Now that you have decided to buy your First Home your wondering what to do to get the process started. The best recommendation I can make is to find a Professional Mortgage Broker as well as a Full-Time Realtor who knows the area that you are interested in living. These are very exciting times but can be a lengthy process and also frustrating. You should be familiar with the terminology and also what each party in the transaction is responsible for.
This process can be confusing and also very expensive if you’re not very CAREFUL:
Let’s walk through the MOST COMMON QUESTIONS First-Time Home Buyers should know the answer to:
- What it means to be pre-approved or pre-qualified.
- What Mortgage best fits your needs and unique situation.
- What is your Credit Score? The actual Score your Lender will use.
- How much money will you need for the down payment
- How much money will you need at the closing
- How long does all of this take
Pre-Qualified and Pre-Approved:
You’ve likely heard the term “pre-qualification” used interchangeably with pre-approval, but they are not one and the same. With a pre-qualification, you provide an overview of your finances, income, and debts to a mortgage lender who then gives you an estimated loan amount. However, the lender doesn’t pull your credit reports or verify your financial information. Accordingly, pre-qualification is a helpful starting point to determine what you can afford but carries no weight when you make offers.
On the other hand, a pre-approval involves filling out a mortgage application and providing your Social Security number, so a lender can do a hard credit check. A hard credit check is triggered when you apply for a mortgage and a lender pulls your credit report and credit score to assess your creditworthiness before making a decision to lend you money. These checks are recorded on your credit report and can impact your credit score. On the other hand, a soft credit check is when you pull your credit yourself, or when a credit card company or lender pre-approves you for an offer without you asking.
Also, you’ll list all of your bank account information, assets, debts, income and employment history, past addresses, and other key details for a lender to verify. Why? Above all, a lender wants to ensure you have the ability to repay your loan. Lenders also use the provided information to calculate your debt-to-income and loan-to-value ratios, which are important factors in determining the interest rate and ideal loan type.
What Mortgage best fits your needs and unique situation.
A conventional mortgage refers to a loan that is not insured or guaranteed by the federal government. A conventional, or conforming, mortgage adheres to the guidelines set by Fannie Mae and Freddie Mac. It may have either a fixed or adjustable rate. The maximum limit for a conforming loan depends on the county and state you live in and can be found here: Fannie Mae Loan Limits.
An FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA). Essentially, the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments.
The FHA program was created in response to the rash of foreclosures and defaults that happened in the 1930s; to provide mortgage lenders with adequate insurance, and to help stimulate the housing market by making loans accessible and affordable. Nowadays, FHA loans are very popular, especially for first-time home buyers.
A VA loan is a mortgage loan in the United States guaranteed by the United States Department of Veterans Affairs (VA). … The basic intention of the VA home loan program is to supply home financing to eligible veterans and to help veterans purchase properties with no down payment.
The USDA Loan program is a no-down-payment mortgage loan offered by the United States Department of Agriculture Rural Development. They partner with approved local lenders to extend 100% financing opportunities to eligible families living in rural areas for the purchase of a home. While areas that qualify for USDA loans are typically defined as “rural,” many smaller communities that lie just outside major metropolitan areas can qualify. The USDA program is commonly used in towns with a population of 25,000 or less.
What is your Credit Score? The actual Score your Lender will use.
The Best way to find out your credit score is by going to CreditScoresandMore: This website will walk you through STEPS to help you obtain a FREE Credit Score and also your TRUE CREDIT SCORE this is the credit score that your Mortgage Lender will most likely use.
How much money will you need for the down payment
How much money will you need at the closing
How long does all of this take
This is a tough question. Many Mortgage lenders require 45-60 to close on your loan. Personally, I ask my Realtors to give me 30 days and in the majority of my loans, they close on time. Unless you get into unexpected issues you should be able to close on your home within 45 days.