If you believe you’re ready to buy your first home, it’s likely that you’ll need to get a mortgage to pay for it. A home is very expensive and, even if you have a decent job, it’s not likely that you have over $100,000 in savings to buy a house outright. If it’s your first time buying a home, it’s important that you understand how the process works and your available options.
Qualifying for a mortgage
Most people can qualify for a home mortgage, but you have to be sure your finances are up to par before you begin this process. In order for a lender to qualify you for a loan, your credit score will need to meet the guidelines for the loan program you’re applying for.
Your credit doesn’t need to be perfect. You can usually obtain a home loan with a score of 580 or above, which means you don’t need credit rated as “good.” You’ll also need to verify your income with tax returns, W-2 forms and pay stubs. You’ll also need to submit your credit reports to verify your debt history.
Types of mortgages
There are several different types of mortgages, so you should be aware of each one to choose which is the best for your finances. The conventional mortgage follows the Fannie Mae and Freddie Mac lending terms, and these are not government-backed. A jumbo loan is another type of mortgage that doesn’t have government backing, and it exceeds the bounds of a conventional mortgage.
FHA loans have lower credit requirements because they’re insured by the U.S. government. If you live in a rural area, you could qualify for a USDA loan, which could enable you to obtain a mortgage without submitting a down payment. Veterans can apply for a VA loan that is guaranteed by the U.S. Department of Veteran’s Affairs, and these also have no down payment requirement and other perks.
The standard down payment on a home is 20% of the home’s full price, but there are several ways to pay less. It’s possible in some cases to put 3 percent down if you are willing to pay for mortgage insurance. This increases your monthly expenses, but it allows you to buy a home if you don’t have a lot of cash for the initial payment. As stated before, if you’re a veteran or living in rural areas, you could qualify for a mortgage with no down payment.
Buying a house doesn’t need to be an overwhelming ordeal if you learn about the process beforehand. Even if you don’t have great credit or a lot of money, you could still qualify for a mortgage. Make sure to spend some time considering your finances and options before signing on the dotted line.