5 Essentials Contractors Can’t Ignore for Getting a Mortgage
Updated: Aug 7, 2024
Table of Contents
Introduction
Essential 1: Get Pre-Approved for a Mortgage
Essential 2: Have a Strong Credit Score
Essential 3: Save for a Down Payment
Essential 4: Shop Around for the Best Interest Rate
Essential 5: Be Prepared for Closing Costs
Introduction Getting a mortgage as a contractor can be a challenge. You may have a fluctuating income, and you may not have a lot of assets to use as collateral. However, it is still possible to get a mortgage if you are prepared and meet the lender's requirements.
In this blog post, we will discuss five essentials that contractors cannot ignore when getting a mortgage. These essentials will help you increase your chances of getting approved for a loan and getting the best possible terms.
Essential 1: Get Pre-Approved for a Mortgage
The first step to getting a mortgage is to get pre-approved. This means that a lender will assess your financial situation and give you an estimate of how much you can borrow. Getting pre-approved will show sellers that you are a serious buyer and that you are likely to be approved for a loan.
To get pre-approved, you will need to provide the lender with your financial information, including your income, debts, and assets. The lender will also want to see your credit report.
Once you are pre-approved, you will have a better idea of how much you can afford to borrow and what your monthly payments will be. This will give you more confidence when making an offer on a property.
Essential 2: Have a Strong Credit Score
Your credit score is one of the most important factors that lenders will consider when deciding whether to approve you for a mortgage. A good credit score will show lenders that you are a responsible borrower and that you are likely to repay your loan on time.
To get a good credit score, you need to pay your bills on time, keep your debt levels low, and avoid opening new accounts too often. You can also improve your credit score by disputing any errors on your credit report.
Essential 3: Save for a Down Payment
A down payment is the amount of money that you put down when you buy a property. The larger your down payment, the lower your monthly mortgage payments will be.
The minimum down payment for a conventional mortgage is 20%. However, some lenders may offer loans with a lower down payment, but you will likely have to pay mortgage insurance.
If you can afford to make a large down payment, it will make your mortgage more affordable and you will have less debt to repay.
Essential 4: Shop Around for the Best Interest Rate
The interest rate is the cost of borrowing money. The lower your interest rate, the lower your monthly mortgage payments will be.
Shop around with different lenders to get the best interest rate. You can use online mortgage calculators to compare different loan terms and interest rates.
Essential 5: Be Prepared for Closing Costs
In addition to your monthly mortgage payments, you will also have to pay closing costs when you buy a property. Closing costs typically range from 2% to 5% of the purchase price of the property.
Closing costs include things like appraisal fees, title insurance, and recording fees. Be sure to factor closing costs into your budget when you are buying a property.
Conclusion
Getting a mortgage as a contractor can be a challenge, but it is possible if you are prepared and meet the lender's requirements. By following the essentials outlined in this blog post, you can increase your chances of getting approved for a loan and getting the best possible terms.