Updated: 1/28/2022
Homeownership is an important step towards your future. It’s the American dream and everyone strives to own a home. The only thing standing in your way is home loan approval. It can be extremely difficult to get approved for a mortgage if you have just started thinking about homeownership. Thankfully, an expert has compiled some tips to help you.
Don’t be discouraged! Homeownership is possible.
To start, banks will always look at your credit score, your income, your debt to income ratio, and your bank account. They do this so they can ensure the security of the loan. Their job is to make sure you can afford to pay back the loan they give you and that you can afford the down payment and closing costs. The bank will ask for a lot of information so they can fact-check all of the numbers you provide to them.
Your main job is to be as dependable and steady as possible. You need to show that you can get and keep a stable job that will pay you enough to cover the mortgage. You also need to show the bank that you are responsible with money and that you have a history of paying loans and credit cards off.
If you are looking to buy a house, you will first need a mortgage. There are many regulations about mortgages and many difficulties with getting them. Your credit score is a big indicator of how likely you are to get a mortgage. Some people find that it’s so hard for them to get a mortgage that they try to get a personal loan instead. Of course, those loans can come with interest rates that are far above the standard rates given by mortgage loans. If you aren’t sure how much you can afford to pay for a house, you can use a bank housing loan calculator to find out. You can also use a bank loan interest rate calculator to find out what rate you can expect and how much the interest will be.
With bank refinance rates today, it often pays to refinance a mortgage to get a better rate. Even a 1% difference in interest rates adds up to a lot over the life of your mortgage. A Bankrate 20 year mortgage often comes with very favorable rates for those who n afford the 20-year payment plan. If you need a 30-year loan, you will pay slightly higher rates.
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Navigating the home buying process can sometimes feel like you are listening to a different language. The terms and conditions that your lender and agent explain to you can be confusing and overwhelming. Yet, the type of mortgage that you choose is extremely important. Each of the different types of mortgages has different terms and conditions. They require different down payment and closing amounts. Finally, the approval qualifications also differ between each type of mortgage plan offered.
Conventional mortgage
A conventional mortgage plan is considered to be your traditional type of mortgage. It is the most generic of mortgage plan options. The conventional mortgage normally has a standard minimum 20% down payment requirement. You may or may not be required to have an inspection and appraisal done on the property, depending on your specific mortgage plan lender. The one and most disliked term in the conventional mortgage is that you must come out of pocket for such a large amount. If you are not able to afford a substantial down payment amount, you might want to consider one of the other mortgage plans.
FHA mortgage
The first time homeowners, or FHA mortgage is specifically for first time home buyers. This is a mortgage plan program that was designed to get more people into homes. People found it difficult to purchase their own home because they could not afford the down payment. The FHA has much lower down payment requirements, making it affordable to a larger group of people. With 32% of people looking to buy new homes being first time home buyers, this has become a popular program. FHA mortgage lenders will walk you through each of the required steps to see if you qualify for a first time homeowner mortgage.
VA mortgage
The VA mortgage is specifically for veterans. VA home loans have even more advantageous benefits. The required down payment amount, if any, is much less than both the conventional and FHA mortgage types. Additionally, the restrictions for qualification are looser. The government or lenders are not as strict about length of employment, credit, or debt to income ratio. The VA mortgage was designed to help veterans and their families achieve homeownership as a reward for serving the country.
Investment mortgage
Although conventional, FHA, and VA loans are the most common, there is another group of loans that encompasses investors. Investors are people who purchase run down, often bank owned homes, and then turn them into livable residents. Because these are investment properties and are used to produce an income, the down payment amounts are often much higher. Also, a real estate investor can expect to have a much higher than average interest rate. Once the house is sold and a profit is made, the investor will also have to pay a larger percentage of taxes. Many real estate investors or rental vacation home owners choose to go with private lenders for their investment funding needs.
Refinancing ability
While it is important to consider your mortgage plans and choose the best one for your financial needs, it is possible to change mortgages later on. Refinancing allows you to borrow money through another loan program. The original loan is paid off and you now owe your monthly payments to the new type of mortgage plan. This is common when homeowners want to reduce their interest rates or receive better loan terms.
Although 31% of millennials are looking to buy a home in the next 2 years, many are completely unsure how to go about this process. About 59% of homeowners wish they understood the terms of their mortgage better. There are currently 3 main types of mortgage plans to choose from. They each have their own set of pros and cons. Before you sign that paper to close on a house, ensure that you understand your loan terms and that you have chosen the best mortgage loan for your needs.
