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 smooth. 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.
Here are a few things you can do to help the process along.
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 Make sure there are no inaccuracies or outdated information.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 files free once a year at www.annualcreditreport.com. Correct anything you find in error upfront; otherwise, you’ll delay the entire financing process. Also, order your FICO credit scores from one or more of the bureaus. They’ll play a key role in determining what sort of terms your lender will offer.
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. It’s smart to compile this before you even begin shopping for financing options. It’s also useful to have at least a rough idea of your current household expenses; they will affect the amount of mortgage you can obtain and the maximum price of the house you can finance.
Determine How Much You Can Afford
You can get a good idea about this well in advance of shopping by checking calculators that most lenders and builders provide on their websites. Most lenders take your basic information and enter it into automated underwriting models that blend credit scores, debt-to-income ratios and other factors to make decisions about loan sizes, rates and fees.
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 top price you can afford for a new house.
Types of Mortgage Loans
Mortgage loans come in different shapes and sizes. Think of them in terms of their problem-solving characteristics:
If you’ve got only minimal cash to make a down payment and your credit history has a few blemishes, 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 require no down payment, but you must be a veteran to qualify. USDA rural loans also allow zero down, but they’re limited to areas with relatively small populations and may have income restrictions. The caveats are the FHA has been increasing its insurance fees recently, which increases your monthly payments. The VA has increased its guarantee fee, as well.
If you have more than 10 percent or 20 percent to put down, these may be your best bet. Conventional loans are designed to be sold to Fannie Mae and Freddie Mac (the government-chartered mega-investors). The downside is conventional underwriting rules are more strict and banks may impose add-on fees to loans, increasing your cost. Down payments below 10 percent may be possible but they require high private mortgage insurance premiums.
With your records gathered in advance, knowledge of your credit score and know-how of different financing options, the process of finding the best 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
Contact a licensed housing specialist now! 602-429-6789