Now that a brand new year is underway, many people are thinking about purchasing a home.
But imagine this. You are ready to purchase a new home and find one that is perfect for you – but you don’t have your loan approval in order and don’t know what you qualify for. Nothing is more frustrating than that scenario.
What should every prospective buyer know about applying for a loan?
I posed this and other questions to Margaret Pryor of Premier Residential Mortgage of Texas – one of the most knowledgeable people I know – to demystify the process.
She advises borrowers to begin the loan process long before shopping for a home. The ideal time to get your financial ducks in a row, she says, is four to five months before you are planning to make a move. That allows plenty of time to decide on the type of loan that will work best for you and to fix any glitches that might show up in a credit report so you can get a better interest rate, if possible.
While there are many great and creative loan packages available, buyers are in a much stronger position – especially in hot real estate markets - if they know what they can qualify for before finding the home of their dreams!
Here is some more great advice from Margaret.
1. What sort of credit score do people typically need to qualify for a home loan?
For most government loans, you need at least a 640 credit score. There are cases where financing can be obtained with a lower score, down to 580, but these are on a case-by-case basis. On conventional loans, you need at least a 620 credit score, but the higher the score, the better the interest rate will be.
2. How long does someone need to be at a job?
They should have two year’s experience in their field of work either through actual time on the job or a combination of education and time on the job with no significant job gaps.
3. What extra things apply to self-employed people that are different from applicants with a regular day job?
Self-employed borrowers need to supply their tax returns and typically the lender averages their taxable income for a two-year period. Keep in mind taxable income is usually lower than their actual income prior to writing off expenses.
4. What is a good amount to have available for a down payment?
While having 20% to put down is great, you can typically get into a house for anywhere from zero down on a VA or USDA loan, to 3.5% on an FHA and a minimum of 5% down for a conventional loan. Closing costs are in addition to the down payment.
5. How have the new laws changed the protocol for borrowers?
The new laws protect buyers in regards the closing costs they pay along with the requirement that they now see the closing statement three days prior to closing. Lender fees may not vary, some title company fees can only change by 10% and then other fees outside the lender’s control do not have any restrictions on them. All in all, final closing fees will be very close to what the lender estimated at the beginning of the loan process. The three-day waiting period once you receive the final disclosures cannot be waived so preparing for that is essential.