If you’re in the market for a new home, you may feel lost when it comes to home financing. This is likely the biggest investment you will ever make, and big investments can cause big headaches if you don’t take the proper strides before starting the process. However, you can limit your frustrations by following these steps to determine your best home financing options.
Figure Out What You Can Afford. You don’t want to bite off more than you can chew, especially when it comes to a mortgage. There are simple ways to determine what mortgage you could carry that fits your budget. Using online tools like the Bank Rate Calculator or Chase Mortgage Calculator can help you have a clearer picture of what price range of homes you can afford. These online tools will ask you a series of questions about your current bills and payments, as well as your monthly income. After the questioning process, you will be given an amount that you can likely afford. Be sure to look at the monthly note that amount generates and adjust your budget accordingly to make sure you can carry the note.
Check Your Credit Score. Your credit score will play a big role in if you are approved for a loan and what your interest rate will be. If your score falls below a 680, a mortgage lender can deny your request for a conventional loan. If that happens, you can attempt to apply for an FHA loan, but you will still have to find a lender to approve the mortgage.
Find The Best Fit. Not all loans are created equally. You will need to choose between a fixed or adjustable rate mortgage loan. A fixed rate will never change over the life of your mortgage, but an adjustable rate can change from year to year. A conventional loan is one that is not insured by the government in any way and offers more flexibility in how you pay it back, but requires a larger down payment. An FHA loan requires a smaller down payment, but you have less options in terms of paying it back. If you or a family member has served in the military, you may consider a VA loan, which requires no down payment at all.
Get Pre-Approved. Once you have an idea of what you can afford, what kind of loan you need, and whether or not you will be able to apply for a conventional loan, take information like three months’ worth of pay stubs, last year’s W-2’s, a list of your assets, and any loans you currently have to your local bank or mortgage lending company and apply for a mortgage loan. Once you do this, the lender will give you a pre-approval letter that will let you make an offer on your dream home with confidence.
If you do not yet meet the qualifications to get a mortgage loan, it can be easy to be discouraged. However, by diligently working to improve your credit score and making a budget plan in order to save for a down payment, you can make a way to make your mortgage loan dreams come true.