Financing your dream is an important part of the process and we are here to help you understand what you need to know and do to make the process go smoothly. One thing is most certain, whatever lender or type of financing you ultimately select, it’s vital that you start preparing well in advance of application.
Avoid Credit Surprises – Obtain Your Credit Information
Well in advance of home shopping, you need to order your national credit files — ideally from all three credit bureaus (Equifax, Experian, Trans Union). Make sure there are no inaccuracies or outdated information. You can get your credit report for free once a year at www.annualcreditreport.com. Be sure to correct anything out of sorts that you find upfront; otherwise, you could delay the financing process. You’ll also want to order your FICO credit scores from one or more of the bureaus.
Gather Key Documents
Any lender will need to see documentation of your income, employment, two years of IRS filings if you are self-employed, bank accounts, 401(K) funds and other assets. You’ll save yourself a lot of scrambling if you compile this information before you even start looking for a lender.
Determine How Much You Can Afford
You can get a decent idea about how much home you can afford before you start working with a lender or real estate agent by utilizing online calculators which are found on lending sites, however, don’t treat this as gospel until you start working with a lender and start submitting proof of income.
A good idea would be to experiment with different rates, down payment amounts, loan terms (30-year, 15-year, fixed-rate, adjustable-rate) to see how your maximum mortgage amount varies and how that affects the price you can afford for a new house.
When the time comes to meet with a lender, most lenders will take your basic information and enter it into an automated underwriting model that blends credit scores, debt-to-income ratios and other factors to make decisions about loan sizes, rates and fees.
Types of Mortgage Loans
Mortgage loans come in different shapes and sizes.
If you have a minimal amount of cash to make a down payment and your credit history has a few flaws, a federal government-backed loan is most likely your best choice. FHA (Federal Housing Administration) loans allow down payments as low as 3.5 percent along with generous credit underwriting.
VA loans are a great way for veterans to qualify for a loan, the loan requires no down payment, but just as the name implies, in order to qualify you must be a veteran.
If you have more than 10 percent or 20 percent to put down, these may be your best bet. Keep in mind that lower down payments may be possible but they require high private mortgage insurance premiums.
Conventional loans are government-backed loans like Fannie Mae and Freddie Mac. Conventional loans also have more strict guidelines on approval and some banks may add fees onto the loans.
With your documents in-hand and knowing your credit score and the different loan options, finding financing for your new home based on your unique needs will be faster, easier and more efficient.
The Certo Team 55 N. Arizona Place Suite #103 Chandler, AZ 85225 602-429-6789
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