Applying For A Loan or Mortgage with Catriona & Jill
On this episode of Financially Naked: Stories from The Financial Gym, hosts Catriona and Jill, two Certified Financial Trainers, are here to talk about the ins and outs of applying for loans and mortgages. They cover the basics of personal and secured loans, navigating the loan application process, and details like debt-to-income ratios and credit scores. The hosts break down the importance of doing your due diligence, reading the fine print, and knowing your budget before taking on new debt. They also discuss the benefits of working with trusted people and practical tips to make the loan process less intimidating.
Podcast Notes
Loan Basics and Types
Loans & Applications: There are many types of loans, each with a different purpose and application process. This episode is a general overview of loan types and things to remember when applying. It is not intended to be personalized advice.
Personal Loans: These loans can be used for many different things. The interest rates tend to be higher because there is no collateral, like a mortgage or auto loan. A popular use for personal loans is debt consolidation because it simplifies the payment process, and rates are better than most credit cards.
Secured Loans (Auto and Home Loans): The loan application process for these loans tends to be more detailed and thorough. The lender is trying to determine how ‘risky’ you are as a borrower through the loan application. They use specific formulas and look at your credit history, income, and expenses.
Debt-to-Income (DTI) Ratio: For mortgages, lenders calculate your DTI ratio to determine how much you can borrow. It’s important to know that this ratio is a tool for the lender and not a reflection of what you can actually afford, so it’s important to know your personal budget when shopping for a home.
Credit Reports and Loan Consolidation
Credit Score and Reports: There is a difference between your credit score and credit report. The report provides a detailed credit history, while the score is a simpler number. Both can impact loan applications.
Credit Pulls and Scores: Applying for loans involves a credit pull, which can cause a small, recoverable ding to your score. Mortgage lenders typically use the middle score from the three major bureaus to set interest rates. You’re likely able to get a loan with almost any score, but a score of at least 740 is ideal for the best rates.
Prequalification Tools: You can use prequalification tools to check loan offers without impacting your credit score. This can be useful for new credit cards or applying for a personal loan.
Reading Fine Print: It’s essential to read the fine print for any type of loan. Look out for fees, APR details, or potential pre-repayment penalties. If something feels too good to be true, trust your gut and be diligent with your research. Even 0% offers can have unfavorable terms, depending on the offer and your needs.
Practical Advice and Working with Brokers
Due Diligence and Budgeting: Always review your budget and understand the fine print before taking on a loan. Make sure you understand the true cost, including any fees and interest. This is key to ensuring the loan fits your financial plan.
Accountability Partners: There’s power in accountability! Having a trusted friend or someone impartial, like a Trainer at The Financial Gym, can help you make informed decisions. They can also provide support and hold you accountable to your goals.
Using Loan Brokers: Brokers can provide valuable insights and access to better rates from wholesale lenders. However, finding a trustworthy broker is important. Laws prevent predatory practices but don’t eliminate all risks.
Final Thoughts: Before taking out any type of loan, always do your research, use the resources you have available, or work with an expert, like a Trainer at The Financial Gym. A clear understanding of the options and loan terms will save you money and stress.
If you want to work with a Certified Financial Trainer to help navigate your finances, schedule a free warm-up call today! If you have any ideas or questions for the show, send an email to trainerpodcast@fingyms.com.
Resources
BFF Approved Products
What You Need to Know about Applying for a Personal Loan
Meet The Trainer
Meet Catriona Williams, Certified Financial Trainer
Meet Jill Wagner, Certified Financial Trainer