Learn About Buying a Home and Home Mortgage Loans Resources

There are several steps you must take if you plan to buy a home. The process is long and comes with careful planning on your side.

You must take necessary steps through the process, which includes saving money for future loans, having to cover initial costs and making a down payment.

You should also check your credit score and ensure that your credit cards, and other outstanding loans you may have, are in good shape.

Once you are more informed about your financial situation, you can avoid some problems that may arise later in the process.

You will find that this process may be complex, especially if you have never owned a house before.

You can prepare accordingly before you begin looking for your next home by being better informed of important aspects, guidelines and tips of home buying.

You can gain a better understanding of buying a home with home loans or mortgages by reading the sections below.

Learn About Credit Scores and Down Payments

You must have good credit if you plan to buy a home with no down payment. Other options you may qualify for besides zero-percent down payments include cash rewards when you close on your new house.

However, the lower your credit score is, the higher the down payment your lender may require you to have to purchase your new home.

Lower credit scores also tend to affect interest rates, which are higher depending on how low your score is.

Moreover, even if you qualify for a mortgage while having poor credit, you should take steps along the process to improve your scores and reduce your level of debt.

Learn About Credit Scores to Buy a Home

You should check your credit score before you apply for a home loan.

When your credit score is not high enough you may only qualify for mortgages with high-interest rates and lenders may deny some mortgage applications you submit.

You can visit the Federal Trade Commission’s credit reporting website to check your credit score.

You are entitled to check one free copy of your credit report once every 12 months, and you can obtain it from the three major reporting companies.

These companies are Experian, Transunion and Equifax, and they each offer you a credit report that may vary depending on how they calculate it.

Other websites also offer you free credit reporting that you can access more frequently.

However, some of these websites may charge you a fee and often times only show you the reporting score of one credit agency, so you may not be able to access all three reports at the same time.

The credit score that you need to be approved for a home loan varies depending on where you apply for the loan.

Some standard and private lenders require you to have a high score and a credit in very good standing.

Otherwise, the lower your credit score is, the more likely it is that you will pay a higher interest for your loan.

You will also have to pay more money down the road for loans with higher interest rates. Besides your credit score, your lender might also check your FICO score, which is also indicative that lenders use to understand your credit risk.

Moreover, even if your score is not very high, there are steps you can take to improve it. When you have a higher credit score, you will have a better chance to qualify for a loan.

Improving your credit score involves having to pay some of your debt with credit cards, especially if you reached your credit limit on some of them.

In case a lender denies your loan application, you are entitled to receive a notice explaining the reasons for the denial of your application.

Otherwise, you have 60 days, according to the Equal Credit Opportunity Act, to request the lender a notice of denial.

Learn About Mortgage Loans

A mortgage loan allows applicants to buy a house without having to pay the full value of the property upfront.

Mortgage loans also tend to have lower interest rates than standard loans, but they also span for a longer time, in periods as long as 30 years.

You can choose a mortgage loan that has a fixed interest rate to plan accordingly how much you will have to pay for the property.

Otherwise, you can choose a mortgage loan with adjustable rates that have a smaller interest rate at the beginning of the loan period.

Typically, you have to pay 10 percent of the total cost of your new home as the down payment for the loan.

You will have to pay the remaining balance in monthly installments, which is where the interest rate takes effect.

If you have an excellent credit score, some lenders may approve small down payments as low as zero percent. However, this type of loan is long term for up to 30 years.

Moreover, your interest rates may increase if you have poor credit. The lower your score is, the less guarantee a lender has that you will make your payments on time.

Therefore, you will be able to save a lot of money in the long run when you are able to improve your scores.

You should also consider other costs that come when you acquire a loan. You should consider the following:

  • Collateral
  • Taxes
  • Homeowner’s insurance.

Note: These costs may vary depending on the lender. For instance, some lenders do not require that you acquire homeowner’s insurance.

Learn About Home Loans

You can see what type of loan and interest rate you qualify for by applying for a home loan pre-approval.

This type of application is a formal letter a lender sends to notify you what type of loans you may qualify for.

Even though this notice may not include specific details about the loan, you will find it useful as it contains enough information for you to decide about applying for a loan with that lender.

You may apply for multiple pre-approvals so that it is easier for you to make an informed decision.

You should consider at least three lenders to make an accurate comparison between loans.

There are some first time home buyer federal grants that allow you to buy your first home without having good credit.

For example, the Federal Housing Administration (FHA) provides insurance to third-party Housing and Urban Development (HUD) loans.

With this insurance, there is a higher chance that a lender will make you an offer for a home loan.

However, you must apply for a loan from an FHA-approved lender to qualify for this insurance.

Moreover, you must also be eligible for bout 96.5 percent of financing to apply for a home loan through HUD and have a credit score above 580.

Other alternatives include loans for veterans, which are provided by private lenders and insured by Veterans Affairs (VA).