As an agent, I regularly receive calls or visits from people wanting to start the home-buying process. The question is always the same: "What is the first thing I need to do to buy a home?" The answer is always the same: "The first step after finding the right agent is to talk to a financial institution and get pre-qualified/pre-approved."
Unfortunately, this is the step that most people tend to stop. Many people are hesitant to talk to lenders about getting a home loan. Talking to a lender can feel daunting or scary, primarily because we all fear rejection, but unless you have cash, there is no other way to buy a home than with a loan. Many people don't know what to ask because it's not like you buy a house every day; for most people, it's a once-in-a-lifetime thing. Luckily for you, I'm here to help you understand the most common questions many buyers have and some highlights on the different loan types available.
I will also give you some tips for asking a lender questions to help you decide the right one for your situation.
The first question I often get is about the different loan types and their differences. In Morgan County, the most common loan types are Conventional, FHA, USDA, and VA. Check with your financial institution about their loan types; not all offer every loan type. Let's break down the loan types a little deeper. A conventional loan typically requires a 620 credit score, a 20% down payment, and no mortgage insurance. An FHA loan requires a 600 credit score, a 3.5% down payment, and upfront mortgage insurance of about 1.75% of the purchase price. Mandy said although you can sometimes qualify for a loan with a 600 credit score, this could also mean paying a higher mortgage insurance premium and a higher interest rate; so if you can do a couple of things to increase your credit score, it will greatly benefit you to do so. A USDA loan requires a 640 credit score and no down payment, but additional requirements for location and maximum income to qualify. A VA loan offers benefits like no down payment or mortgage insurance. These are just some of the basic requirements. Most loans also have additional requirements, such as income maximums and debt-to-income ratios. Talk to a financial institution for additional requirements, as those can vary.
Every loan will also have closing costs you will need to consider. Closing costs are charges related to the closing of your home loan and are separate from your down payment. It's also a good idea to save money for moving expenses in addition to your down payment, such as for a moving truck or storage unit. Plan for the process to take at least 6 months; as tempting as it may be, don't rush through it. It's always wise to have your lender run your payments before making an offer; this will allow you to ensure you're comfortable with the potential payment. You don't want to be '"house poor." Once you go under contract, get insurance quotes asap to ensure your payment will be within your budget.
Some important tips for anyone already approved or currently under contract are:
- Don't open any new debt(store cards, credit cards, co-sign).
- No Late Payments on current loans or cards.
- Stay updated on what's going on with your loan, call your LOAN OFFICER for any loan questions.
- Get any required documents to your lender ASAP.
Although I can't endorse or recommend which lender to go to, I can give you some tips on finding the right one for your needs. Having the right one can make or break your purchase, so it's important to do your homework when picking one. First, ask friends or family who they have used; be sure to ask for the loan officer's name, not just the financial institution. Next, call or meet in person to interview them; you want to ensure you're comfortable with them. Make sure they communicate well and are diligent and responsive. The last thing you want is to have questions during the process and have a lender who won't answer your calls or messages. You will also need to ask about the loan types they offer. Different banks provide various loan types depending on whether they originate from servicing the loan and are conventional banks versus mortgage companies. If you would like a list of financial institutions my clients have worked with in the past, stop by the office or give me a call, and I would be happy to help.
