A house is probably the biggest purchase you’ll ever make, and getting a mortgage to buy one can be a long, convoluted, and often stressful process. You’ll need to get pre-approved before you start house shopping, to show sellers and real estate agents that you’re serious. Then, once you make an offer, you’ll have to verify your income and assets and go through the underwriting process, which can take weeks or months. The wait for closing day can be long and nerve-wracking.
The more you know about mortgages and the mortgage process, the better equipped you’ll be to successfully navigate getting a mortgage loan. Educating yourself can also help you get better loan terms, too, as well as helping you fit your mortgage into your overall financial goals, like saving for retirement or your children’s college fund. Read on to learn everything you need to know about getting a mortgage.
Before you start talking to mortgage lenders in Virginia Beach or your neck of the woods, you should know what types of mortgage loans might be available to you. The vast majority of first-time home buyers obtain conventional mortgages – these mortgages are backed by the lender and not by any government agency. You need to have a credit score of at least 620 and a down payment of at least three percent to qualify for a conventional loan, but you’ll need to buy private mortgage insurance (PMI) if you make a small down payment.
However, conventional loans aren’t the only option. If your credit isn’t good enough for a conventional loan, you can get a Federal Housing Administration (FHA) loan with a score as low as 580 (with a down payment of 3.5 percent) or 500 (with a down payment of at least 10 percent). You will also need to buy PMI if you get an FHA loan.
If you’re a veteran or active duty military service member, or the surviving spouse of an active duty military service member, you may qualify for a Veterans Administration (VA) loan. Established under the 1944 G.I. Bill, VA home loans allow qualifying military members, veterans, and their surviving spouses to access zero-down-payment home loans with no minimum credit score (although some lenders do enforce a minimum credit score for these loans).
If you want to buy in a rural, semi-rural, or suburban area, you should look into getting a U.S. Department of Agriculture (USDA) loan. These, too, can be used to finance 100 percent of the home purchase and the USDA has not established a minimum credit score required to be eligible, so you may be able to get one with less-than-perfect credit.
Work on Your Credit Before Getting Pre-Approved
Normally, information about paid and unpaid bills goes on your credit report within 30 days of the close of the relevant billing cycle. If you dispute an error or fraudulent charge, credit agencies must address it within 30 days. If you’re applying for a pre-approval and your most recent financial activities haven’t yet appeared on your credit report, you can ask your lender to do a Rapid Rescore of your credit.
Before you start shopping for houses, you should get a mortgage pre-approval letter from your lender. This document proves to sellers and real estate agents that you’re capable of qualifying for a mortgage, and it’s essential if you want to be taken seriously by sellers and real estate agents alike. Your mortgage lender will probably qualify you to buy much more house than your budget can actually bear, so it’s usually best not to spend the whole amount that you’ve been pre-approved for. Use a mortgage calculator to figure out what size loan and monthly payment will best fit into your budget, so you don’t end up house-poor.
If you want to buy a house but you’re having trouble saving enough for a down payment, look into down payment assistance. Every state has programs to help first-time homebuyers put together down payments. You may be able to get a grant or a forgivable loan to cover your down payment.
Buying a home is a huge life milestone, and it’s one that may be more accessible than you think. Learn everything you can about mortgages before you speak to a loan officer or mortgage broker. That way, you can get the best possible deal on the biggest purchase of your life.