There is nothing quite like the excitement of purchasing your first home. The process is as exhilarating as it is rewarding. However, the process has many aspects that need to be closely considered. Financing is one of the most critical factors in the purchase process. If you are a first-time homebuyer, there are some things you should understand about financing your home purchase.
Saving is the beginning of the purchase process, and budgeting allows you to save the funds needed to complete a deal. Changing your spending habits and reducing how much you spend weekly is the best way to start saving closing funds. Seeking the assistance of a credit counselor will also give you the guidance needed to understand your budget.
When it comes to home financing, the lenders use the credit score to determine what mortgage program you qualify for. The three credit bureaus are responsible for generating credit scores based on your credit payment history. The scores that lenders create programs based on typically range from 580 to 720. The higher your score, the better your mortgage rate.
Lenders will need to verify your income before they can loan you the funds to purchase your home. Documents that are requested to prove income and employment include check stubs, bank statements, W-2’s, recent tax returns, and other documentation regarding outstanding debts.
Before you attempt to apply for a mortgage loan, be sure to have all of our income documents ready. Not having the required documents available may delay the funding process.
Understanding the types of mortgage loans is very important to the purchase process. Conventional loans are categorized as the traditional loans offered by banks and mortgage brokers.
If you are a first-time homebuyer, you will be eligible for the Federal Housing Administration (FHA) loan program. These loans allow buyers to obtain a loan for as little as 3.5 percent down payment. FHA loans also do not require the payment of private mortgage insurance (PMI).
The fees and expenses connected to a home purchase are referred to as closing costs. There is a good faith estimate (GFE) that the lender is obligated to provide within three days of your mortgage application being completed. The GFE contains the approximate amount that will be required at the time of closing. These fees are in addition to the down payment that will also be due at closing.
The closing costs include fees related to the mortgage, title insurance, and taxes. The good faith estimate offers an itemized listing of all of the various fees associated with the facilitation of the loan. Closing costs typically run between 2% to 5% of the amount of the loan. It helps to understand the cost of selling a house.
If you are purchasing your first home, sifting through all of your financing options can be quite challenging. The previous guide has hopefully shed some light on the finer points of obtaining financing for the purchase of your first home.
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