Searching for a home is a fun, albeit stressful, adventure. To purchase your dream home, you need to complete another search first. One that’s often just as stressful but rarely fun. Choosing a mortgage loan can be confusing at any time, especially when it’s your first time. It’s important to commit to a mortgage lender who can provide you with the Farmers home mortgage that works best for you.
Mortgage lenders do not always offer the same types of loans. Some offer a variety while others specialize. Knowing this and what types of loans you might qualify for will assist in your search for the right lender. So, where do you start? Have a working knowledge of loan types. The list below will introduce you to a few of the common mortgage loans and their basic qualifications. Talk with your mortgage lender about each loan to determine which one works best for your situation.
- Conventional Loans
- Not insured by the government
- Requires a higher income
- Requires a higher credit score
- A down payment of at least 5% of the purchase price
- Down payments under 20% require a Private Mortgage Insurance fee until you reach 20%
- Qualification is tricky
- Lower payments thanks to a larger down payment (due to the PMI) and lower interest rates
- FHA
- Government-supported
- Lower down payment
- PMI fee until 20% of home value is reached
- Closing costs are lower
- You can receive money from family as a gift if you are struggling to find the money
- USDA
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- The United States Department of Agriculture is behind this loan
- It might be the best option if purchasing in a rural area
- Do not be discouraged by the rural area designation. You might be surprised at what areas qualify
- Little to no down payment
- Closing costs are typically lower
- Requires a USDA Guarantee Fee and Mortgage Insurance
- VA Loan
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- Guaranteed by the United States Department of Veteran Affairs
- Offered to active and retired military families
- Zero down payment
- Closing costs are typically lower
- No mortgage insurance
- Interest rates are negotiable
With all loans, it’s important to understand the advantages and disadvantages. When comparing the different types of mortgages, you will notice varying interest rates and a difference in loan length. If you choose a loan that qualifies for no down payment, talk with your lender about the possibility of providing a down payment. This may decrease your payment, allowing more cushion in your budget if emergencies arise.
Researching Mortgage Loans
When you are in the market for a mortgage loan, doing your research is one of the best things you can do to get the best deal. By researching different lenders and loan products, you can ensure that you are getting the best rate and terms available.
There are many benefits to doing your research before applying for a mortgage loan. First, by comparing interest rates and terms from different lenders, you can save yourself a significant amount of money through the life of the loan. Second, by understanding all of your options, you can choose the mortgage that is best for your needs. And finally, by getting pre-approved for a mortgage loan, you will know exactly how much money you have to work with when shopping for a home.
The Importance of a Pre-Approval Letter
When you are looking for a home, it is important to have a pre-approval letter from a lender. A pre-approval letter shows you are serious about buying a home and that you have been approved for a loan. The pre-approval letter also gives you an idea of how much money you can borrow. If you are buying a home with a partner, both of your names should be on the letter.
The pre-approval letter does not constitute a guarantee that you will get the loan, but it is a good indication that you will be approved. It is also important to remember that the amount of money that is shown in the letter may not be the final amount that you are approved for.
Monitoring Your Credit
When you’re buying a home, the last thing you want to worry about is your credit. But if you don’t monitor your credit report and credit score, you could be putting your purchase at risk.
Lenders will usually pull your credit report when you apply for a mortgage. They’ll use this information to decide whether to give you a loan and how much interest to charge. If there are any red flags on your credit report – like missed payments or high levels of debt – it could mean that you won’t be approved for a mortgage or that you’ll get charged a higher interest rate.
But even if you’ve already been approved for a mortgage, it’s important to keep an eye on your credit report.
Knowing What You Want When Buying a House
When you are searching for a home, it is important to be clear about what you want. Just because a home is beautiful doesn’t mean it’s the right one for you. You may find yourself struggling to afford the payments or maintain the property if it’s not what you need.
Think about how much space you need and what kind of layout you are looking for. If you have kids, you’ll need a lot of bedrooms and a backyard. If you’re retired, a smaller home with minimal maintenance may be ideal.
Be realistic about your budget and what amenities are important to you. Don’t get caught up in bidding wars or paying more for a home than you can afford just because it’s perfect. You’ll likely be living in this home for many years, so make sure it’s something that will make you happy long-term.
Summary
Do not hold back if you have questions. Mortgage lenders are there to help you make the best choice. This decision is not something you want to make without proper research and a firm understanding. Since this is a loan you will pay long-term, the ability to consistently make your payments and the knowledge you chose the best loan will provide you with peace of mind. And once you’ve educated yourself about loan types, you can move on to pre-approval of your loan. At that point, it’s time to search for your dream home and begin planning your future. For more information, click here.
Your neighborhood bank is Farmers Bank. We have a vested interest in the neighborhood, and we want to see your goals come true. Get your questions addressed by speaking with one of our experts. We’re here to assist you in creating the best strategy possible for you. You matter at Farmers Bank, no matter how big or small your ambitions are. Send us an email or a message on social media. You may expect a response from us soon.
