3 Simple Tips on How to Buy a Home and Get the Best Mortgage
You cannot open the newspaper, turn on the TV, or open your favorite browser with out seeing the BUZZ about how our US Housing Market has turned the corner! The fact is, home sales are expected to rise through 2013 and into the next year. There has never been a better time to prepare yourself for the home buying process.
I hope you'll find this information useful to you in your quest for the Great American Dream!
Let's get started...
1. Determine a Comfortable Monthly Payment and Choose Your Mortgage Amount
New home buyers need to carefully consider their level of comfort relative to the monthly payment. Buying a home is an exciting time, but remember your lifestyle and do not cut yourself short in having to give up important activities to support this new debt.
There are many types of loans available to you. Your Mortgage lender is a great asset, so reply upon him or her to provide the guidance so you may choose the most suitable loan program to meet your individual needs. Keep in mind, your short and long-term goals.
Mortgage Bankers use specific formulas to calculate your maximum mortgage amount. To make this determination, they will use your monthly expenses and gross income, together with verifiable assets, qualified gifts, credit rating, and other factors.
Your mortgage approval is as individual to you and is not a "one size fits all" computation. An important thing to keep in mind is many lenders will provide you with a "maximum loan size formula", however bigger may not be better. Many banks opt to lend more money than you feel comfortable supporting.
Just know your individual financial and lifestyle situation, and choose the mortgage loan size that best suits you. A Mortgage Planner can really provide help in this area.
2. Consider All Mortgage "Types"
Here in Wisconsin, new home buyers have the option of a FHA, VA, USDA, Conventional, WHEDA, HomePath and FHA 203K loans - Not all mortgage lenders offer all products, so keep that in mind when shopping for your new mortgage.
The most common mortgage type is the conventional 30-year fixed rate mortgage. A "conventional mortgage" is one which is backed by Fannie Mae or Freddie Mac. The maximum loan size in most areas of Wisconsin is $417,000.
Conventional mortgage loan limits begin at $417,000 and range up to $625,500, depending on where the new property is situated. Loan amounts over these limits can be supported by a Jumbo loan.
Although common, Conventional mortgages aren't necessarily the best program for new home-buyers. Other mortgage types are available to meet home buyer needs. Among the most popular in this area is the FHA loan, the VA loan, and the USDA loan for more rural properties.
FHA mortgages are loans insured by the Federal Housing Administration. FHA mortgages provide very competitive mortgage rates and terms, and are quite popular due to the more lenient approval standards and low down payment requirements.
Another loan type is the VA mortgage, offered by the Department of Veterans Affairs. VA loans are available to active and retired military borrowers and require no down-payment whatsoever. This is a wonderful benefit all who serve us and one of my personal favorites!
Also available is the USDA home loan which is Guaranteed by the US Dept. of Agriculture and is available to home buyers purchasing homes in Rural areas. This too requires no down-payment, but have gross income limitations based upon the size of the family.
There is also the Conventional 97 program -- a 3% down-payment program available via Fannie Mae, and
similar to FHA, allows for the use of gift funds from family or related persons. Finally, WHEDA has just re-introduced their new home buying program providing low down-payment options and more - I will address WHEDA specifics in a later post, so please stay tuned for that!
The bottom line is that there are more than half-dozen mortgage loan "types" available to home buyers. Simply understand your options and you'll make a better choice.
Mortgage products come in many varieties, and there is usually a "best fit" given your individual financial needs and life plans.
3. Protect and Manage Your Credit Score
This is an important detail that often gets overlooked. Your credit score will play a huge role in determining which mortgage product best suits you, in addition to the mortgage interest rate you'll ultimately have.
If you don't have perfect credit, don't worry, most mortgage lenders should provide you with guidance and help put a plan in place so you can work on making improvements before getting approved for a home loan. High credit scores equal the best options and will pave the way to additional mortgage options not available to a person with low credit scores; and will often grant you more aggressive mortgage rates.
Spending responsibility and paying your bills on time are key factors in maintaining a good credit rating, however One quick way to improve your credit score is to Pay down any revolving debt at or below 35% of the available limit. In other words, If you have a VISA with a $1,000 limit, pay your balance down to or below $350.00 - Balance to limit ratios account for 35% of the overall credit score. Time and time again, clients have followed this advice and have attained a 40 - 50 point increase in their score.
One final note, be sure to receive a free copy of your credit report in order to check for errors or inaccuracies. If you find any discrepancies, have them fixed immediately.