Mortgage Tips to Consider | Learn more
Buying that first home fuels anxiety. You are making the most important purchase of your life. You are navigating a new world, that of qualifying for a mortgage. Here are some mortgage tips to help this process go more smoothly.
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Prepare for your mortgage quest by optimizing your credit score. the minimum credit score required to get a conventional mortgage is 620, but there is one big caveat. Some lenders, especially in a warm market, don’t want to deal with applicants whose credit score is below 740. This is considered a very good FICO score. An FHA loan requires a minimum credit score of 500, but these applicants require higher down payments.
Lenders take credit rating into account when setting mortgage interest rates and fees. In the year before applying for a mortgage, improve your credit score by paying off your credit card debt and other debts. Avoid taking out new credit cards. Pay all bills on time. keep your credit utilization rate, the amount of revolving credit you use compared to the amount available, less than 30%. For example, if you have $10,000 of available credit on all cards, do not exceed $3,000.
Get a free annual credit report from the three major credit reporting agencies, Experian, Equifax and TransUnion. Check your report for inaccuracies. If you find any, such as invoices you paid and listed as overdue or overdue, contact the agency immediately with the documentation to correct.
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Get pre-approved, not pre-qualified
Before you start looking for a home, you need to know how much mortgage you qualify for. Although the terms prequalification and preapproval sound similar, they are not synonymous. Prequalified means the lender has estimated how much you can borrow based on basic information. With pre-approval, the lender has taken a closer look at your finances, which is great mortgage advice to consider. This includes a credit check. The pre-approved applicant receives a letter stating that they have been approved for a specific loan amount valid for the next 90 days.
Most mortgages require a down payment. Twenty percent of the purchase price is typical for many loans. However, there are loans that require much lower down payments, such as FHA loans.
Remember, if your down payment is less than 20%, private mortgage insurance is required. PMI is required until you have acquired 20% equity in the home.
First-time home buyers may not take closing costs in their calculations. Closing costs are usually between two and five percent of the purchase price. These fees include:
- Appraisal Fees: Lenders will not approve mortgages unless the home receives a professional appraisal. They cannot lend a buyer more than the value of the property.
- Loan origination fees
- Registration fees
- Credit application fees
- Title Search: With a clear title, lenders will not approve a loan.
- Title insurance
- Subscription fees
Some states and municipalities may charge their own fees, such as transfer taxes.
Types of mortgages
There are different types of mortgages and mortgage advice to consider. The best one for your needs depends on your risk tolerance, qualifications and the amount available for a down payment.
- Fixed rate loans: The advantage of locking in a fixed rate loan is that you know how much you will pay each month for the duration of the mortgage. It is the most popular type of mortgage for this reason.
- Adjustable rate loans: Risk tolerance plays a major role in whether you choose an adjustable rate loan. Adjustable rate loans are often a good choice for those who only plan to stay in their home for a few years.
- FHA Loans: If you’re struggling with a down payment or closing costs, or your qualifications are lower, an FHA loan can help you become a homeowner. The Federal Housing Administration, created during the Great Depression, offers mortgages with a down payment of just 3.5% of the purchase price for many buyers.
- VA Loans: Active duty military and military veterans are not required to make a down payment with a VA loan. If you qualify for a VA loan, this is probably the best loan available. The VA offers flexible standards for eligible borrowers.
- USDA Loans: Are you a low or moderate income candidate looking for a home in a rural area? Would you like 100% financing? If so, consider US Department of Agriculture loans.
- Bridge loans: What if you want to build your dream home, but your current home is still on the market? A short-term bridge loan is the solution. This mortgage is so named because it “bridges” the gap between the time it takes to sell the current home and buy or build another home.
Mortgage Advice Considerations
Although the process of buying a home is often complex, these and other mortgage tips can help you get that home more efficiently. Here’s one last piece of advice: don’t buy more of a home than you can comfortably afford. A mortgage calculator or mortgage broker might show you can spend a lot more on a home. Sleeping well at night because you’re not stressed about paying your mortgage payments also has value.
Jane Meggitt specializes in writing about personal finance. In addition to investing and planning for retirement, she writes about insurance, real estate, credit cards, estate planning and more. His work has appeared in dozens of publications, including Financial Advisor, Zack’s, SF Gate and Investor Junkie. A graduate of New York University, Jane lives on a small farm in New Jersey’s horse country.