With so many loan programs available, some providing 100% financing, home ownership is within reach for most people. In fact, for many, home ownership is as affordable as renting – and in some cases, even more affordable. The best place to start is with a Classic Home Mortgage Consultant who will help you understand the entire process.
Before you start looking at homes, you need to have some idea of what you can afford. As a general guide, you can purchase a home with a value of two to three times your annual household income, depending upon your savings and debts.
If you’d like to know exactly how much you are eligible to borrow, ask one of our Mortgage Consultants today.
A pre-qualification is normally issued by a Mortgage Consultant who will talk with you to determine the dollar amount of a loan you may be eligible to receive. However, a pre-qualification is not an approval, nor is it a commitment to make you a loan.
After the loan officer determines that you pre-qualify, he/she then issues a pre-qualification letter. The pre-qualification letter is used when you make an offer on a property. The pre-qualification letter informs the seller that your financial situation has been reviewed by a professional, and you will likely be approved for a loan to purchase the home.
Pre-Approval involves actually verifying your credit, income, down payment, etc. so that your loan request may be presented to an underwriter for a credit decision. Having a pre-approval letter allows you to close more quickly when you do find a house since all of the time consuming verifications have already been completed. Pre-approval can also help you negotiate a better price with the seller.
Many home buyers are very worried about this issue. If you have had credit problems, be prepared to discuss them honestly with your Mortgage Consultant. We know that there can be legitimate reasons for credit problems. If you had a problem that’s been corrected and have made on time payments for a satisfactory period of time, your Mortgage Consultant can work with you to find a loan program with some flexibility.
The answer is probably less than you think. Many first time home buyers are surprised to learn that there is no set answer to this question. In general, a standard minimum down payment is usually about 3% to 5% of the home’s value. However, there are several options available that actually allow for 100% financing.
For most homeowners, the monthly mortgage payment includes four separate parts:
Principal = Payback on the amount borrowed
Interest = Interest on the amount borrowed
Taxes = An escrow account to pay your annual property taxes
Insurance = An escrow account to pay your annual homeowners insurance
Another part of your payment may include PMI (Private Mortgage Insurance) if required.
PMI or Private Mortgage Insurance is normally required when you buy a house with less than 20% down. It is a type of guarantee for lenders that helps protect against the costs of foreclosures. It enables lenders to accept lower down payments than they would normally accept. The cost of PMI decreases as your down payment increases.
A FICO score is a credit score developed by Fair Isaac & Co. Credit scoring is a method of determining the likelihood that borrowers will pay their bills. Credit scoring is widely accepted by lenders as a reliable means of credit evaluation.
Credit scores analyze a borrower's credit history considering numerous factors such as:
Timeliness of payments (i.e. on time vs. late payments)
The amount of time credit has been established
The amount of credit used versus the amount of credit available
Length of time at present residence
Negative credit information such as bankruptcies, charge-offs, collections, etc.