Getting You Ready to Buy Your Dream Home!
Getting ready to buy a new home can sometimes seem like an overwhelming process. These tips will help you be prepared and make the process as easy as possible.
Get your Credit Report and a Credit Score estimate for free.
www.annualcreditreport.com is a great website set up for consumers to be able to see an actual copy of their credit report that a lender will look at when doing a home loan. This will give you a chance to review your report for any errors and work to correct them before you purchase. This is also a good time to review your report for any area that could hinder your chances of qualifying and taking care of those.
Apps such as Credit Karma are also a good way to have an idea of what your credit score is. Typically these apps are not 100% correct but they will give you a good idea of where you stand and your lender will be able to advise you what credit products are available to you.
Improve your Credit Score before applying.
The higher your credit score is the more loan programs you can qualify for and the better interest rate you will receive so your credit score is very important.
Paying down on your credit card balances can greatly improve your credit score. One factor that goes into calculating your credit score is called your revolving debt ratio. For example if you have total credit card limits available to you of $6000.00 and you currently owe $2500.00 you are using roughly 42% of the total revolving debt available to you. This ratio greatly affects your credit score. A good rule of thumb is to always keep that ratio under 30%. Outside of making your payments on time this has a greater effect than anything on your credit score.
Make all your payments on time and if you do have to be a few days late on a payment make sure that you get it paid before 30 days passes so you can avoid that being reported on your credit report.
If you are in the market to purchase a new home, hold off on opening any new accounts until that is finished. If you want to purchase a new car, wait a few months until your home loan is closed before doing so.
Credit inquiries also play a big role in your credit score so keeping your credit report from being pulled will help you qualify.
3) Start saving your money.
Although there are several loan programs out there that do not require a downpayment there are still fees associated with purchasing a home. There are earnest money deposits, inspections to schedule, and closing costs associated with a loan that may require you to come out of pocket.
4) Get Familiar with the Different Types of Home Loans.
A conventional loan is any loan that’s not insured or guaranteed by a government agency. Most conventional loans require a down payment of at least 3 percent. Borrowers who make a down payment of less than 20 percent generally must pay private mortgage insurance (PMI) on conventional loans, but that insurance will fall off once your home equity reaches 78 percent.
There are other Conventional products that can get creative in ways to eliminate PMI payments as well as products where the lender will pay the PMI for the borrower.
Conventional loans are generally a good choice for borrowers with good to excellent credit, since they typically cost less than some government programs.
Typical credit scores required for Conventional Loans are at least a 620.
There is also a Home Ready/Home Possible loan that is geared toward first time homebuyers that only require a 3% down payment. They typically have some income restrictions but they are a great product for the folks who can qualify for them.
FHA loans, which are federally insured by the Federal Housing Administration, require a down payment as low as 3.5 percent and tend to have looser guidelines.
These loans may be a good option for borrowers with less cash and a lower credit score. Of course, lenders may have their own standards that require a higher credit score.
A VA loan is any home loan made by private lenders and guaranteed by the U.S. Department of Veterans Affairs (VA). VA loans are a benefit to veterans and offer a great option because they don’t require a down payment [as long as the sales price doesn’t exceed the appraised value] or mortgage insurance.
Veterans and active members of the military should check their eligibility before applying for such a loan.
Government-insured U.S. Department of Agriculture (USDA) loans do not require a downpayment and may have lower mortgage insurance premiums. USDA loans require borrowers to meet certain household income limits for the area where they want to buy a home. The house must also be located in an eligible rural area, but you might be surprised about what qualifies as “rural.”
This is another great option for people who need down payment assistance. Borrowers who qualify can receive up to 5% of their purchase price as a great. The THDA loan is typically paired with an FHA loan and the gift covers the borrower's 3.5% down payment and the remaining 1.5% is used to help cover the loan closing costs. It can also be paired with a USDA loan and the 5% grant will help cover any closing expenses for the home buyer.
Much like USDA loans there are some household income limits on this product but the home location areas are not as restricted.