Whether you’re looking to buy a new home, build a new one or refinance an existing one, you’ll want to know the basics. A mortgage is a long-term commitment and you need to understand the terms and costs. It’s important to know what to expect before you apply. The best thing to do is to make sure you have your credit score in check and take steps to improve it before you begin your home search.
A good credit score is important because it will lower your interest rate. If you have poor credit, you may have to pay more in interest and you might have to put more money down. To help you determine what kind of loan you qualify for, it’s a good idea to compare multiple lenders. Some types of loans, like government-backed and USDA, may have less stringent requirements, while others, such as a VA mortgage, are more generous.
For many aspiring American homeowners, a home loan is the only way to achieve homeownership. However, mortgages can be difficult to obtain. You have to meet a number of requirements, from the minimum down payment to the debt-to-income ratio, or DTI. But if you know what to look for, you can find a loan that’s right for you.
While it’s not always easy to get a loan, there are ways to minimize your risk. Among other things, you should be able to show your lender that you’ve made payments on time in the past. And you should have a solid employment history. Many lenders will want to see at least two years of stable employment. In addition to a good employment record, you might also be able to show that you have a substantial asset.
Although there is no one single rule of thumb for the best mortgage, there are some loan types that offer better rates than their competitors. This is true for both conventional and jumbo mortgages. There are also alternative types of loans, such as USDA and FHA. These are insured by a government agency, making them safer for lenders.
Even with bad credit, you can still secure a mortgage. In fact, if you have a good FICO(r) Score, you can qualify for the best mortgage rates available. Lenders will use risk-based modeling to calculate loan terms and conditions. They will consider your total debts, including the mortgage, as well as your income. Ideally, your total debts should not exceed 45% of your gross monthly income. Keeping this ratio in mind, you should try to keep your housing payment under 28% of your pre-tax income.
If you want to know more about your credit, get a free copy of your credit report from each of the three major bureaus. Look for any derogatory items, such as a delinquent account, bankruptcy, or foreclosure. Derogatory items don’t mean you can’t get a mortgage, but they do have a negative impact on your credit score.
Lastly, you’ll want to make sure you have enough cash reserves to cover the mortgage. Most lenders will require you to have two months’ worth of your mortgage payment in reserve. Having a larger down payment will make it easier for you to qualify for the mortgage of your dreams.
