Hot Loan Tips for New Home Buyers
Youâ€™ve finally found the home that meets your needs, if not your dreams, and youâ€™re ready to finalize the deal. To afford the home, you will need to take out a mortgage loan, what will take upwards of 30 years for you to pay off. That loan can be had through a bank, a credit union or a mortgage company. The following are our hot tips for new home buyers.
1. Know your credit score. Your credit history will have a big impact on your loan, especially the three-digit number representing your credit score. Lenders will look at your score and use it as a major factor in deciding whether you qualify for a loan. A score of 700 or higher is ideal as it reflects good credit management according to Experian.
2. Provide a large down payment. The larger your down payment, the better for you. For instance, if you can put down 20 percent or more, youâ€™ll avoid private mortgage insurance, an expense that will only add to your overall costs. For example, if you buy a home for $200,000 and put at least $40,000 down, then you will have enough skin in the game to avoid the PMI. PMI can add upwards of $100 per month to the cost of the loan, money you will never recoup.
3. Avoid new credit. As you prepare to apply for a mortgage, avoid taking out new credit. In fact, donâ€™t do anything with your money besides leaving it in place. Lenders want a true picture of your credit and making changes while your loan is being considered can work against you. Wait to do anything with your credit or money until after your home loan has been approved.
4. Consider your options. Essentially, there are two loan options available for consumers â€” fixed and adjustable rate mortgages. With the former, your monthly mortgage amount remains constant throughout the loan term. With the latter, your rate is fixed initially, but then can fluctuate after three, five, seven or 10 years. Rates for adjustable rate mortgages are less up front and should appeal to anyone who needs flexibility. It should also be considered if you plan to live in your home for only a few years.
5. Assemble your paperwork. Guaranteed, your lender will want documentation from you when you apply for a loan. And that paperwork will include the following: pay stubs, state and federal tax returns, a list of your debts, a list of your assets, canceled rent checks, your credit reports. You will provide everything but the credit reports, documentation that you must assemble, so start early.
6. Gift money is okay. Accepting gift money for your down payment is fine. It is just better to get that out of the way before you apply for a home loan. Gift money can help you qualify for a loan that you otherwise would not be able to afford. You just may have to include a letter with your application explaining that some of the money you have was donated to you explains TitleBucks.
One way to move the process along fast is to get approved for a mortgage before you begin your home search or at least before you decide upon a home. The early approval can help you win a bid on a home where another person has also made an offer. Home shoppers who come into the home buying process already approved for a loan are more likely to get the home than those who are not yet approved.