by Emily Hechler 
Finding the perfect home is an exciting journey, but it can also bring some nervousness. Once you’ve found it, the next step is securing the right financing. Whether it’s your first home or your tenth, we’re here to guide you through the mortgage process—helping you understand how it works and how to choose the best option for your needs, both now and in the years to come.
A mortgage is a loan created specifically for homes. Often, mortgages are offered in 15- and 30-year terms. Applying for a mortgage is a streamlined process when you decide to finance with Alltru. Our team of experts can answer any questions you have about your loan along the way. Before you start your application, make sure you know what necessary documents you need. It may take some time to gather the information. Check out our website to learn more.
Prepare for a Mortgage
If you are considering buying a house, there are crucial questions you’ll need to ask yourself. Review these questions before you start looking for your dream home. Paying back a mortgage is a significant commitment, and if you need to make improvements in any of these areas listed below, it may take months to be fully prepared. While the wait may feel frustrating, you’ll thank yourself later for setting yourself up for long-term success.
What is my credit score? The higher your credit score, the easier it will be to get approved for a mortgage. Your credit score helps lenders determine your likeliness to pay for your mortgage. You can also get lower interest rates for your mortgage with a higher credit score. When you apply for a mortgage, your lender will perform a hard credit check. This credit check is thorough and can sometimes cause a slight dip in your credit score. If you’d like to improve your credit score before applying, keep paying your minimum monthly payments for your other loans and credit cards on time. The consistency can help build your credit score.
A low credit score can make it more challenging to get approved for a mortgage with a good interest rate – or even getting approved at all. Our Credit Builder loan is specifically for those with credit scores under 600. This loan has varying terms to help you build your credit score quickly and set you on the path to better financial opportunities.
Do I have a steady job? When you apply for a mortgage, your lender will ask for your employment history and proof of income. By having a secure employment history, lenders view you as more likely to make your payments since your income is steady. On the other hand, frequent job changes and declining wages can be a red flag to lenders. This goes for whoever’s income is going to contribute to the mortgage, such as you and your spouse. For example, when we applied for our first mortgage, I had only been at my job for four months, but my husband had been at his for over four years. Thanks to his stable work history, we had no trouble getting our application approved.
How much do I have saved for a down payment? Having enough money ready to spend on a down payment is a critical piece of getting a mortgage. The typical amount of money to put down toward a house is 20% of the sale price. However, this can vary. When you apply for your mortgage, you’ll need to inform your vendor how much money you can put toward a down payment and how large of a loan you want to take out for a house. Gauge the prices of your ideal homes to see roughly what percentage you can make for your down payment. The larger the down payment, the smaller your monthly payments, and the less interest you’ll pay overall too.
Is now a good time for me to buy a house? Buying a home is likely one of the biggest financial decisions you’ll make in your lifetime. Even if you meet the financial criteria above, it’s important to consider other factors in your life. Major life changes like starting a new job, going back to school, starting a business, or growing your family can be done while buying a house. However, these expensive and temporary seasons can make it more challenging to make your mortgage payments each month. At Alltru, we’re here to support you through every financial step.
Private Mortgage Insurance vs Mortgage Protection Insurance
As previously mentioned, the standard down payment for a home is 20% of the purchase price. There are exceptions to this rule, however, opting for a lower downpayment can increase costs for you as the homeowner.
PMI, or private mortgage insurance, is typically required by lenders when your down payment is  less than 20% of the home’s purchase price. A smaller down payment increases the lender’s risk since you have less equity in the home upfront. PMI protects your lender by covering potential losses if you fail to make your mortgage payments. Although the lender arranges the insurance with a provider, the cost of PMI is usually included in your monthly mortgage payments, making it easy to manage.
The cost of PMI varies from house to house, but it typically costs 0.5%-2.0% of the loan amount each year. The costs are based on the size of the loan and the buyer’s credit score.
MPI, or mortgage protection insurance, is for homeowners and to benefit homeowners. If the homeowner passes away while they are still paying their mortgage, their family will be responsible for making the payments. If the family can’t make the payments, the house can be foreclosed on and the lender can take ownership of the property.
However, MPI prevents the family from losing the property. The insurance company will pay what is left on the mortgage, and the family will have full equity of the home. While MPI isn’t mandatory, it can serve as a valuable precautionary measure, offering peace of mind and protecting your loved ones from the potential financial burden of the mortgage.
What to do with Low Mortgage Rates
During the homebuying process, you’ll lock in your interest rate, ensuring it remains fixed for the life of your loan. This protects you if interest rates rise in the future. However, interest rates decreasing after you’re knee-deep in paying off your loan may seem frustrating. The good news is that even though your rate is locked, you have the power to change it through refinancing your mortgage.
Refinancing a mortgage is the process of replacing your current mortgage with a new mortgage. Since you are refinancing your mortgage because rates have dropped, your goal is to secure a lower interest rate. Keep in mind that your current financial situation may have changed since you initially got your mortgage. If you have a higher debt-to-income ratio due to other large purchases or a low credit score due to other circumstances, now may not be the best time to refinance your mortgage. If you are unsure what to do, talk to Alltru.
Pay off your loan faster. If you can afford your monthly payments without refinancing your loan, that’s great! However, you can still benefit from refinancing your mortgage by paying off your loan faster. In each mortgage payment, a specific amount goes toward the loan balance, called the principal, and the rest goes toward your interest. When you refinance your mortgage, you can work with your lender to keep the same monthly total but pay more toward the principal since the interest rates have dropped. This allows you to build your equity faster and pay off your loan faster too.
Lower your monthly payments. If you could use some extra cash in your bank account each month, refinancing your mortgage can make that possible. Since interest rates are lower than they were when you initially took out your mortgage, you can work with your lender to pay the same toward the principal balance and less in interest. This will help you save money on interest overtime.
Get rid of PMI. Private mortgage insurance is often required by lenders if you have less than 20% of equity in your home. If you now have a lump sum of money that you can put toward your mortgage, you can refinance your mortgage to get rid of the PMI. During the process of refinancing, you’ll pay the large sum, similar to the idea of your initial down payment. This money will go toward the refinanced sale price of the home. By building your equity to over 20%, you won’t have to pay for PMI anymore.
Cash out equity. Over time, homes often appreciate in value, building equity beyond what you’ve paid off in your mortgage. A cash-out refinance allows you to tap into that equity, including the portion gained from increased property value. This process replaces your current mortgage with a larger one, ideally at a lower interest rate. The funds can be used for anything, from taking a vacation to purchasing a car. Alternatively, reinvesting the money into your home—such as finishing a basement or remodeling a kitchen—can further increase its value and enhance your living space.
Refinance a Mortgage
If you’re ready to refinance your mortgage, there are some steps you need to follow. Refinancing your mortgage is essentially like taking out a new loan on your home, which means you’ll need to go through the mortgage approval and closing process again. Before you apply to refinance your mortgage, keep these ideas in mind so you can make the most out of your home and financial situation.
Check on your financial health. Just like the first time you bought your house, you need to collect your proof of income documents again. Your lender will also perform a hard credit check, so make sure your credit score is healthy. Ideally, your credit score should be higher than it was previously. If you’ve been making your mortgage and other loan payments on time, your credit score will likely have improved. Free credit checking websites like CreditKarma can give you a good idea of where you’re at before you apply to refinance your mortgage.
Prep your house. When you apply to refinance your home, your house will be appraised to confirm its value. If you have funds available, consider tackling some home improvement projects that can increase the value of your home. Any increase in value will go toward your existing home equity. It won’t increase the amount of your loan. If you can increase your equity to over 20%, you won’t have to pay for PMI anymore either.
Evaluate lenders. Shop around to find a lender that can give you the lowest interest rate. Since you will still be paying off this mortgage for several years, you need to find a lender that can help you get a mortgage that will work for your financial situation. Come to us to get a great mortgage from The Better Way to Bank. While your interest rate may vary from lender to lender, most will also have additional fees and require you to pay for closing costs again. This can range from 2-5% of the sale price.
Get under contract. After you decide which lender to use, lock in your new interest rate. Leading up to closing on your house again, you’ll complete the refinance appraisal and get the rest of the paperwork ready. You’ll go through underwriting again, which is when your lender verifies your personal, financial, and property information. It will take 30-60 days to complete these steps. In the last few days before closing, you’ll receive the Closing Disclosure that you can review and sign ahead of time.
Finally, you will close on your refinanced mortgage. Remember, you’ll need to pay closing costs again. Contact your financial institution ahead of time so you can arrange to pay for costs through a wire transfer or cashier’s check if necessary. When you close, you’ll sign your loan documents again. After that, your house is refinanced! Be on the lookout for your next bill and make sure the total reflects the new mortgage.
Conclusion
A mortgage is a large commitment, and as a homeowner, you deserve a lender that is dedicated to supporting your financial and personal success. That’s why we offer accessible mortgage solutions to our community. Whether you’re ready to buy your first home or refinance your existing one, come to Alltru to get started.
