Tips for getting a home mortgage
Here are some quick and important tips when getting a home mortgage.
Borrow what you can afford to repay
When people buy homes, they often "stretch" to make their initial monthly payments, on the theory that their incomes will increase over time – making house payments easier to cover.
However, it is wiser to live within your means. You can move up to a more expensive house after (and not before) your income rises. A conservative rule of thumb is that all of your monthly debt obligations, including the house payment, shouldn't exceed 36 percent of your income before taxes.
Keep some savings in reserve
Mortgage lenders do not want you to deplete all of your savings on the down payment and closing costs. They want you to have "reserves" such as cash, or assets that can be sold quickly, so you can take care of unexpected expenses without missing mortgage payments.
Your lender will let you know the minimum reserves required to qualify for a mortgage.
Note: If you are looking to put 20 percent down payment, there is a possibility that the reserve requirements will oblige you to unexpectedly make a down payment of less than 20 percent, triggering the need for mortgage insurance.
You can make a small down payment – or none at all
Most homebuyers think they have to make a down payment of at least 20 percent in order to qualify for a mortgage loan. However, some loan programs allow a qualified buyer to purchase a home with as little as 3 percent or 3.5 percent down payment. Or, no down payment at all.
The Department of Veterans Affairs guarantees zero-down VA mortgages for qualified borrowers: veterans, active-duty service members and certain members of the National Guard and Reserves.
The U.S. Department of Agriculture (USDA) guarantees zero-down mortgages as part of its Rural Development program. The loan guarantees are available in eligible areas – mostly rural areas, although some in suburban areas.
The Federal Housing Administration-insured mortgages (FHA) allow down payments as little as 3.5 percent. FHA-insured loans are appealing because they are widely available to borrowers with imperfect credit.
Some lenders offer conventional mortgages with down payments of as little as 3 percent with private mortgage insurance.
Aiello and Associates offers 3% down payment loans.
Be patient during underwriting
Keep your finances as steady as possible between the time you apply for a mortgage and the time you close your transaction.
This may sound simple in theory, but it's sometimes difficult in practice, especially for first-time homebuyers. What does this mean?
While the mortgage is going through the underwriting process:
- Do Not charge up your credit cards
- Do Not apply for new credit
- Do Not make any credit card balance transfers
When you apply for the mortgage, the lender looks at your credit report and your credit score. Then, shortly before closing, the lender reviews your credit again. If there's a substantial change, such as: you maxed out your credit cards, or you obtained a new automobile loan – the lender may have to delay your mortgage closing. Or, in drastic cases, you could derail your mortgage process and will have to re-apply all over again.
