So, You’ve Finally Decided to Buy a Home!
Congrats! Now you will probably need to finance the home, which means you need a home loan. There’s a good chance you know a few basic things about home loans, like needing a down payment. Most home buyers are not familiar with what is required when obtaining a mortgage. Lucky for you, we’ve put together some important steps and a few of the most common home loans to get you knowledgeable.
What Can You Afford?
First things first! Before you jump into going to open houses, you need to figure out what you can afford. There are three figures you need to know in order to determine how much you can afford to pay for a house:
- Annual income (after taxes)
- Monthly debts (credit cards, car payment, etc.)
- Down payment
The larger the down payment, the less you’ll end up spending in the long run. Once you have these three numbers, you can use one of the many online mortgage calculators, or we suggest speaking to a lender to pre-qualify you; it will be more accurate than an online calculator.
Nowadays, it’s practically required to have a pre-approval included in your offer package. In Southern California, our market is still competitive. Many homes are closing quickly and with multiple offers. If you want a fair shot at getting your offer accepted, especially if there are multiple offers on the table, you absolutely must include a copy of your pre-approval letter with the offer.
What Will the Lender Need?
The lender will need quite a few things from you. Such as: personal info, employment status & records, current & past income, your assets, and any debt you currently have. Click here to get the details.
The Most Common Types of Loans
These loans are backed by the Federal Housing Administration, they help make home ownership possible for borrowers who might not have a large down payment or great credit. Borrowers need a FICO score of at least 580 to qualify for the minimum down payment of 3.5%. However, a credit score of 500 is accepted with at least 10% down. Click here to read more.
A conventional mortgage is not insured by the federal government, therefor significant documentation will be required from your lender to ensure you are in fact qualified. Borrowing costs associated with this type of loan tend to be lower and the borrowing limit much higher than other loans. To obtain a conventional loan, your FICO score must be at least 620. There are two types of conventional loans:
- Conforming – When the loan amount falls within the maximum limits set by Fannie Mae or Freddie Mac. These are government agencies that back most U.S. mortgages.
- Non-conforming – These are loans that do not meet the bank guidelines (loan amount is too high, lack of sufficient credit, etc). Jumbo loans are the most common type of non-conforming loan.
A VA (Veterans Affairs) loans provide flexible, low-interest mortgages for members of the U.S. military, either active duty or veterans, and their families. There is no down payment required and closing costs are generally capped. Be aware, in some cases a funding fee is charged on VA loans as a percentage of the loan amount to help offset the program’s cost to taxpayers. The funding fee is generally rolled into the loan amount and is not required up front.
The Down Payment
Lenders usually require a down payment of 3.5% to 20%. Typically, when you have a larger down payment you’ll be given a better interest rate, pay less on a monthly basis, and pay your mortgage off quicker. You should also keep in mind that when you put less than 20% down a lot of time you’ll be required to pay mortgage insurance every month.
Ready to get your home search on?! Here are a few open houses coming up this weekend 😎⬇
Get the full list of open houses by clicking here.