The largest purchase that many of us will ever make is the purchase of a newly built home or a new-to-us home. And even though it is possible to pay cash for a home, most of us do not have that much cash available and therefore we must get a mortgage in order to buy a home.
A mortgage is a security interest on real property; therefore a mortgage loan is secured by the property you are buying. The mortgage note certifies the existence of the underlying loan along with the encumbrance on the real estate. The mortgage note and the deed to the property will both be recorded at the country recorders office in the county where you reside.
What kind of loans are out there?
There are many different mortgage loans and they can vary quite a bit in factors like the amount of down payment required, the term of the loan, the method of payoff and the interest rate.
However, they usually always fall into three categories, either FHA, VA or conventional. Conventional loans are backed by the government and FHA and VA loans are backed by the government. The down payment required will vary based upon the type of loan that you obtain.
Is is hard to get a mortgage?
Mortgage loans are much harder to obtain than they were just a few years ago due to the subprime mortgage crisis and the economic downturn. However, homes are still selling and people are still getting mortgages every day.
Before you start shopping for a home it is wise to meet with a mortgage professional and pre-qualify for your mortgage. It can be a huge disappointment to find a great home that you love only to discover later that you can?t get a mortgage or that you can’t qualify for that home because you are slightly under that price range.
Secure your mortgage financing first before you look at any homes.
What do I need to qualify for a mortgage?
In order to qualify for a mortgage you will need steady and dependable income, a high credit score and a clean credit report and depending upon the loan you get perhaps a down payment ranging from 3% to 20% of the purchase price. The home you purchase will also need to qualify for the loan as it is necessary for the house to appraise for at least the purchase price or more in order to be financed.
The mortgage approval process will take into consideration your income, your credit history and your current debts. To get a ballpark estimate of how much you can qualify for you can use this general guideline.
Your total house payment including taxes and insurance should not exceed 29% of your gross monthly income and your house payment and all of your debts like credit cards and car payments should be 41% or less of your gross monthly income.
If you have credit issues from the past you need to address them before you apply for your mortgage. Any outstanding debts will probably need to be paid off and anything that could put a lien on your new home, such as any type of judgment, unpaid taxes or unpaid mechanics bills will also need to be paid off. Get your free copy of all of your credit reports and start repairing your credit before you talk to the mortgage professional.
What do you wish you knew before you bought a house?
Image via Flickr by pnwra