As a Buyer's Agent, I've seen financial requirements become more stringent and access to credit become much tighter. Real estate transactions now require a lot more paperwork, verification and time.
I can help you navigate the mortgage process. If you need a lender, I keep in contact with great loan officers who have done excellent work with former clients.
Before you look at homes, you'll need a pre-approval letter from a lender. You'll also need your pre-approval letter to submit an offer.
Your pre-approval letter is sent to the seller's agent with the contract. It let's the seller know you can afford to buy the home. It's an important piece of negotiations.
The three most common types of financing are the Conventional loan, FHA loan, and the VA loan. Each one requires a different set of criteria to qualify. Most lenders can help qualify you for these loan types.
Before we look at loans and the criteria to qualify, let's look at what a mortgage is.
What is a Mortgage? A mortage is made up of 4 Parts
Principal is basically the money you borrow from the bank to purchase your home.
Interest is the cost of your loan, or what the bank charges you for the loan. Interest also pays the servicer (the company that manages your loan, collects your payments & handles your escrow account).
Your interest is calculated based on the principal (amount of money you borrow).
Your taxes are annual property taxes. Taxes are assessed based on where the home is located. If the home is located in the city and county, you'll pay city and county taxes.
A city or county appraiser determines the value of your property for property taxes. They take this value, multiply it by the tax rate and send your tax bill.
If your taxes are escrowed (collected monthly as part of your mortgage payment) the mortgage company will pay the bill each year when it's due.
Anyone who has a loan is required by the mortgage company to have homeowners insurance. The homeowners insurance policy will cover the replacement value of your home.
If your insurance is escrowed (collected monthly as part of your mortgage payment), the mortgage company will pay the bill each year when it's due.
The 3 most common types of loans are the Conventional loan, FHA and VA loan. In order to qualify for a loan, you and the home must meet the minimum standards set by the mortgage guidelines. Let's look at each loan type first, then check out the guidelines.
A Conventional Loan refers to a loan that is NOT guaranteed or insured by the Federal Government. Conventional loan Guidelines are set by Fannie Mae and Freddie Mac (Government Sponsored Entities that buy mortgages from lenders to be packaged and sold).
You'll be required to pay Private Mortgage Insurance (PMI) by the lender if your down payment is less than 20%
An FHA loan is a mortgage insured by the Federal Housing Administration, a government agency within the U.S. Department of Housing and Urban Development.
The government insures FHA loans to limit the lender's risk of loss in case a borrower defaults (doesn't pay the mortgage).
If you have an FHA loan, you'll be required to pay a Mortgage Insurance Premium (MIP) over a period of time. This could range from 10 years to the life of the loan. Your lender will give you exact details.
A VA loan is a loan guaranteed by the Department of Veteran Affairs. The VA loan is available to veterans currently serving or who have served in the military.
The VA loan offers long term financing to veterans and their surviving spouses.
A veteran has VA entitlement. This is the amount the VA promises to pay the lender if the veteran defaults (doesn't pay his mortgage).
Now that we've taken a look at each of the three loan types, let's look at the lender requirements for you to qualify.
Want to know which type of Mortgage will offer the lowest cost? Check out this calculator by The Mortgage Professor.
It will help you find the best mortgage type for your situation. You can also look at how much the mortgage will cost during the time you live in the home. As a buyer's agent I highly recommend you explore this calculator.