The majority of people who purchase a home do so by obtaining a mortgage through a lending institution. Before you can get your house mortgage loan, you must first show that you qualify. Of course, your ability to pay the loan back is the most significant factor. Borrowers must have an acceptable credit score to buy a house. If you are a long time customer of a local lending institution, you may have a better chance of a loan by “taking credit in bank.” Sometimes that will be helpful if there are dings on your credit report.
A potential borrower needs to be aware of the following:
Finding the Best Lender
You may find any number of brokers, banks and lenders who will accept your application because they are all vying for good business. Whether or not you are accepted will depend on virtually the same assessments from all of them. Know your credit score before soliciting loans, and be aware of how much you can comfortably afford. Do not rely on lenders to decide that for you. Understand what your options are beforehand. Some lenders may offer a loan with 3% down, or there may be special programs where you can secure a loan with 0% down. Do not feel intimidated about comparing the offerings of several different lenders. You are the one who will be paying for the next 15, 20 or 30 years, so take that responsibility seriously.
Applying for a Home Loan
One of the first things to do is to get preapproved. Without that, you are wasting your time looking at homes to purchase. Put together the various documents that lenders will require. You can find these online in general, or you may check the different lender’s websites to ascertain what they require specifically. Even if you are preapproved, that does not mean you will be granted a loan. That is why you must be extremely vigilant about your financial picture remaining the same after the preapproval. Opening new credit, changing jobs, or changing marital status may adversely affect the loan.
What to Watch Out For
Do not ever sign anything without reading it first. Some of the mortgage documents may be difficult to understand, so ask your Realtor to explain what you are signing. Be sure that you understand the various fees and costs associated with the purchase. Make doubly sure that the monthly payments and interest rate to which you agreed are spelled out correctly in the documents. Ask about anything that you do not understand; it will serve you well later.
Types of Home Loans
Conventional is a loan that is not backed by the government. Borrowers with good credit scores can usually obtain this type of loan as long as employment and down payment meet the requirements.
Government -Insured Loans, such as FHA and VA, are backed by the Federal Housing Administration and the Department of Veterans Affairs respectively. More often, borrowers with less than stellar credit and who do not have large down payments will fall into these categories.
Fixed-Rate Loans are those that the interest rate remains consistent throughout the payment term, giving homeowners the assurance of the same payment for the duration of the loan.
Adjustable-Rate Loans are those that the interest rates fluctuate with the conditions of the market. Be very sure that you understand how your monthly payments can change.
Jumbo Loans are more prevalent in areas with more expensive homes.