many years is nerve-racking, and some people do not know where to start.

In short, you should start with yourself – your income, credit score, and your lifestyle. Is there something you could change about the way you categorize your home budget? Are there any unresolved issues or debts to deal with before thinking about taking out a big commitment such as a loan?

There are a few things you could do to help yourself get the best deal possible from the lenders. Some tips are short-termed, but some implore more planning in the long run. Nevertheless, it is always better to go to a lender prepared with facts and figures, than to blindly accept everything a lender or a broker tells you as a fact.

Work on Your Credit Score Numbers

A credit score is a measure of how well a person deals with their finances. It is a number between 300 and 850, and the higher the number, the better the score. If your number stands higher than 640 – you need not worry, as that is considered a minimum limit for most loans, especially mortgage loans.

If your credit score is below this you are considered a subprime borrower and it could be a bit tricky to find a good enough loan by speaking directly with the lender. You would, most likely, need a mortgage broker, such as LBC Mortgage Florida, a company that works with lenders who are willing to give loans to people with a lower credit score number.

Your credit score will be taken into consideration anytime you apply for a loan. It helps the lenders estimate the probability of default, by looking into your credit history.

Your credit history showcases how often you get behind on your bills and other obligations, it measures how long you have your debt and how much you owe altogether. Your credit score number will directly affect the interest rate that the lender will offer, as well as the deposit you have to pay for anything you rent.

If you still have a few years ahead of you to prepare, the first thing you need to do is to take care of your credit score. It takes half a year to see the improvement in your credit score. Pay your monthly obligations on time for a year and watch the number go up.

Another thing that could help your score is taking care of your credit card – ask for a credit increase, but do not use it. This way you maintain a lower credit utilization rate.

Set a Maximum Monthly Installment

Before you enter a quest for the best possible deal, you need to calculate how much you would be able to pay each month – your equated monthly installment. Calculate how much you earn, what are your living expenses, taxes, and other costs, then set the number and stick to it.

Having an escrow account might help you manage your money and credit score a bit better. Escrows are managed by an impartial third party on behalf of the borrower and a lender, or a buyer and a seller.

In the real estate business, some companies work locally as escrow professionals. It is better to use a company that works in your community. For example, the company Lightspeed Escrow works in Southern California exclusively, thus ensuring that they know the market inside and out.

An escrow account can either hold the funds until the home purchase is finalized, or it can serve as a fees collector. On top of your monthly mortgage payment, an escrow account would make sure to add other home costs – such as property taxes and insurance. This will automatically be transferred from your balance, and you would not have to think about it at the end of the year when those bills are due.

Whether or not you decide if you need an escrow, an estimated EMI beforehand is a must when negotiating a deal on a loan.

Think About a Shorter Loan

When calculating the maximum amount of monthly payments you could afford to pay during the life of the loan – consider the loan’s longevity. Doesn’t matter if it is a personal loan, or a mortgage for your home purchase, as short as possible lifespan means that you would be paying way less interest.

Note that your monthly payments will be larger with a shorter loan, but you will be debt-free in no time. Having to pay a penalty for a late installment could hurt your budget and your credit score, so take out a shorter loan only if you can afford to pay it regularly.

Find a Fair Lender

Open your eyes and ears when looking for a lender and do not approach until you found as much as you could beforehand. Borrowers who approached too many lenders for credit may seem uninviting for serious lenders. Still, shopping around should be a must when looking for a lender.

Freddie Mac conducted a study in 2018. that shows an average of $1500 is saved if a borrower requests a second offer on a loan. If you look around, even more, you could save around 3 thousand dollars, so do not settle for the first interest rate you hear and go further than just talking to a loan officer in your bank.

Save More Than Enough for a Down Payment

When people plan their home purchase, saving for a down payment is the first step of a 5-year plan. Usually, 20% of the house’s value has to be paid upfront, and the rest can be covered with a mortgage loan.

Although that 20% is enough, large savings for the down payment will ensure you the upper hand in negotiations. Let’s say you want to buy a house that costs $200.000, your down payment would have to be $40.000. But showing up with $60.000 worth of cash plus a credit score higher than 650, the lender would have no other option but to offer you the best deal they can make.

Are There Alternatives to Loans?

If you want to buy a house in this market, the only way to do so without a mortgage is to make enough money so you can save up a minimum of $300.000 – for the home’s value and other costs. So maybe a mortgage loan is not so avoidable for many Americans.