Q: What questions should I ask myself before applying for a loan?
Buying a home is a very exciting time, but not knowing where to start or what to expect can leave new homeowners very stressed and anxious. Important factors to consider when buying a home are aspects like job stability, home mortgage loans, location, credit score, and down payment options. Because buying a home is one of the largest investments one can make, it is important to ensure that any concerns and questions are answered before doing so.
Q: What type of credit score do I need to buy a home?
A: While there is no set credit score you need to buy a home; the type of loan you receive will be determined by, among other factors, your credit score. Typically, the higher the credit score, the more favorable lending terms you could be offered. As a general rule of thumb, you should have a credit score above 620 before applying for loans, to be safe. However, this is not the case with all mortgages and mortgages are determined on a case by case basis. If you foresee buying a home in the next few years, you should be paying special attention to your credit score. Meeting with a mortgage lender can provide further information on recommendations and lending requirements.
Q: What other costs are associated with a mortgage?
Down Payment Costs
The amount of money you have to put down depends on the amount and type of mortgage you apply for and receive. The more money that you put down upfront, the lower your monthly mortgage payments are going to be. Some loan programs like the FHA Loan require only 3.5% of the purchase price. Additionally, there is Private Mortgage Insurance available for those who apply for a mortgage through a financial institution but may not have the full 20% down payment available up front. Be sure to explore your options and save for a down payment before choosing a mortgage to apply for.
Your closing costs can change based on your location, property type, and mortgage you chose. The closing cost is comprised of fees and services that come with inspection, insurance and transferring the deed from buyer to seller. On average, closing fees take up 2-5% of the purchase price of your home. It is advised to have this money put aside beforehand to ensure you have it ready for closing.
Q: What type of mortgage loan is right for me?
It is important to figure out what type of loan is best for your particular financial situation and personal preferences. Do you prefer fixed monthly payments or loans that adjust their interest rates at certain periods of time? 30 years fixed mortgages with their fixed monthly rates can be more expensive up front, but provide stability that other options can’t. On the other hand, adjustable rate mortgages (ARMs) have lower initial rates but can spike during certain periods of time in conjunction with market trends. ARMS are attractive options to homebuyers because you can end up actually paying lower monthly payments, but if rates rise you could be paying more. Make sure you do your research and ask your mortgage lender which loan would be right for your financial situation.
Make sure you are asking yourself the right questions before you contact a mortgage lender. A little homework now can save you time and headache in the future. Additionally, a reliable mortgage lender will be there for you throughout every step of the mortgage process. For more first-time home buyer information and to prepare for the mortgage process, download our eBook now!