Before you buy your dream home, learning more about loans is an excellent way to navigate any challenges that later arise, such as what type of mortgage to get or how to get a mortgage with a low credit score.
Here are six of the most common mortgage questions and answers that you should know before purchasing a house.
1. What Type Of Mortgage Can I Get?
There are many different types of mortgage loans for homebuyers to consider. At first glance, all these options might seem overwhelming. However, each type of loan has different requirements and is ideal for buyers in differing circumstances, from conventional to nonconforming loans.
For instance, USDA loans are perfect for low-income buyers looking at homes in rural areas, as this type of loan doesn’t require a downpayment. Researching different kinds of loans is a helpful way to decide which lenders you want to consider.
2. Do I Need A 20% Downpayment?
The first thing that many people learn about mortgages is the need for a 20% downpayment.
However, this common idea is not a universal truth. The reason the 20% rule is so common is because it allows borrowers to avoid PMI charges. On a downpayment of less than 20%, borrowers will be able to eliminate private mortgage insurance fees once their home equity rates reach 20%.
Plenty of lenders are willing to give loans to buyers who will be putting down initial payments of as little as 3.5% of their home prices with FHA loans or no down payment at all. While low down payments often include higher interest rates, this can be worth it for new, low-income buyers who wish to purchase their first houses.
3. Can I Get A Mortgage With Low Credit?
With high living costs and tight budgets, not all prospective buyers have perfect credit scores.
While many lenders require relatively high credit scores, some lenders specialize in helping lower-income buyers purchase their homes with credit scores lower than 620. FHA lenders allow borrowers with credit scores as low as 500 to buy a house on a down payment of at least 10%.
Of course, keeping your debt-to-income rate as low as possible will help you qualify for a mortgage loan with affordable interest rates. You can find out what your credit score is through one of the primary credit reporting agencies.
VA loans allow active or former military service members to purchase their homes without the need for a high credit score, downpayment, or exorbitant interest rates.
4. Is It Possible To Get A Mortgage Without Two Years Of Full-time Employment?
Proof of consistent income is one of the most prominent qualifying factors in getting approval for a mortgage loan. Since borrowers’ income depends on whether they can pay off their debts, most lenders require proof of long-term financial stability.
If you are self-employed or have gaps in your work history, all is not lost. Today, homebuyers have more options than ever when searching for mortgage lenders. As long as you have a good credit score, a low DTI, and are willing to pay a high down payment, many lenders do not require the traditional two-year traditional employment history.
5. How Can I Get A Low-interest Rate?
Exceptional credit scores from 740 to 850 give buyers more loan options along with the lowest interest rates.
If you wish to buy a house in the future rather than immediately, paying off debts and bills in time will help increase your chances of qualifying for low-interest mortgage payments.
Even if your credit score is mid-range or poor, you can still find low rates by comparing as many lenders as possible rather than settling for the first one you encounter.
6. Should I Get A Pre approved Mortgage Or Wait Until I’m Ready To Buy A Home?
Even before jumping into the purchase process, an approved mortgage pre approval will help speed things up considerably.
Mortgage lenders provide pre approved loans to prospects after evaluation of their credit score and documents proving income. Unlike pre qualification, which is a quick test to estimate whether or not you may qualify for a loan, pre approval is more definite.
While a pre approved loan does not guarantee closing if your DTI rate increases or you lose your income, it serves as a way to let a seller know that you can afford the house you are offering to buy.Once you know the common mortgage questions and answers, it is time to find a lender. Start here to discover suitable lending options for your situation today.