Buying a home is an all-important decision that requires time, money and effort on the part of homebuyers. More than the money, it’s important to know the things that will help you come up with an informed opinion as to which loan works best for you. And because it’s easy to get overwhelmed by everything you heard from friends and family or read on the internet, why not take a breather and read this short introduction to home mortgage.
»Learn also about today’s rates here.»
Know Your Loans and Lenders
Nowadays, first-time and repeat homebuyers are lucky that there’s a myriad of loans available in today’s market. And these loans are less restrictive than their older loan counterparts, helping creditworthy borrowers buy their first homes at terms affordable to them.
- Conventional and Government. Conventional loans are those that conform to standards set by Fannie Mae and Freddie Mac, which together make the biggest source of mortgage financing in the U.S. Then we have government loans insured by the Federal Housing Administration, the U.S. Department of Veterans Affairs, and the U.S. Department of Agriculture.
- 3% Down Payments. Nowadays, it’s typical to take out a loan without the 20% down payment of yore and a private mortgage insurance, too. FHA offers loans with down payments as low as 3.5% and the same can be said with Fannie Mae’s HomeReady™ 3% down payment loans. Some private lenders also have 1%-down payment loans.
Compare loans with low down payments.
- Fixed- and Adjustable-Rate Mortgages. A fixed-rate mortgage offers fixed, stable monthly payments throughout the loan’s amortization schedule while an adjustable-rate mortgage has monthly payments that are lower for an initial period. Because ARMs have an initial rate that is lower than fixed mortgages, they are ideal to start with. If the rates go higher and the payments steeper, you can consider refinancing into a fixed-rate mortgage.
- More Flexibilities. Underwriting guidelines have also loosened up to acknowledge the changing circumstances of today’s borrowers. It’s possible to add income from non-borrowers, non-occupying borrowers or even boarders to help in the debt-to-income calculation on certain loans. Speaking of DTI, a borrower can have a DTI ratio of 45 or 50 percent, with flexibility given to those with mitigating factors.
Today’s mortgage market is replete with lenders, traditional and alternative. You can survey the local banks near you for home loan financing and look up lenders online. There’s a bunch of them offering reasonable rates and terms for your very first mortgage. »We can connect you with a lender now!»
Each lender offers a different rate on a different loan program so it’s very important to shop and compare rates. Exercise due diligence when researching about loan offers, lenders and prevailing lending rules that may vary in every state or locale where you plan to buy a home.
Know Your Credit Score and More
Some of the best rates are available to creditworthy borrowers. To help you secure the best rate possible, obtain copies of your credit scores way before you start your home and loan shopping journey. This will give you ample time to improve on your credit score like paying off a revolving credit account or not close an account for credit mix purposes; correct any errors, which could linger on your record if you don’t spot it soon enough; or refrain from applying for new credit that results to hard inquiries that could decrease your credit score.
»Get helpful advice on home loans.»
Know Your Potential Weak Points
Aside from your credit, look into your financial activity. For example, your lenders would monitor your bank statements of two months and would be wary of amounts other than from your income being credited into your account. You better ready any documents to support these. There is also the cash flow and assets to be verified so always have supporting documentation ready to parry any lender’s worry.
Know that You Can Only Know So Much
The process of obtaining a mortgage can be tedious and complex for any first-timer, especially. It’s a short way of saying, expect the unexpected. Arm yourself with the knowledge you’ve spent on researching about mortgages and be ready to respond any queries from your lender. After all, the road to your home may be hard but it will be sweet later on. »We have lenders who can help you with your first home purchase!»
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.