Financing a home
Before to jump into the world of homeownership, make sure you are prepared to financing a home. You need to learn about credit score requirements, mortgage options, and other “must-to-do”.
Getting your finances in order should be at the top of your checklist.
These are the steps that you need to follow:
– Strengthen your credit score.
– Figure out what you can afford.
– Save for down payment and closing costs.
– Build a healthy savings account.
– Get pre-approved for a mortgage.
In order to strengthen your credit score, you should:
– Paying off debts
– Cleaning up old debts
– Update your credit report
– Making payments on time
– Increasing your income
Financing a home: Once your finances are in better shape, it’s time to get organized for a home purchase. This involves choosing a Real Estate Agent, shopping for a loan, and getting a pre-approval letter from your lender. Your bank will base your qualifications on a number of criteria. Some of the financial paperwork you will need to show your lender includes:
– Proof of income
– Amount of savings
– Assets or collateral
– Employment verification
– Credit report
– Identification information, social security card, and driver’s license
Please keep in mind that pre-approval letter and pre-qualification letter are two different things:
– Pre-Qualification: Only tells you how much you can afford for a home.
– Pre-Approval: Tells you how much the bank or lender will guarantee to lend you for a home.
Most buyers are going to need some type of financing to purchase their home. Understanding the different types of mortgages out there can help you figure out just which one will work best for your finances. Here you can see the different types of mortgage and how they work.
The fixed-rate mortgage is the most standard type of mortgage for those who intend to stay in their homes. The benefit of this type of mortgage is that the monthly payments do not change. The interest rate and monthly payment amount ever go up or down. Whatever the interest rate is at the time that your loan starts is the rate that you will have over the life of the loan.
These types of loans are most attractive when interest rates are low so that buyers can lock in that interest rate. Here is how each type of fixed-rate mortgage stacks up against the other:
15-Year Fixed Rate Mortgage: Monthly payments are the highest for 15-year mortgages; however, equity builds faster too. The loan is paid off in half the time of other fixed-rate mortgages. This is the type of loan for buyers who want the stability of a regular monthly payment but want to pay the loan off quicker.
20-Year Fixed Rate Mortgage: The 20-year loan is the middle ground between the other two fixed-rate mortgages. The loan is paid off quicker than a 30-year loan. That means that the amount of interest paid over the life of the loan is significantly less than for a 30-year mortgage.
30-Year Fixed Rate Mortgage: Most buyers who choose fixed-rate mortgages go for the 30-year loan. It’s the most stable FRM, with lower monthly payments. It is easier to qualify for a 30-year mortgage and you can claim a bigger tax deduction each year.
This loan is for people who plan to live in the same place for a long time.
As the name implies, the rates on adjustable rate mortgages change. The introductory rate for an adjustable-rate mortgage or ARM is usually lower than a fixed-rate mortgage. However, over time, the rate fluctuates with interest rates. That means that even if you get in at a low rate, you could end up paying a really high monthly mortgage payment when interest rates go up. The bank or lender that supplies your loan calculates your interest rates based on a particular index.
It is very important to understand the formula your lender will use and get it in writing when choosing an ARM.
Lenders are capped at a certain amount of interest that they can charge you. Still, when rates go to their highest level, will you be able to afford the monthly payment? That is a very important question to figure out the answer to before you take out an ARM.
These types of mortgages are best if you do not plan to stay in your house for long and can cover any increase in interest rates.
Convertible ARMs offer a low introductory rate and convert to a fixed-rate mortgage after a specified number of years. When interest rates are low, this can be a very affordable option. However, be aware that when the loan converts, your fixed rate will be set at the future interest rate, not at the lower introductory rate.
There are two main government loans. They offer easy qualification, low fixed interest rates, and affordable monthly payments. However, not everybody will qualify:
Service members, veterans, and their spouses are eligible for VA loans. The qualifications differ depending on the branch of service and length of time in the service. VA loans are capped based on a calculation of average home prices from state to state.
Qualifications for this loan are based on income.
FHA mortgage is insured by the Federal Housing Administration, an agency of the U.S. Department of Housing and Urban Development. Borrowers pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan.
To qualify for an FHA loan you need a down payment as low as 3.5 percent, the borrower needs a minimum credit score of 580 or higher. Those with credit scores between 500 and 579 must make down payments of at least 10 percent. People with credit scores under 500 generally are ineligible for FHA loans. FHA loan requirements also include steady income and proof of employment, and an appraisal by an FHA-approved appraiser.
FHA borrowers can use their own savings to make the down payment. However, other allowed sources of cash include a gift from a family member or a grant from a state or local government down-payment assistance program.
The FHA has a special loan product for borrowers who need extra cash to make repairs to their homes. The chief advantage of this type of loan, called a 203(k), is that the loan amount is not based on the current appraised value of the home, but on the projected value after the repairs are completed.
FHA loans have limits, every year the FHA changes the maximum limits for FHA loans in response to shifting home prices. Limits can vary based on the cost of living in a certain area. The higher cost of living areas will see higher limits, and vice-versa.
Call us we can help you and escort you throughout the process of financing a home. You can be confident that we are flexible and knowledgeable about Real Estate finances.
At Congrains Group we always have your best interest in mind.
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