Buying a home isn’t like buying a pair of new shoes. You can’t complete the process in a day, nor should you even decide to go buy a house in a day. Becoming a homeowner is a strenuous journey, but the reward is great.
The most important part of the process for prospective buyers is getting a mortgage. If you’ve never applied for a mortgage loan, it’s easy to feel lost at times when trying to figure out how to proceed. Continue reading to get some valuable insights that will help you secure a prime mortgage.
The higher your credit score is, the lower the interest rate on your home loan will be.
Of course, any time you get a loan or financing for a purchase, you’re going to have to pay the amount of the purchase plus interest over a specific period of time. A lot of borrowers get themselves in financial trouble because they fail to account for how interest affects the total cost of their purchase, but it’s important to understand interest rates and how they affect mortgage loans.
Before you begin applying for a home loan, you should begin working on improving your credit score. As you know, lenders use your credit score to determine whether you’re a trustworthy borrower and how much credit you can be trusted with. Having a high credit score makes you look like a low risk to lenders, so they’ll be willing to offer you lower rates.
Determine what your budget is before you apply for a home loan.
As we learned as a result of the Great Recession in 2008, sometimes mortgage lenders give home loans that are larger than borrowers can afford. Even though lenders are much more careful now, “How much home can I afford?” is one of the top questions you need to ask before getting a home loan.
It can be hard to judge whether or not you can afford a home base on its total amount, so it’s a good idea to use a mortgage calculator to figure out what your monthly payments would be. Your monthly payments for your mortgage shouldn’t total more than 33% of your monthly income before taxes. Once you’ve figured out what you want your mortgage payments to look like, you can set a budget.
Even if you have poor credit, some programs may help you.
There’s a reason that becoming a homeowner is but a “dream” for so many people in the United States. Houses are expensive, and if you earn a low income and have a low credit score, buying a home can seem as chilling and daunting as climbing Mount Everest.
Many would-be homebuyers are unaware of the many programs there are to help people buy their first home. The Federal Housing Administration (FHA) Loan is a great loan option for people having serious difficulties qualifying for a conventional loan. FHA Loans are secured by the Federal Housing Administration and require a lower down payment than conventional loans.
You should spend at least a year saving up for your down payment.
The purpose of getting a mortgage is so a lender can loan you the money you need to purchase a home. However, you still have to make a down payment on the home, and we’re talking tens of thousands of dollars.
Most lenders follow the same guidelines as Fannie Mae and Freddie Mac, which are government-sponsored lenders. Freddie Mac and Fannie Mae only require a 3% down payment. FHA Loans require borrowers to pay at least a 3.5% down payment, but if their credit score is lower than 580, the payment rises to 10%.
Regardless of what type of mortgage loan you get, you should spend at least a year saving for a down payment. After all, Rome wasn’t built in a day, and neither was your home. It’s worth a year of your focus and discipline.