Whether it's your first time buying a home or it's a process that you've gone through before, there are a lot of things to consider. Of course, finding a home that suits your needs and budget that is in an area where you want to live is going to be your main concern. However, your mortgage is something that will likely have an impact on your finances for years if not decades. Getting the right mortgage loan is key. Here are three things that you should know when looking into home mortgage loans.
Your Financial History Matters
The first thing that you should be aware of is that your financial history will play a key role in your ability to qualify for a loan as well as the interest rate you receive on your loan. Your credit score, in particular, is a key consideration when it comes to getting a home loan. Often lenders will closely look at your credit score when determining whether or not to approve your application. For a conventional loan, a credit score of at least 620 is typically required. FHA loan requirements are a little more relaxed but you will typically need a score of at least 580. In order to qualify for a VA loan, you'll typically need a score of 620 and USDA mortgage loans typically require credit scores of at least 640.
You May Have to Pay PMI
Private mortgage insurance, or PMI, is something that you may have to pay if you take out a conventional home mortgage. PMI is insurance on the loan itself and protects the lender if you stop making payments. Over time PMI can add up to a substantial sum. However, there are a few ways to avoid PMI. Certain types of loans, such as VA loans, do not require PMI. You can also make a down payment of 20 percent in order to avoid having to pay PMI.
Another thing that you should be aware of when taking out a mortgage is how much your closing costs will be. Typically these costs are between 2 and 5 percent of the sale price of the home you are purchasing. The average closing costs total out to $3,700. Saving up for these costs is important. Typically your lender will give you an estimate of what your closing costs will be within a few days of your completed mortgage application.
When taking out a mortgage, there are a few things to keep in mind. First, your financial history will play a large role in whether or not you qualify for certain home mortgage loans. It's also important to factor in whether or not you will have to pay PMI into your budget. Closing costs are another thing to account for when taking out a mortgage.