Top Tips for Buying a House

Living in a home that you can call your own is, perhaps, one of the most evident manifestations of realizing the American Dream. Many people consider home ownership of the ultimate goal. Their endeavors are fueled by the desire to afford a property where they can live with comfort and security for the rest of their lives.
Home ownership is an intricate process especially if your finances cannot accommodate the very lofty feat of paying for a house up front. The second best solution is a mortgage. Many lending institutions offer different types of mortgage loans to accommodate the diversity of people in need of a suitable home loan.

Finding the Right Mortgage Loan

Mortgage loans come in two distinct forms: conventional loans and government-insured loans.

Conventional Loans

Loans that are not insured by the government are called conventional loans. Most conventional loans have pretty high qualification standards especially in terms of credit scores and gross incomes. The down payment for conventional loans can range anywhere in between 5% to 20%, depending on the variety that you applied for. Loans with 20% down payment save the buyer from paying mortgage insurance, while loans with lesser upfront costs demand insurance until 22% of the loan equity is covered.

Government-insured Loans

These loans are tailored for people with low to moderate incomes. Those who fail to qualify for conventional loans are encouraged to give government guaranteed loans a shot. With its less stringent measures, the possibility of getting approved is relatively high. Loans that are backed by government agencies don’t require stellar credits scores, moreover, some of them do not even demand a down payment.
Some of the better-known government-insured loans are:

• FHA Loans

Federal Housing Administration loans are ideal for people with low income and low credit standing. A credit score of 580 is enough to qualify for an FHA loan with a 3.5% down payment. Some lenders even approve borrowers with a credit score of 500, given that they put down a higher upfront payment.

• VA Loans

Guaranteed by the U.S Department of Veterans Affairs, VA Loans are designed for people with active military service, veterans, and their spouses. The fact that a VA loan requires no down payment or mortgage insurance makes it the most feasible option for qualified applicants.

• USDA Loans

The U.S. Department of Agriculture offers loans with low interest rates and down payment costs for homebuyers in suburban and rural areas.

Important Steps to Take Before Buying a Home

Deciding which type of loan will work best for you is one thing. Making sure that you are ready for a loan and qualifying for one is another, more so if you are a first-timer. Before you purchase your first home, consider these few easy steps.

1. Improve your credit score

Lenders will look at your credit score and history before anything else. It is one of the biggest factors that can make or break your loan. Also, those with higher credit scores get the upper hand of negotiating better deals with lower down payments or lower interest rates.
Get a hold of your credit report to ensure that there were no penalties incurred from previous debts. Also, refrain from taking out new credits at least year before applying for a home loan and keep it that way until the home mortgage loan is closed.

2. Save for the down payment

Most mortgage loans require a down payment, save for a special few, which should cost the buyer around 3% to 20% of the home’s purchasing price.  The amount you have saved up may determine which mortgages you can qualify for or how much you can afford to borrow. Keep in mind that putting a bigger payment up front can ease you up on the mortgage insurance later on.

3. Calculate all the costs

A mortgage involves plenty of expenditures outside of the upfront and the monthly payments that you are required to make. There are closing costs and other unpredicted expenses that you may come across.
Moreover, banks and lending institutions only allow a certain threshold of your income to cover your mortgage and other debts. For example, your monthly mortgage responsibilities plus your existing debts must not exceed 38% of your gross monthly income.

4. Compare deals and offers

Do your homework. Do not settle for a single bank or lending company just because they already came up with what-seems-to-be a decent deal. Shop around for more appealing options and, if you must, negotiate with the lenders. If you look hard enough, you’re bound to find one that you will be really satisfied with.

By: Karissa

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