money, home, coins.jpg

Financing

Where do you begin with financing your home?

Many people don’t know where to begin when it comes to buying their first home. Or what options there are for purchasing a second home as an investment. They don’t know what options there are or what is needed to get a loan. A common misconception is that you have to have 20% of the price of the home to be able to purchase a home. This is not true. Depending on your credit score you may qualify from zero to just 3% down. To help you feel better equipped to begin your home buying journey, here are some facts about what is available to home buyers as well as steps you can take to prepare you for purchasing your first or second home.

For any type of loan the first place to begin is your credit worthiness. Do you know what your credit score is? Have you ever looked over your credit report for errors? If not, you should because up to one third of credit reports have errors according to Consumer Reports. Why does your credit matter? Because it affects the interest rate the lender will charge you for borrowing money from them. The lower the credit score, the higher the interest rate and the higher your mortgage payment. So, find out your score. If it’s above 800 you have excellent credit and will qualify for the best rates. If you have 700-799 you have good credit and can still get great rates, but maybe if you look at your report you can find ways to bump it up before reaching out to a lender. How do you bump it up? Well, that’s different for each person, for some it is paying off debt, for some it’s having too little credit information. Your credit report will actually tell you why you receive the score you have. If your score is fair you can still qualify for a loan, but you may not have all the options for types of loans, and the interest rate will be higher. This doesn’t mean you shouldn’t pursue buying a home, but it does mean you may need to look at homes in a lower price range to offset the cost of interest that will be a part of your monthly payment. You can request a free copy of your credit report from each of three major credit reporting agencies – Equifax®, Experian®, and TransUnion® – once each year at AnnualCreditReport.com

How do you know what you can afford? The best thing to do is to reach out to a mortgage lender or banker. If you like your bank or credit union you can start there. Simply contact their mortgage department and with basic information they can tell you what you would QUALIFY for. To qualify for a loan is not the same as being approved for the loan. Qualify simply means how much of a loan you can afford based on your income and debt. If you don’t really have a loyalty to your bank, contact a mortgage lender. There are lenders who are mobile friendly offering an app to help you with the process, such as MyMorgo; Online lenders, such as Rocket Mortgage; or if you prefer meeting your lender in person there are local lenders in your city you can reach out to.

A good lender will find out your financial situation and provide guidance to the loans you qualify for as well as how those loans work. A conventional loan is different from an FHA which is different from a VA or USDA. They all have different requirements for your credit worthiness to the amount you have to put down, as well as what you will have to pay at closing. Closing is the day you actually “close” the deal and officially purchase your home.

And a very very important think to know and remember is once you receive you approval DO NOT OPEN ANY NEW LINES OF CREDIT OR MAKE ANY LARGE PURCHASES. Why? Because when you are approved for a loan it is based on all the income and debt you provided, and if you change that at all it changes what you can afford. You may actually lose the house you fall in love with because of something like financing new furniture for your new home. Don’t do it, wait until you have closed, then you are free to buy that new sofa!

For more information on down payment and closing cost assistance programs click here for a helpful list.

For details on all the loan types available to you click here. And after you have visited these pages and learned a bit more let me know if you feel better equipped to take the exciting step towards owning your first home. I would love to visit with you and set you up for a home search, custom created for you so you can know what is available to you. When you have a real goal you can see, it helps you to achieve it!

I’m here to help!