Are you getting ready to embark on the journey of home ownership? If you’ve already scoped out the home of your dreams, congratulations! The next step will be paying for it. Numerous factors, including your credit score and how much money you have to put down on the home, will determine if you can gain access to the keys. If you’re getting ready to apply for financing for your home, there are a few things you should know.
If you have good credit and you have a substantial down payment to put on your home, a conventional home mortgage loan may be a good option. This type of loan is offered through your local lender or a mortgage broker. The lender will start with a simple application process. From there, your credit will be analyzed to ensure that you’re a good candidate. The main thing he will look for is to make sure that you have no previous defaults, bankruptcies or recent late payments.
If so, you may not qualify or he may adjust the loan terms slightly. In order to keep your mortgage payment low with a conventional loan, you’ll have to lock into a fixed rate and put down at least a 10 to 20 percent down payment. Unlike a variable rate mortgage in which payments fluctuate, this will lock in the rate and give you the same payment each month.
First Time Home Buyer Loan Program
One type of loan that attracts a lot of new potential homeowners is the first time home buyer program. This allows you to put a small amount of money down on the loan and make an affordable monthly payment based on the offered interest rate. In most cases, the down payment is up to 5 percent, and in some cases, it could be zero, but each loan program differs slightly. You’ll first have to see if you qualify and you must meet certain loan criteria. In general, this includes:
- Have a good credit score of at least 580 or higher.
- Display a solid, steady income for the past 12 to 24 months.
- Access a down payment at the time of closing.
- Not have any other home loans.
- Have a good, solid credit history without any late payments in the last 12 months.
Because each loan type is different, the borrowing and down payment assistance criteria may differ slightly were you live. In some cases, lenders may help with your closing costs or down payments, as part of a government-funded program. Ask your lender if you qualify for this type of home mortgage based on your income, credit score and income guidelines.
Land Contract Options
Did you drive by a home you really like and it said land contract options? This is different than getting your loan through a conventional lender, you’ll be going through the homeowner to make your payments and finance the loan. This is a good option if you have poor credit, but there are some things to consider. One is that most land contracts often come with a hefty interest rate—sometimes up to 12 percent.
This can make your payment high and in some cases unaffordable for your budget. One option is to offer the owner a cash out option after a certain time period. This is referred to as a balloon payment. It allows you to get in the house now, even with bad credit and work on repairing your credit in the meantime. When the balloon payment is due, you can then refinance the house through your lender. Keep in mind that you’ll have to acquire bank financing or you could lose your home.
Have you served in the military? If so, you may qualify for a VA loan. This is a type of loan backed by the federal government that offers affordable mortgage options to those who currently or once served. You can get 15- or 30-year loan terms depending on your budget. Generally, there is no down-payment required for a VA loan, but you can use the money you’ve saved from gifts from others as a down payment toward the balance or to help with closing costs. Lenders do look at your credit report and FICO, but terms are relaxed, so if you have a few issues with late payments in the past, you don’t have to worry.
Getting financing for your new home doesn’t have to be stressful. Know what your options are and visit your lender right away for quick pre-approval.