One of the largest expenses a person can have is the purchase of a home. While buying a house is an exciting experience and a large part of the American dream, it can also be daunting regarding finances.

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What is a home mortgage loan?

A home mortgage is when the buyer borrows money from a lender for the purpose of buying a property because they are unable to pay cash for the purchase. Mortgage loans are secured through a bank, credit union, or other mortgage loan company.

How important is my credit score?

Home mortgage loans depend largely on your credit score and history. Repair any negative items or derogatory statements on your credit report that could negatively affect your ability to receive a home mortgage loan.

Lenders want to see a history of timely payments on borrowed funds. Do not make any major purchases just prior to or during your home mortgage loan application because purchases such as furniture, automobiles, or other big-ticket items impact your overall credit history.

Avoid changing employment during your home mortgage loan application. Lenders want to see long employment history to ensure your ability to repay the funds borrowed.

If your credit is less than perfect, it is possible to move forward with the loan, provided you have a co-signer. Co-signers accept full responsibility for the balance of your loan if you default, so use this option sparingly.

Will I need a down payment?

Many lenders require a down payment for your home mortgage loan. Down payments are typically twenty percent of the amount you are borrowing.

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The more you’re able to pay in down payment, the lower your monthly mortgage payments will be, and some home loans omit the down payment, but this often leads to higher interest rates and higher monthly payments.

Are there other mortgage loan requirements?

Lenders require you to have homeowner’s insurance to protect the property’s value. When borrowing money for your property, you would be wise to figure in the cost of homeowner’s insurance into your budget to avoid over-extending yourself financially.

You’ll also be required to pay property taxes. Property taxes you pay apply to the community in which you live to cover things such as road improvements, schools, and emergency service organizations.

Are there different kinds of mortgage loans?

A traditional mortgage loan is one secured through a bank, credit union, or mortgage lender. For the most part, these loans will require a down payment that is a percentage of the cost of the property.

There are other choices available when it comes to mortgage loans. The Veterans Administration (VA) and the Federal Housing Administration (FHA) are two options you may want to consider if you meet their loan criteria.

It’s important to note that the VA and the FHA do not give you the money for the purchase of the property. Instead, they ensure the loans through the lenders that they work with to guarantee them.

The difference in the mortgage loan will have an impact on the interest rate you pay and other terms within the agreement. However, it is possible to get a mortgage loan even if your credit score needs some work.

What is the difference between variable and fixed rate mortgages?

You will have to choose between a fixed rate loan or a variable rate loan. Fixed rate loans are loans with interest rates that remain the same throughout the duration of your loan, regardless of changes in the real estate market.

The advantage is that you’ll know what your payments will be, and they won’t increase. The disadvantage is that the interest rate for fixed-rate loans is typically higher overall.

Variable rate loans are subject to change throughout the duration of your loan. While you may initially have a low-interest rate, as the market changes, so will your interest. Your monthly payments could increase over time.

How do I apply for a home mortgage loan?

We’ve mentioned the importance of your credit score and financial history when applying for a mortgage loan. We suggest that you order a copy of your credit report to check for errors and delinquent accounts.

You can order a free copy of your credit report from TransUnion, Experian, and Equifax once a year due to the Fair Credit Reporting Act. It’s a good idea to get all three because it’s not usual for each agency to have different information on their report.

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Gather important documents that you may need for the mortgage loan process and keep them in one place. Items you may need include pay stubs, bank statements, asset records, bank documents, and tax records.

Should I get pre-approved for a home loan?

Absolutely! If you’re thinking about purchasing a home, you may want to begin with a pre-qualification. This process does not place a hard inquiry on your credit report, but it does let you know if you have a chance of being approved.

If you’ve set your mind on a home purchase, it’s time to move forward with the pre-approval for the mortgage loan. The pre-approval process requires verification of documents and a hard inquiry is done on your credit report.

The pre-approval gives you a good idea of what you can expect when it comes to the loan amount. This knowledge can save you time when you’re searching for homes and keep you from being disappointed by setting your sights on a home outside of your budget.

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A pre-approval can also be a game changer when it comes to placing an offer on a home. Sellers like pre-approvals because they show the seriousness of the buyer and gives evidence of their ability to follow through with the deal should the offer be accepted.

Conclusion

Buying your home should be an exciting time, not one wrought with trepidation. Know what you can afford, prepare your credit in advance, save funds for down payments and closing costs, and do your research regarding fixed vs. variable rates, and any home-buying programs that may apply to your household.

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