It’s time to look for a home, and the information flooding in can be overwhelming. Your understanding of the loan and eligibility are extremely important. Available mortgage loans and the mortgage rates Idaho are only two components of the big picture. It’s important to pay attention to the tips below to make the most of your money.
The past payment history of an individual will play a major role in determining their credit score. You should monitor your credit score and correct or update your credit report before submitting it to your potential mortgage lenders. You may need to take the time to improve your score by paying bills on time and decreasing your debts for a better score. This doesn’t mean you can’t qualify for a loan with a lower score. It simply means you might not qualify for the loan you want.
The cumulative amount of debt against your income determines your debt to ratio income or DTI. It works in correlation with your credit score. Your DTI is good to know as it assists you with your budget and provides you with your ideal payment range. Mortgage lenders will consider your DTI when assessing eligibility.
Your Work History
Lenders prefer that you provide proof of at least two years of employment and stable income. If you are self-employed, the lender will still require you to prove your source of income for the stated duration. If possible, do not change jobs right before you start looking for a house or after you are pre-approved for a loan. Both of these scenarios may delay your ability to purchase.
Have Some Savings for Upfront Costs
It’s easier to be approved for a home mortgage loan when you have a great credit score and stability in your income. If you can pay more upfront, it means a lower payment on the back end. Most people, however, need to save for a downpayment. Starting earlier can help you reach your downpayment goal in no time.
How Long Will You Be Paying For It?
If you can put down a large initial deposit, it might be possible to negotiate the 30-year plan and opt for a ten or fifteen-year repayment plan instead. Some mortgage lenders will even let you determine the repayment duration between 10-30 years as you see fit. Even better? Paying more each month will help you pay off your loan sooner.
Know Your Affordability Range
There is a chance that purchasing a home using your savings or stretching your down payment might upset your financial stability. It’s important to look at your budget now and in the future. Are you planning for kids? Have an in-law that needs to move in? Anticipating a downturn in employment? You can’t prepare for every scenario, but it’s important to look at your budget realistically.
Mortgage Loans to Consider
Conventional Home Loan: This mortgage is backed by Fannie Mae or Freddie Mac, which meets the standards of a lender. Conventional mortgages are not insured by the federal government and are therefore called “conventional,” as opposed to government-backed loans such as FHA and VA loans that are insured by the Department of Housing and Urban Development (HUD) and Department of Veterans Affairs (VA), respectively.
Conventional mortgages are those that don’t have government backing. Because they aren’t insured by the government, they must meet certain standards set forth by Fannie Mae, Freddie Mac, and HUD. These standards include:
- Income verification: The borrower’s income must be verified through pay stubs and/or W-2s. For self-employed applicants, three years of tax returns are required in addition to current financial statements.
- Credit history: A credit check is performed on all borrowers to ensure they have no derogatory marks on their credit report within the past 12 months (30 days for credit unions). The minimum score for approval is 620, but many lenders require scores above 640 for low down payment loans such as 80/20 or 85/15 FRMs
FHA Loan: An FHA loan is a mortgage insured by the Federal Housing Administration (FHA). This agency provides mortgage insurance to lenders. This insurance protects the lender if defaults occur on your mortgage payments.
To qualify for an FHA loan, you must meet certain criteria such as income and credit score. However, there are also other considerations such as debt-to-income ratio and other financial obligations such as student loans or child support payments.
USDA Loan: USDA loans are mortgages made by the U.S. Department of Agriculture. They are designed to help people with low and moderate incomes buy homes in rural areas or in eligible natural disaster areas.
USDA loans have a few unique features that set them apart from other types of mortgage programs:
- The income limits for USDA loans are higher than those for conventional loans and FHA loans.
- USDA loans have lower down payment requirements than other types of mortgages. For example, you can get a USDA loan with no down payment at all if you’re purchasing a home in an eligible rural area or with only 3% down if you’re buying in an eligible natural disaster area (or both).
- The amount you can borrow under a USDA loan is based on the appraised value of your home, not its purchase price. That means you could get more money out of a USDA loan than other types of mortgages would allow — which is good news if your property has increased in value since you bought it!
VA Loans: A VA loan is a mortgage loan that is guaranteed by the United States Department of Veterans Affairs. The VA Loan Program helps veterans, active military personnel, and their surviving spouses purchase homes without having to pay private mortgage insurance (PMI).
In most cases, veterans receive a 100% financing option with no down payment. This means that the borrower’s monthly payment will be based on their income and debts with no money needed upfront.
When it comes to interest rates, the VA limits them to no more than 4 percent above the average rate charged on conventional loans. Although there is no set cap on how high-interest rates can go, most lenders tend not to exceed 6 percent for VA loans.
As you can see, there are quite a few avenues for you to ensure you are eligible for the best mortgage rates. Don’t be too hard on yourself if you can’t complete all of these tips. Even if you can work on one or two at a time, it will benefit you in the long run. Click here for more information.