Determining which home loan is right for you can be a headache. With so many options and varying requirements to research, borrowers should be careful with the options they consider before deciding to apply for a mortgage loan. Here are 5 tips for determining which home loan Is right for you.
If you’re an average homebuyer, the likelihood is you will be paying your mortgage over the course of 15, 30, or even more years. Because of this, you must understand your current financial situation, your ability to pay back the loan over time, and the different loan requirements you may be subject to once you decide on a loan type.
If you aren’t familiar with the types of mortgage loans available to homebuyers, check out our recent blog postWe outline the type of mortgage loans available, including common requirements and things you should consider before deciding on a specific loan type.
In this post, we’ll go over the five tips you need to stick to before determining the home loan that’s right for you.
The most important factor you should consider before starting your home buying journey is how big of a loan you can afford. Buying a home is more costly than ever and making sure your loan payments are a reasonable expense for you should be a critical factor in your research process.
Your budget includes far more than just how much house you can afford. Your homebuying budget should include:
Though this can sound like an overwhelming calculation, you can make it easier by sticking to some basic industry calculations.
Online calculators can help you determine a budget that is manageable for your income and lifestyle. Online calculators are a great tool for those who are a bit nervous running the numbers on their own. Online calculators, like our Lendevity Mortgage CalculatorIt works on a basic algorithm to help you understand the home price you can afford. Some online calculators work on the 28/36 rule to determine how much mortgage you can pay for a conforming mortgage.
The 28% rule suggests you only spend 28% of your gross monthly income on your house payments, including principal, interest, insurance, and property taxes. While this rule is by no means “official,” it can help you determine a monthly cost you can afford.
Other online calculators may use the 36% rule, which suggests you only spend 36% of your gross monthly income on all debts, which includes your mortgage payment, credit card payments, and other loans you may have.
Figuring out a budget for your new home purchase doesn’t need to feel daunting. Stick to the 28/36 rules as a starting point, then work with your lender to determine if that number can be adjusted.
Your credit score is a major factor to consider when seeking approval for a home loan. Every lender will rely on your credit score to determine how large of a mortgage you can take on and the interest rate that will be applied to your loan.
Determined by your payment history and other loans, credit score requirements vary by mortgage loan type. For example, your lender may look for a credit score of at least 620 before considering offering a conventional mortgage. If you are hoping to have a lower interest rate, increasing your credit score before you apply for a home loan is a good idea.
If you can pay off some of your debt, make more timely payments and stick to a budget before applying, your lender will likely be able to offer you more appealing loan options.
While we just went over the importance of your budget and credit score, you should know that the requirements for every loan type are different. Some government-backed loans – likeVA loansIt may not require a typical down payment. If your credit score is lower than you’d like it to be, but you are still interested in purchasing a home, consider the following: FHA loanThe credit score requirements for these government-backed loans often are lower than conforming home loans and are worth exploring if you find you can’t meet typical credit requirements.
If you are interested in learning more about the different types of mortgage loans available to home buyers read our guideWe walk you through the most common loans available to homebuyers today to get you the most manageable option for you.
Now that you’re equipped with a budget, know your credit score, and have researched home loan requirements, your next step is shopping for a lender. All lenders are not created equal, and you may find that some lenders impose strict requirements.
By shopping around different lenders, you can compare eligibility requirements and work with the lender offering the best rates and terms for your budget.
And if all of this sounds like too much to do on your own: reach out to us todayHere at Lendevity, we’re committed to making the home buying process easy. We’ll get to know your situation and discuss your home buying goals to help you explore the rates, terms, and lenders that fit your needs.