The lengthy process of purchasing a home begins with figuring out the budget and financing, which can often feel like a daunting task.
If you take your time and are thorough, you’ll be on your way to the loan that’s right for you in no time.
Here’s a quick glance at all you need to know about taking out a home loan
You should have a clear picture of your budget right off the bat.
Utilize a house payment calculator to determine how much home you can afford.
This will take into account your debts, income, and how much of a down payment you anticipate having. It will then tell you what your monthly mortgage will be as well as give you a look at your debt-to-income ratio.
Your DTI is important because it can make the difference between loan rates as you shop around for lenders.
Your finances will be carefully looked at.
Lenders look into many facets of your financial health when considering you for a loan.
In addition to the aforementioned debt-to-income ratio, they will also take into account your credit score, forecasted down payment, and whether or not you have a steady income.
Most lenders like to see a DTI of 38 percent or lower and a credit score above 670.
The better these two numbers look, the more likely you will get good rates.
Lenders will also take a look at your assets, or such as savings or retirement accounts.
There are different types of mortgage rates.
Mortgage rates can be either fixed or adjustable. A fixed-rate means you’ll pay the same interest rate throughout the life of your loan. An adjustable-rate will vary over time, meaning your monthly payments may fluctuate and actually increase.
You may have to factor PMI into your budget.
Private mortgage insurance is typically required by a lender when you are putting down less than 20 percent of the home’s price.
This is put in place to protect the lender in the event you cannot keep up with your payments.
If you meet certain qualifications you can apply for a particular type of loan.
Federal Housing Administration loans are for those who don’t have the best credit or are unable to put down a sizable down payment.
You can put as little as 3.5 percent down with this type of loan and the credit score threshold lowers to 580.
VA loans are for military veterans and don’t require a down payment or PMI.
USDA loans are another government-backed loan, this time by the Department of Agriculture. These loans are meant for low-income borrowers in rural areas.
You won’t have to put a down payment on your home, but the property will need to be in a designated area.
You will need to provide a lot of documentation.
Here’s a checklist of what you’ll need when applying for a loan:
o Recent W-2s and pay stubs
o 1099 forms if you’re self-employed
o 2 years of federal tax forms
o Any legal documentation having to do with divorce decrees or child support that prove you will receive payments for at least the next three years
