Grabbing That Home Loan: A Straightforward Guide
Navigating Mortgage Acquisition: A Comprehensive Guide
Want to become a homeowner? Here's what you need to know to secure a mortgage.
Getting credit-ready
A strong credit score is essential in scoring the best loan deals. Says Rod Griffin, Experian's senior director of Public Education and Advocacy:
If your score needs a boost, follow these tips:
- Time your payments: Your payment history accounts for two years or more of your report; start now!
- Bring past-dues current: Delinquent accounts drag down your score. Get them current and head towards on-time payments.
- Check your reports: Need help? Check your credit reports weekly for free at AnnualCreditReport.com. Watch for errors and report them to the bureau.
- Assess your score: Review your score before applying for a mortgage. It shows you areas requiring improvement.
Know your budget
Couldn't afford a housing disaster? Calculate your debt-to-income ratio (DTI). To find it, add all monthly debt payments and divide by your gross monthly income. striving for a lower DTI offers more budget flexibility.
Save, save, save
Your down payment isn't the only savings goal. A common rule of thumb: build enough to cover six months worth of mortgage payments, even after your down payment. Closing costs (2-5% of the loan principal depending on state) and annual maintenance/repair costs also need funds.
Compare lenders (and loan types)
Got good credit and savings? Now find your ideal mortgage from these common types:
- Conventional loans: Qualify with a 620 credit score and 3-5% down payment.
- FHA loans: More flexible requirements, including a 3.5% down payment and a 580 credit score.
- VA loans: Guaranteed by the U.S. Department of Veterans Affairs, no down payment required for eligible military members.
- USDA loans: No down payment required for properties in rural areas.
- Jumbo loans: Mortgages for properties with prices exceeding the federal conforming loan threshold ($806,500, but varies by region). Higher credit and down payment requirements.
Compare rates, fees, insurance costs, and mortgage insurance duration before choosing a loan. If you're a first-time homebuyer, think FHA loans since they accept lower credit scores.
Decide on a loan term
Mortgages come in 10, 15, 20, 25, 30, 40-year terms. Shorter terms mean higher monthly payments but less interest paid. Longer terms mean lower monthly payments and more interest paid. Popular choices: 15-year fixed-rate or 30-year fixed-rate mortgages.
Choose a lender
Found a mortgage you like? Get pre-approved by a reputable lender. Ask friends, family, and real estate agents for referrals. Read reviews, invest time, and compare multiple lenders, then base your choice on factors beyond just price and interest rate.
Get pre-approved
Once you've picked a lender, get pre-approved! A pre-approval involves providing your lender with details about your finances. Pre-approval demonstrates your financial readiness to sellers.
Start house-hunting
Searching for your dream home? Your pre-approval will help! When you find a property you like, it's time to...
Submit your application
Ready to finalize your home purchase? Submit your application, provide necessary documents, and wait for approval. Required documents typically include:
- Proof of identification: Driver's license, Social Security card, etc.
- Proof of income: W-2s, pay stubs, etc.
- Proof of assets: Bank statements, retirement account statements, etc.
- Gift letters: If receiving a gifted down payment.
Wait for the underwriting process
Once your application is in, the underwriting process begins. During underwriting, lenders evaluate income, credit history, property details, and more to determine your loan level.
Close the deal
After your loan is approved, it's time to close! The closing process can vary by state, but it usually involves confirming the property can be transferred, paying closing costs and fees, and signing documents.
FAQs
Will I qualify for a mortgage with my income?
Qualifying for a mortgage depends on factors like your mortgage size, existing debt, and desired DTI. Consult a loan officer to determine if your income is sufficient.
What's the minimum down payment?
It varies by loan type: fixed-rate conventional loans and FHA loans require 3-3.5% down payments; VA and USDA loans offer no down payment.
Must I meet eligibility criteria for a specific loan type?
Yes! Eligibility criteria differ by loan type. They can include credit score, debt, and down payment requirements.
Who can I get a mortgage through?
Choose a direct/retail lender (bank, credit union, online lender, etc.), mortgage broker, or another lender. Compare top mortgage offers before selecting a lender.
Don't hesitate to ask questions!
Shopping for a mortgage means asking questions! Ask about loan types, down payment assistance programs, or anything else you need clarified. Some lenders may withhold rates until after prequalification or preapproval, so don't worry if they don't disclose it immediately.
To secure the best mortgage deals, it's crucial to have a strong credit history and a favorable credit score, as these indicators demonstrate your ability to manage personal finance responsibly. Lowering your personal-finance debt-to-income ratio and saving enough funds for down payments, closing costs, and regular maintenance can also positively impact your mortgage rates.
