Arranging the required financing is a major challenge you will have to face while searching for your new home. It is not always practical to look for a loan, and at the same time hunt for a house. So make sure you get the formalities for arranging financing completed, before you decide on the home that you wish to buy.
There are thousands of financial products and services that make it possible for low, moderate, and middle-income families to buy homes of their own, but in general the mortgage you choose will likely be determined by several factors which will be discussed here. Obtaining a mortgage is a method of using property for loan value, and they are available in a wide range from banks to building societies and other lenders.
You have to plan well ahead before buying a home and you should develop a financial plan. This will guide you in saving money for the down payment, covering other expenses such as your credit check, mortgage application and closing costs.
An established credit history plays an important role in the home buying process. This is an important document that instills mortgage lender confidence in you. The main goal should be to show that you are financially responsible and a "good credit risk.” Start off with taking care of how you pay for things; don't pay for everything with cash. You should be paying your bills on time, limit your debt, reduce the number of credit cards you have, and using them responsibly.
It's also important to review your credit report. It shows your past and current debt that states when, how and if you paid. The information contained in your credit report should be accurate. The better your credit history, the better your credit score will be and the more likely your mortgage lender will offer you more mortgage options with better terms.
The mortgage lender whom you approach will calculate the amount you can afford and the type of mortgage plans that will match your requirement. Also, bear in mind there are always additional expenses like legal fees and moving costs.
Pre-approval means a process wherein the bank or the lender calculates the loan amount that you are eligible for, the interest you are expected to pay and the monthly installment. A pre-approval also helps in assuring the seller that you have the financial means to purchase his or her home. You will also be able to determine the type of home that will fit your budget.
A down payment is referred to as the initial amount that needs to be paid toward the purchase of your home. The larger your down payment, the less you pay each month on the mortgage, and the lower the interest costs will be over the life of the mortgage. The amount of the down payment and the installment will depend upon the type of mortgage plan you have selected.
Your financial situation will determine the type of financing option you have. The various financing options available are:
A mortgage loan where the interest rate on the note is periodically adjusted based on an index. This is done to ensure a steady margin for the lender, whose own cost of funding will usually be related to the index. Consequently, payments made by the borrower may change over time with the changing interest rate.
A mortgage loan where the interest rate on the note remains the same through the term of the loan, and is initially based on an index. This is done to ensure a steady payment amount for the borrower.
A mortgage that falls within Fannie Mae guidelines, and covers loans up to a pre-determined amount.
A mortgage with a loan amount above the industry standard definition of conventional conforming loan limits. This standard is set by the two largest secondary market lenders, Fannie Mae and Freddie Mac. Loans above the conforming limits may be offered by seller servicers of these wholesale institutions as well as Wall Street conduits who provide warehouse financing for mortgage lenders. The loan amounts reflect average loan sizes nationwide. Jumbo mortgages apply when agency (FNMA and FHLMC) limits don't cover the full loan amount.
There are two types of government-backed loans -- FHA and VA.
In order to qualify for an FHA housing loan, applicants must meet certain criteria, including employment, credit ratings and income levels. The specific requirements are:
Credit report should be in good standing with less than two thirty day late payments in the past two years.
Any foreclosure must be at least three years old.
Any bankruptcy on record must be at least two years old with good credit for the two consecutive years
Mortgage payment qualified for must be approximately thirty percent of your total monthly gross income
VA loan is a mortgage loan in the United States guaranteed by the Veterans Administration. The loan may be issued by qualified lenders.
The VA loan was designed to offer long-term financing to American veterans or their surviving spouses (provided they do not re-marry). The VA loan allows veterans 100% financing without private mortgage insurance or 20% second mortgage.
The closing is when ownership of your new home officially transfers from the seller to you. You need to be prepared to pay this additional cost, unless the seller volunteers to pay it. Other additional costs may include:
Mortgage application and credit report fees.
Good faith deposit: This is a deposit which normally varies between 1% and 10% of the sales price, used to provide an assurance to the seller that you are a genuine buyer interested in making an offer on their home.
Before a mortgage company approves your lending arrangement and allows you to close on your new home, they might ask you to show proof of title, title insurance, and homeowner's insurance. Make sure to have these documents ready with you in order to have a smooth transaction.