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If you’re a first-time buyer, odds are you’ve never seen or heard much about mortgage applications. However, for something as important as buying a home, it pays off to go into the process knowing what to expect.
Mortgage applications aren’t all that complicated in and of themselves. Most of the time, your chosen lender will walk you through the process and answer any questions that arise. However, complications do arise when it comes time to provide documentation on things like your income.
To make things easier for your first application, I’ve put together this list of frequently asked questions that first-time buyers often have about their mortgage application process.
Will applying for a mortgage hurt my credit score?
Mortgage lenders will run a credit inquiry to help determine your lending eligibility. There are two types of credit inquiries: hard and soft. A soft inquiry is a quick credit check that doesn’t affect your credit score. A hard inquiry, on the other hand, does. This means your score will be lowered slightly for a few months and then will bounce back.
Mortgage lenders run both types of inquiries. For quick, pre-qualifications, lenders typically run a soft inquiry. Then, as you progress through the approval process, they’re run a detailed credit report (hard inquiry).
What information should I have available?
Lenders will ask you for various documents. The most common things they will ask for include proof of income in the form of W-2 forms from the previous year and your most recent pay stub. They will also require a record of your other debts, including student loans, auto loans, credit card debt, and any other outstanding debt that you owe. Finally, they will ask for an inventory of your assets. This could include investments, properties, auto titles, and more.
What if I don’t work a conventional job?
People who are self-employed or have unconventional income can still qualify for a loan and will still be required to show proof of income. Lenders may ask for Form 1099 records, tax returns, or any other record or proof of income you have available.
How long does it take to complete an application?
Mortgage applications can be completed as quickly as you gather the required documentation. However, there’s more to getting approved for a mortgage than filling out an application. There will be time needed to process the application, and underwrite your mortgage. This entire process typically takes between 30 and 45 days.
Is it safe to apply for a mortgage online?
Most lenders allow you to start the application process online and their online portals are typically secure. Make sure you check your browser window to ensure that the connection to the site is secured, and you should have nothing to worry about.
Keep in mind that most online applications are designed to get you prequalified and on your way to getting a mortgage. So, if you want to avoid getting calls from the lender, you might not want to enter any data until you know you’re interested in borrowing at this time.
Believe it or not, your credit score can make a world of difference as you get ready to search for your ideal house. If you have an excellent credit score, you likely will have no trouble obtaining home financing. On the other hand, if you have a bad credit score, you may struggle to get the financing you need to make your homeownership dream come true.
Ultimately, there are many reasons why you should try to boost your credit score before you purchase a home, and these include:
1. You can simplify the homebuying process.
Purchasing a home can be challenging, particularly for property buyers who fail to get pre-approved for financing. Luckily, if you request copies of your credit reports, you can find out your credit score and identify ways to improve it. Perhaps most important, you can explore ways to bolster your credit score before you submit a mortgage application and increase the likelihood that you can receive pre-approval for a mortgage.
It usually is a good idea to review your credit reports before you enter the housing market. You are entitled to a free copy of your credit report annually from each of the three reporting bureaus (Equifax, Experian and TransUnion). If you request a copy of your credit report from the three reporting bureaus, you can learn your credit score and plan accordingly.
2. You may qualify for a low interest rate on a mortgage.
An excellent credit score may help you get a low interest rate on a mortgage. Thus, if you have an excellent credit score, you may wind up reducing your monthly mortgage payments.
Of course, a low interest rate on a mortgage may allow you to invest in your home as well. If you use the money that you save on your mortgage to complete home improvements, you could upgrade your residence and increase its value over time.
3. You can select the right mortgage option based on your individual needs.
With an outstanding credit score, there likely will be no shortage of lenders that are willing to work with you. As such, you can review a broad range of mortgage options and choose one that matches your expectations.
If you need to improve your credit score, there's no need to worry. Typically, paying off outstanding debt will help you boost your credit score prior to buying a house.
Furthermore, if you receive a credit report and identify errors on it, contact the bureau that provided the report. This will enable you to make any corrections right away.
And if you need help as you get ready to pursue your dream house, don't hesitate to reach out to a real estate agent too. A real estate agent can put you in touch with the top lenders in your area and make it easy to obtain home financing. Plus, this housing market professional will enable you to evaluate residences in your preferred cities and towns and find one that you can enjoy for an extended period of time.
The US government has been helping Americans achieve their goal of homeownership for decades. Through programs offered by the Federal Housing Authority, the USDA, and the Department of Veterans Affairs, millions of Americans have been able to afford a home who would have otherwise struggled.
The focus of today’s post is one such service: loans offered through the USDA Rural Development program.
If you’re hoping to buy a home in the near future but are worried about being able to save up enough for a down payment or build your credit score in time, USDA loans could be a viable option.
Let’s take a look at some of the common questions people have about USDA loans:
Do I have to live in the middle of nowhere to get a USDA loan?
The short answer is “no.” rural development loan eligibility for your area is laid out on a map provided by the USDA. Most of the suburbs outside of major cities, as well as nearly all rural areas, are covered by the rural development program.
Can I qualify for a USDA loan if I’ve previously owned a home?
Yes. You may be eligible for a loan as long as you’re not the current owner of a home that was purchased through the rural development program. So, for example, if you own a home financed through the USDA and wanted to buy a second home and rent out the first one, you wouldn’t be able to finance your second home through the USDA.
How does the USDA loan guarantee work?
When you buy a home, a lender asks you to make a down payment. If you don’t have a down payment, the government (USDA, VA, or FHA) insures the down payment on your home rather than you paying it up front.
Will I have to pay mortgage insurance?
Unlike other subsidized loans, rural development loans require a “guarantee fee” rather than PMI (private mortgage insurance). The guarantee fee is 1% the total mortgage amount and this can typically be financed into the loan (so you don’t have to pay up front). In addition to the guarantee fee, USDA loans also charge an annual premium for the lifetime of a loan.
What are the qualifications for a USDA loan?
To find full eligibility information, complete the survey on the USDA’s eligibility website to find out if you qualify. However, the general qualifications are:
Buying a home in a qualifying area
24 months of income history
A credit score of 640 or higher for streamlined processing
Income high enough so that your monthly payments do not exceed 29% of your monthly earnings
What is the direct loan program?
The USDA really offers multiple urban development loans. The guarantee program, for which most single families utilize, and the direct loan program. Direct loans are designed for families who have the greatest need. You can also find out if you’re eligible for a direct loan by filling out the questionnaire on their website.
If you plan to buy a house, you'll want to apply for a mortgage before you launch your house search. That way, you'll have your finances in order and can narrow your home search accordingly.
Ultimately, there are several steps that you should take prior to applying for a mortgage, and these are:
1. Check Your Credit Score
A bank or credit union likely will analyze your credit score as it reviews your mortgage application. However, you can find out your credit score free of charge before you kick off the mortgage application process.
You are eligible to receive a free copy of your credit report annually from each of the three credit reporting bureaus (Equifax, Experian and TransUnion). Submit a request for your credit report today, and you can receive comprehensive insights into your credit history.
2. Examine Your Earnings and Debt
How much you currently earn and your outstanding debt could play pivotal roles in your ability to acquire a favorable mortgage. Thus, you'll want to examine these factors closely so that you can better understand how lenders will view your mortgage application.
Also, if you have lots of outstanding debt, there is no need to worry. If you allocate the necessary time and resources to learn about your debt and pay it off, you can increase the likelihood of obtaining a favorable mortgage.
3. Establish a Budget
Although a mortgage may prove to be essential to buy a house, it is important to consider various homebuying expenses as well.
For example, you may need to pay closing costs, home inspection fees and other expenses throughout the homebuying process. If you're worried about having the necessary finances to cover these costs, you may want to start saving money for them as soon as possible.
It often helps to account for the costs associated with cable, electricity, internet and other home must-haves too. The aforementioned homeownership expenses can add up quickly, but those who plan ahead can ensure they have sufficient funds available to cover these costs.
As you prepare to search for a house, it usually is a great idea to hire a real estate agent. This housing market can help you prepare for each stage of the homebuying cycle and ensure you can achieve your homebuying goals.
Typically, a real estate agent will meet with you and find out what you want in a dream house. This housing market professional then can keep you up to date about residences that match or exceed your expectations.
Perhaps best of all, a real estate agent understands that no one should be forced to overspend to acquire their ideal residence. As such, this housing market professional will make it simple for you to discover a terrific house at a budget-friendly price.
Lastly, don't hesitate to reach out to a real estate agent for guidance before you apply for a mortgage. With a real estate agent at your side, you can learn about lenders in your area and find one that can provide you with the financing that you need to purchase your dream house.
If you plan to attend an open house, it usually pays to be prepared. That way, you'll know exactly which questions to ask during an open house and can ensure that you can gain the insights that you need to determine whether a residence is right for you.
Now, let's take a look at three key questions to ask a listing agent during an open house.
1. Why is this home for sale?
Although a home listing provides plenty of information about a residence, it is unlikely to explain why a homeowner is selling his or her house. Thus, you should use an open house to find out exactly why a home is for sale.
In many instances, a listing agent will be honest and forthright about why a homeowner has decided to add his or her residence to the real estate market. Once you receive an answer to your query, you can better understand whether a house matches your expectations.
On the other hand, if a listing agent hesitates or shies away from your question, you should be skeptical. At this point, you should continue to dig for more information about a residence to learn about any potential flaws.
2. Are there any home problems that I need to know about?
An open house enables you to get an up-close look at a residence. Furthermore, the event allows you to find out about a residence's pros and cons from a listing agent.
Ask a listing agent about any home problems – you'll be glad you did. The listing agent should be able to provide you with plenty of insights into a home's condition, ensuring you can make an informed decision about whether to submit an offer.
A listing agent is likely to be honest with you about any problems with a house. By doing so, this agent will reduce the risk of a homebuyer later rescinding an offer after a home inspection.
3. Have there been any offers on the house?
It is important to find out if there is any competition for a house, especially if you discover your dream residence. Thus, during an open house, you should ask a listing agent if any offers have been submitted on a residence.
If a listing agent responds "Yes" to your query, you may want to act fast to submit a competitive offer on a house. Because if you wait too long to make an offer on your dream residence, you risk losing this house to a rival homebuyer.
Lastly, if you need help getting ready for an open house, you should collaborate with a real estate agent. This housing market professional can provide deep insights into a residence before you attend an open house. Therefore, a real estate agent will help you take the guesswork out of getting the most out of any open house, at any time.
Want to optimize the value of an open house? Ask the aforementioned questions, and you can get the information that you need to fully evaluate a residence.