A good number of people usually feel anxious and uneasy when they need to get a mortgage, with lots of thoughts going through their heads. Are you among this type of people? Well, this article aims at educating you on essential things and explain on how to get a mortgage.
Below are five essential things you need to know about mortgages when buying a home:
1. Try to make a down payment of 20%
Anyone getting a non-government loan should try to make 20% down. Otherwise, you will have to pay PMT until your loan to value ratio is 78%.
However, this isn’t the same with all mortgages as about 90 percent of home loans for borrowers require a down payment of only 3.5% for FHA or even 3% for a conventional program.
2. Get as good of f credit score as possible
Certainly, in order to qualify for most lenders’ mortgage rates, you will need some good credit scores and a reasonable down payment. Interestingly, there are a good number of mortgage programs designated to make home ownership available to first-time buyers, with a smaller income and lower credit scores.
For instance, FHA (an acronym for the Federal Housing Administration), issues mortgages to borrowers with credit scores as low as 580. I do recommend to have at least 620 score to get a mortgage. However, higher credit score will bring better interest rate and terms for a mortgage.
3. Have your Closing Costs taken care of
Did you know that there are closing costs when you are getting a mortgage? Well, these fees which come in the form of escrow fees, lender costs, appraisal fees, title insurance fees are known as closing costs. Most times these closing costs can be about 3% of the loan amount. So if you are taking a loan for $200K, you can factor in about $6K in closing costs and prepaids.
One of the most common ways to cover closing costs is asking the seller for contribution.
In Florida, it’s common to ask the seller to contribute upto 3% in closing costs and prepaids.
You can also, ask your lender for lender’s credit which you can use towards your closing costs. What most lenders won’t tell you is that your interest rate will be higher if you are using lender’s credit. But sometimes, that’s the way to home ownership which is ok.
4. Solid employment matters
Most mortgage loan officers are of the opinion that a minimum of two years work history is required for one to be able to get a mortgage. Though this happens to be true, it isn’t totally true. Obtaining a mortgage loan entirely depends on your prospects and history.
For instance, someone who has worked as an unpaid engineering intern, who was later offered a full-time salaried position, is likely to get a mortgage loan easier than an applicant with years of part-time working experience.
5. You Can “Test Drive” A Mortgage
Call a lender and explain that you are thinking to buy a house but not sure if you can qualify and for how much. You will get to learn the amount you are qualified to borrow, interest rate, and if there is anything you could do to increase your chance of qualifying or improving your credit score.
Virtually, almost all U.S home buyers use mortgages to help finance and facilitate the purchase of their homes. This process should not scare you at all as it’s part of the home buying process. Just get a reliable mortgage banker to walk you through the entire process and match you with the right mortgage program.
Fill out application for a mortgage here and learn what you are qualified for!