Buying a home is one of the biggest purchases you will make in your lifetime. When you purchase a home, you’ll most likely need a loan, and that becomes the biggest debt you’ll ever have to re-pay. Your credit rating plays a very important role in how much your home loan will cost you. Here is information on how to get a mortgage to buy a home or to refinance one.
Shop Around: There are several Home Loan Programs available today.
Don't worry about hurting your credit score by shopping for a mortgage because credit reporting bureaus understand you may be talking to several lenders. You'll be relieved to know that mortgage-related credit inquiries in the past 30 days are ignored when calculating FICO scores, and after 30 days multiple mortgage-related inquires in a relatively short period of time count as a single inquiry.
Mortgage Bankers, like my local company Oak Mortgage, work with multiple lenders and can compare mortgage rates and programs from numerous lenders to help find the one that best fits your needs. Complete this Rate Quote form to compare today’s mortgage rates.
The interest rate you pay today will be based on your credit scores, and most lenders today use FICO credit scores, which may be different than the credit scores you get through other credit monitoring services. They will use the middle FICO score of the 3 credit scores they pull from Experian, Equifax and Trans Union to determine what your interest rate will be. Your down payment, the term of the loan, and the type of loan program will also be a determining factor.
When a lender quotes you a mortgage rate, there are almost always Lender Fees involved. Ask what lender fees they charge because this factors into the overall cost of the loan. Every lender has different fees they charge such as: application, origination, commitment, processing, rate lock, and underwriting and discount points. Standard fees that just about every lender will collect from you are for: an appraisal, credit report, tax servicing and flood certification fees.
You will also see mortgage rates advertised by lenders that require you to pay points to get the rates they quote. A point is a percentage of the loan amount that you will pay, and most of the time it will get you a lower interest rate. Points are normally quoted in quarter point increments. With mortgage rates at the levels they are today, I can’t remember the last time I saw a benefit for my customer to pay points.
Loan programs change often, and mortgage rates sometimes change hourly! It’s helpful to work with a lender with access to up-to-date information on multiple programs.
How Much Can I Borrow: Your lender will compare your gross income (before taxes are withheld) to your debts to calculate your "Debt-to-Income" ratios.
Ideally, the monthly payment on your new mortgage loan (principal, interest, taxes and insurance) should total 28% or less of your monthly income, though some lenders may go high based on your credit score and other factors.
Your total monthly debt payments, including your mortgage and payments on student loans, credit cards, or auto loans, should total no more than 43% of your gross monthly income, though some lenders and loan programs will allow you to go higher.
Down Payments and Equity: To buy a home, you'll usually need a down payment. If you are refinancing, most lenders will typically want to see that you have at least 15% equity in your home.
Have limited funds for a down payment? Ask your lender about a low or no down payment loans, like FHA, USDA, VA or your County or states 1st Time Home-Buyers Programs-- they may allow you to buy a home with little money out of pocket. Most low or no down payment loans require that you pay mortgage insurance which protects the lender if you default. Mortgage insurance will increase your monthly payments until you build up enough equity to drop it.
Refinancing: Ask your lender about FHA Streamline, VA Interest Rate Reduction Refinance Loan or Home Affordable Refinance Programs
The Annual Percentage Rate (APR) can be helpful for comparing rates, as it includes some (though not all) of the costs associated with the loan over the long run.
Ask your loan officer whether you can "lock" your rate. A lock will guarantee that rate if your loan closes before the lock expires.
Closing Costs: These may include fees from the lender and/or Mortgage Company, third-party fees (real estate attorney, appraisal etc.) and pre-paid items (taxes, insurance, etc.).
Closing costs vary by region and by lender. Your lender must provide a Good Faith Estimate of closing costs within three days of taking your application. Review it carefully and don't be afraid to question those costs.
Title insurance: It cost hundreds of dollars depending on the state where the property you’re buying is located. It's required and protects an owner's and lenders financial interest in the home you’re buying against loss due to title defects, liens or other matters. There are two types of policies an owner and lender’s policies, both are required when you’re financing a home purchase, only a lenders policy is required when refinancing.
Credit: Try to check your credit reports at least three months before you plan to get a loan to allow for time to address problems or dispute mistakes, think twice before disputing an account with a creditor, it could affect your ability to qualify for a home loan. You can get a copy of your credit reports from Experian, Equifax and Trans Union by visiting Annual Credit Report.Com.
Don't make drastic changes to your credit without talking with your loan officer first. For example, closing credit cards you have paid off or opening new credit accounts may lower your scores. The lender may check your credit scores again before closing and you don't want any surprises.
Courtesy of Bob Basmajian Oak Mortgage Company-Marlton, NJ 08053 609-654-6131
NMLS#557858 Licensed by the New Jersey & Pennsylvania Department of Banking.
Equal Housing Opportunity Lender
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