Credit Absolute
Purchase A Home
Have you considered purchasing a home but are not sure where to start?
Not sure if buying a home is right for you or whether it is financially advisable?
Is Homeownership Right for You?
Buying a home, while very rewarding, is a major financial commitment that should not be taken lightly. Before purchasing your new home you should ask yourself these key questions:
Do I have a steady, reliable source of income?
Have I been employed regularly for the last 2 years?
Do I pay my bills on time?
Is my total debt (all credit cards, car loans, etc.) under control? Can I afford those debts and a mortgage?
Do I have some money saved for a down payment?
Do I have some money saved for closing costs?
Have I been employed regularly for the last 2 years?
Can I afford both the mortgage and the other expenses, such as electric, water, repair and maintenance costs?
Do I plan to live in the home for at least 2 years long enough to build some equity?
Do I have time to take care of a home including responsibilities like mowing the lawn and repairing my property when problems pop up?
Do I have time to devote to buying a home right now?
Are other commitments, like school or a new business, higher priority?
It may seem like a lot – a lot of work, time, energy, and money – but purchasing your own home is definitely worth it. Not only from the satisfaction of owning your own home but also from the freedom, flexibility, and long-term investment that you won’t get from renting.
What the Mortgage Lenders Look for When Approving a Loan?
Two key areas that mortgage lenders will look at are your credit score and credit history but that isn’t all that they consider when determining whether to approve you. Here is a list of things that mortgage lenders will use to evaluate your credit worthiness and ability to repay your home loan:
- Stability of your income
- Employment history
- Monthly debt payments (credit card bills, car loans, etc.) in relation to your income
- On-time payment of rent and utilities
- How you save money and how much you have saved
- The type of mortgage you are considering
- The type and value of the property you want to buy
- The amount of the down payment you plan to make
Ensuring first that you are financially ready and prepared to buy a home will help prevent problems down the road, like foreclosure or bankruptcy, or simply financial hardship. If you have determined by now that buying a home is right for you, then you’ll need to understand the different types of mortgages so you can find the best fit for you.
The 4 Major Types of Home Mortgages
Choosing the right type of home loan can make a significant difference to your livelihood down the road and should be considered closely before making a final decision. Below are the four main types of mortgages, the benefits of each, and features to consider:
FHA Loan
Great Rates
- 3.5% Down Payment Required
- Seller can pay your closing costs up to 6% of the purchase price
- Primary Residence Only
- MI = 1.75% up-front and .85%/mo Depends on LTV and Loan Amount
- Full Documentation Required
Ask about the FHA Streamline Refi:
- No appraisal
- No employment verification
- No credit qualification (with acceptable FICO score)
Conventional Loan
Great Rates
- LTV’s Up To 97%
- Loan Amounts to $424,100
- New Pool and Repair Holdbacks Available
- Multiple Mortgage Insurance options available for LTV’s above 80%
- Seller can pay up to 9% of the homebuyers closing costs (LTV Restrictions Apply)
- Full Documentation Required
Ask about the Conventional HARP Refi:
- No appraisal per AUS
- No credit qualification (with acceptable FICO score)
USDA Loan
Great Rates
- 6% seller concessions or gift for closing costs borrower can purchase with no money down
- No reserve requirements
- Not limited to first time homebuyers
- Minimum FICO score 620
- Income limits apply
- Full Documentation Required
Ask about the USDA Streamline Refi:
- No appraisal
- No employment verification
- No credit qualification (with acceptable FICO score)
VA Loan
Great Rates
- No Down Payment Required - 100% financing
- Seller can pay up to 4% of your closing costs
- Primary Residence Only
- Full Documentation Required
Ask about the Conventional HARP Refi:
- No appraisal per AUS
- No employment verification
- No credit qualification (with acceptable FICO score)
Still Not Sure Which Home Loan Type is Right for You?
Talk to your mortgage broker or financial advisor to determine which mortgage type will best suit your needs.
Once you’ve determined which mortgage plan fits your financial situation, you can then start applying for home loans. Keep in mind though, when applying for your new mortgage, you will want to ensure that you get the best rate possible in order to save more, lower your monthly mortgage payments, and build equity faster.
How Your Credit Score Affects Your Mortgage Interest Rates
One of the most impactful areas that the lender will consider when determining your interest rate and eligibility for your home loan is your credit score. If you have a low or poor credit score, not only will it be difficult to get approved but you may end up getting stuck with a very high interest rate that could lead to financial difficulty down the road.
Below are two examples of credit scores and how they would affect your monthly mortgage payments on a home loan of $250,000:
Homeowner with a 640 Credit Score
- Purchase Price $250,000.00
- FICO Score 640
- Interest Rate 5.375%
- Principal & Interest $1,329.93
- Mortgage Insurance $312.50
- Total Monthly Payment $1,642.43
Homeowner with a 740 Credit Score
- Purchase Price $250,000.00
- FICO Score 740
- Interest Rate 4.875%
- Principal & Interest $1,256.87
- Mortgage Insurance $122.92
- Total Monthly Payment $1,379.79
As you can see from the graphs above, a 100 point difference between the credit scores can significantly lower your interest rate and monthly payment amount. With a 740 credit score you would save over $260 a month compared to the 640 credit score with yearly saving of over $3,100 and five year savings of almost $16,000. The higher credit score would also make it much easier to get approved for your mortgage.
Credit Repair Services
If you are concerned that your credit score may not be high enough to get approved or aren’t satisfied with the interest rates that you’re being offered due to your credit score, then you may want to consider speaking with a credit repair specialist prior to applying for a home loan.
Credit repair services can help you significantly increase your credit score by disputing negative items on your credit report – such as bankruptcies, foreclosures, late payments or delinquencies and more.
Need Help Improving Your Credit Score or Need More Information About Credit Repair Services?
Contact Credit Absolute by either calling or requesting your free credit audit and consultation by filling out the form. Increase your credit score quickly and affordably so you know you’ll get approved for your mortgage and get the best rates possible.