Buying a house will always be part of the American Dream. According to the data from
The home’s location
You may never have thought of this but the location of the home you want to buy can have an effect on whether or not you will qualify. Many lenders price their mortgages slightly differently based on location. According to the article from TheMortgageReports.com, non-city dwellers can become eligible for USDA Loans. If you meet the right qualifications, you can enjoy low mortgage rates and no down payment. A good start would be to know the locations where you would most likely qualify. For example, your ability to qualify for an urban mortgage is always lower than for rural homes – depending on the demand. Before you begin home shopping you need to do your research not just on the type of home you want to buy but also its location and how this would affect your ability to qualify.
Your credit score
Lenders look at your credit score as this serves as a prediction of how reliable you will be in making your mortgage payments. Your credit score is, of course, based on your credit report, which shows all your loans, credit cards and payment history. There is an inverse ratio at work here, which is the higher your credit score the lower the interest rate you will be charged and vice versa. Check your credit score to make sure that you have a good number before applying for your mortgage. You should also get your credit reports and review them carefully. They are available free at the three credit reporting bureaus (Experian, TransUnion and Equifax) and on the website www.annualcreditreport.com. A study released two years ago revealed that nearly 20% of all Americans have errors in their credit reports and this could be true of yours. If so, they could be seriously damaging your credit score and you need to dispute them with the appropriate credit bureau and have them removed.
The price of the home and the amount of the mortgage
Maybe this comes under the Department of well duh but whether or not you will qualify for a mortgage will depend heavily on the price of the home you want to buy. Your mortgage will be the price of that home less your down payment. When shopping, make sure that you’re looking at homes in a price range that you will be able to afford. The website bankrate.com has an easy to use mortgage calculator. If you were using it and buying a $165,000 home with a fixed-rate, 30-year mortgage and an interest rate of 4.50% your payment would be $836.03 a month. Could you afford this? It’s important to know how much you will be required to put down as this will have a huge effect on whether or not you will qualify.
How much you can put down
The size of your down payment will also have a big impact on your ability to qualify for a mortgage. You will probably need to put 20% down to get a conventional mortgage. Getting back to the example of a $165,000 home you would need to have $33,000 to put down – unless you could qualify for an FHA guaranteed loan, which is an entirely different approval process. So, again, you need to use an online calculator to determine how much you would have to put down and then ask yourself if you have that much money.
The term of the mortgage
The term of most conventional mortgages is 30 years. However, it’s now possible to get fixed-rate 15-year mortgages and adjustable-rate mortgages with terms of three or five years. The interest rates on these loans vary all over the place although as a general rule the longer the term the higher the interest rate will be. As an example of this, the mortgage rate for a 30-year fixed rate mortgage is currently 4.12% while the interest rate on a 15-year fixed rate mortgage is just 3.33%.
The type of mortgage
As you have just read there are a number of types of mortgages available and it’s important to pick one that you will be comfortable with for maybe 30 years. The best type for you will depend on your repayment ability as well as the loan’s terms and conditions as this will determine whether or not you will qualify.
The good news is that if you can qualify for an FHA loan you’ll be required to put much less money down. The bad news is that FHA loans require you to provide a lot more documentation. You will need to provide the addresses of every place you lived in the past two years, the names and addresses of your employers for those two years and the amounts of your gross monthly salaries. You will also be required to provide W-2s for the past two years and copies of the income tax forms you submitted the past two years.
If you choose to apply for an FHA loan you can submit your paperwork electronically and the FHA TOTAL scorecard will be used to measure the credit risk of all FHA loans you submit through its automatic underwriting system. It’s also important to understand that FHA loans don’t come directly from the FHA (Federal Housing Administration).
What an FHA loan means is that the FHA guarantees the home loan, which reduces the risk to your lender and offers increased borrowing power. One of these loans can be particularly helpful if you don’t have much money saved for a down payment or have a poor credit score. In fact, the FHA recently made some policy changes including the fact that new FHA borrowers could have a minimum credit score of 580 and still qualify for the most favorable down payment plan, which is currently just 3.5%. However, if your FICO score is less than 580 you will be required to put 10% down.