If you’re a new homeowner or considering your first house, you may also be thinking about a home loan or mortgage. It may seem intimidating to begin your research into real estate financing, but there are numerous tips for financial success that can take your home loan into account. If you’re just starting out, here are four important things you should know about home loans, as well as your eligibility for different loan options.
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1. You don’t need perfect credit.
If you’re a first time homeowner, you may already be aware how much your credit score can impact possible loan amounts and monthly payments. Even if you’ve made your monthly payments on student loans and credit cards on a regular basis, your credit history can still be an issue.
Before you panic, however, be aware that you don’t need perfect credit to qualify for certain home loans. Your eligibility depends upon the lender’s stipulations, the homebuyers’ financial goals, and the payment amount. Most conventional loans may require a sizable down-payment and decent credit scores, but many lending programs are specifically geared towards first time homeowners. The Federal Housing Administration (FHA), for example, insures borrowers with a minimum credit score as low as 500. In certain instances, they will even insure homeowners with no credit history at all. Before you rule out your eligibility, contact some lenders, and discuss personal finance options, their loan limits, and your long term goals. You may be a good fit for loan assistance and not even know it.
2. The down-payment can vary.
One of the first things new homeowners fear about a home loan or mortgage is how much money they’re expected to put up as their down-payment. Before you reach into your emergency fund, savings account or retirement plan, keep in mind that the 20 percent often associated with a first-time home loan isn’t necessarily mandatory.
For example, a VA home loan can be negotiated to little to no down-payment, depending upon the lender. As a matter of fact, home loans and mortgages can range from zero to 20 percent, depending upon the home loan requirements. Contacting a financial advisor is a great way to learn your options.
3. “Test driving” a home loan can work.
Although your overall credit score can be impacted by numerous credit report checks, if you’re looking to close on your first home, a credit report is the best way to know your options. Think of this as a “test run” of your home loan. Contact the most logical lender you’d be working with, and merely ask for a preapproval. While there’s no guarantee that your financial situation will equal creditworthiness, you’ll quickly lean first-hand your potential loan limit, as well as the possible frees and interest rates. A full preapproval only takes a few minutes, and it’s much easier to set your financial goals if you know the maximum loan amount you’d have to work with in the long run.
4. Sellers can cover closing costs.
This option can be helpful to new homeowners, but you may wish to consult a financial advisor or your lender for greater details. The fact is, your home’s purchase price will come with a fair share of fees (escrow, private mortgage insurance, inspection costs, and the lender’s own costs), and those can add up over a given amount of time. If you don’t have sufficient income to cover the fees, you’ll need to think outside the box.
Luckily, there are ways to obtain financial assistance for these costs, such as asking the original seller or your lender to cover them. It may seem like a long shot, but it’s more common than you might think. The seller may want to assist you merely to help the sale process move along, while your lender may offer the same assistance in exchange for raising the interest rate on your monthly mortgage payment. If the additional fees are all that stand between you and your new home, it’s worth asking for help.