WHAT YOU NEED TO KNOW ABOUT MORTGAGES
You can get a home loan by applying directly with a bank or credit union, or, you can use a ‘mortgage broker’ who will basically shop around to find you the best loan terms and interest rate possible with your particular credit score, income, down payment size, loan type, etc. Using a mortgage broker is similar to using a third-party travel website to find the cheapest airfare, and in my opinion, is the only way to ensure that you get the best deal possible on your loan. Click HERE to get started.
When you apply for a mortgage, there will be many things that the lender will take into account when determining whether you will be approved and for how much you will be approved for, including both your income and your existing expenses. A lender will only approve you for a loan that you can afford to pay. To keep things simple, a lender typically doesn’t want your total housing expenses (which includes your mortgage payment, property taxes, insurance, and any applicable homeowners association fees) to exceed about 28% of the loan applicant(s) total gross monthly income (based on an average of the last 2 years of tax returns). Then, the lender will add up all the other expenses that the applicant(s) have, including payments on auto loans, student loans, credit cards, child support or alimony, and anything else that is on the credit report as a monthly expense. This does not include things like utilities, food, gas, car insurance, child care expenses, or other miscellaneous expenses. Aside from child support and alimony, the monthly expenses that the lender considers in this equation are only those which would be listed on your credit report. They will use the minimum monthly payments that are listed on your credit report. Also note that they will not include any debts that are scheduled to be paid off within 10 months. Once they have calculated all of this, your total expenses including your new mortgage payment cannot exceed 35-45% of your total gross income, depending on the loan type, down payment size, etc. The loan amount that you are approved for will be made to fit this ratio. These guidelines are somewhat flexible and not carved in stone, and a good mortgage broker can often make the numbers work. To put your mind at ease, if your credit score is 580 or higher and you have a good work history, there is a very good chance that you can get approved for a mortgage loan. If there are credit issues, the mortgage broker will be able to tell you what needs to be done in order for you to get approved, such as paying collection accounts or paying down credit card balances to a certain amount. It is always best not to make assumptions about your credit and financial situation, whether good or bad, and it is advisable to talk to a mortgage specialist. You may be surprised at what you can get approved for! If you would like to take a look at your credit score and report, I recommend using CreditKarma.com (also available as an app on your phone) to view your approximate credit score and credit report overview, and AnnualCreditReport.com to get a full detailed report (numerical score not included). Neither of these sites have a “catch” or ask for credit card information. Again, don’t let anything you see on your credit report discourage you from trying to get a mortgage loan, as there is often a solution to any credit problem, and other factors can compensate for credit problems. Examples of things that would compensate for credit problems are: higher down payment, a healthy amount of savings in the bank, a strong rental history, or a history of increasing earning capabilities.
There are many different types of mortgage loans out there, and your mortgage broker will help you determine which is the best one for your situation. There are loan programs which allow you to get a government grant (you never have to repay) for your entire down payment, as well as zero-down loans for veterans. Regarding interest rates, there are fixed rates that stay the same for the entire loan term and there are adjustable rates that go up and down during the loan term. Adjustable rates usually have introductory or “teaser” rates in the beginning that are lower than any fixed rate you could get, but may increase over time. In other words, with an adjustable rate, you will often have lower payments in the beginning and higher payments down the road once that introductory rate expires. In addition, your mortgage payment will fluctuate depending on what the current rate is set at. There are also options for paying upfront fees, called “points,” in order to “buy down” your interest rate for the life of the loan.
Again, you will want to talk to a mortgage specialist to determine which loan type makes the most sense for you. Once you get an approval, you will know exactly how much you can spend on your new house, what the monthly payment will be, and what it will cost you to close the deal. Remember to be completely straightforward with your mortgage loan officer because this will allow them to find solutions to any problems with your qualification. Also, be sure NOT to obtain any new credit accounts, change jobs, change marital status, switch banks or move money around, or make any large purchases after you apply for a mortgage, as this may negatively affect our ability to get a loan.
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