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What You Need to Qualify for a Home Loan
Everyone knows conditions in the real estate market can change fast. When things are looking favorable, buyers should move as quickly as they can to secure the funding they need and go after the home of their dreams.
Still, the process can be complex. Even with the help of a skilled real estate agent, an informed buyer is in the best position to get a great deal on a mortgage loan.
There are a lot of misunderstandings about mortgages, but the topic is not as tough as it appears.
Your Mortgage Loan: The Basics
A mortgage is a long-term loan you secure from a lender to purchase a home. A mortgage almost always comes from a conventional financial institution – a bank – even if it's backed by a government program. ("Government" home loans are actually issued in accordance with special government standards, and typically provide guarantees that lower lenders' risk.)
One of the most important aspects of a home loan is its annual percentage rate or APR. The APR is a reflection of the interest rate on your loan and also includes a range of other fees and costs. The higher your APR, the more your mortgage loan will actually cost for you over time.
How Do You Get a Good Mortgage Loan?
This is where things start to get tricky – and a lot of false information can sneak in.
In general, the healthier your financial picture is, the easier it will be for you to get the favorable loan terms you want. As with so many things, the devil is in the details.
Let's look at some of the key elements that go into your mortgage loan:
- Your Credit
Most conventional lenders consider your credit score to be a sound way of measuring the level of risk you represent. Some lenders are willing to work with those who have "less than perfect" credit if they can demonstrate their current income is sound and they have good financial habits. Certain government programs are available for first-time buyers with reduced credit.
Credit scores range between 350 and 850; most lenders consider 620 a minimum score.
Some factors that can affect your credit score include:
- Outstanding collections or judgments;
- Age and number of your credit accounts;
- Total balance on outstanding credit accounts;
- Your history of on-time payment with accounts. - Your Down Payment
The down payment is the amount of money you pay upfront before you collect your financed amount. A higher down payment provides you with a number of great benefits. First, of course, is that the bigger your payment, the smaller your loan and the easier it is to pay off sooner.
Although a bigger down payment is better, lenders don't necessarily require a specific amount to offer you a loan. However, if you manage to pay a 20% down payment, you may not have to worry about private mortgage insurance – which will lower your monthly payments. - Your Income
No matter your financial status or background, you must have a healthy current income to pay for your future home expenses. Most lenders use debt-to-income ratio to determine if you are likely to be able to pay your mortgage loan and other expenses comfortably in the years to come.
Variable expenses like utilities, phone, and cable aren't included in these calculations. All in all, most lenders want to see you spending 49% or less on "fixed expenses" like your mortgage cost.
Want to find the best Mansfield homes? Our REALTORS® are here to help.
Contact Haring Realty today to begin your journey to buying a home.
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