The process of buying a home can seem a bit complicated, especially if you haven’t undergone the process. The main question on your mind might be whether you can afford to buy a home.
You may be able to afford to buy a resale home or a new construction home and not even realize it. That is a more common occurrence than you might think. There are some myths and misconceptions circulating about credit and how it may impact your ability to buy a home. So let’s debunk some common credit myths and see if now or later is the right time for you to buy and free yourself from renting.
Let’s start off with the all-important credit score. Your credit score is important, but it’s one of several factors that lenders consider before rendering a decision about if you qualify for a home loan. Whether you are buying a resale home or contemplating a new construction home, you’ll want to know your credit score if you are planning on financing a home.
Your credit score is a number ranging from 300 to 850 and it’s used to indicate your creditworthiness to potential lenders. Many homebuyers think that their credit score may be too low to qualify for the mortgage they need, which may not necessarily be true.
You may have heard that you need a score of 700 to qualify for a mortgage. But that is simply not true. Many homebuyers have qualified for loans with credit scores of 500 and up. The truth is, you may want a credit score closer to the 620 mark to qualify for lower interest rates. But you don’t necessarily need a pure 700 credit to get a mortgage.
Before jumping into the home searching process, you might check your credit score. A quality home builder or a lending agency can also help you with this to give you a better sense of where you stand.
If you are concerned about how your credit will affect your ability to obtain a mortgage, you may want to look into ways to build credit to buy a house and conduct a homebuyer credit cleanup to improve your credit score.
Lots of homebuyers are worried that they don’t currently make enough money to qualify for a mortgage loan. First, know that there is no minimum income amount required for any mortgage. The important considerations for lenders are whether the buyer can make the monthly payments over time, which is often over a period of 15 or 30 years, but not always. Lenders also want to know that you can provide the needed down payment and pay any closing costs.
If you are concerned about your income, you may also want to look at the various types of loans and other helpful opportunities available to low-income individuals and families.
Lower-income program options for you may include:
Having too-much debt can be overwhelming, but it isn’t necessarily bad news for homebuyers. You don’t need to pay off all existing debts to qualify for a mortgage. Lenders will be less concerned with the amount of your debts and more concerned with whether your debts leave you enough room in your monthly budget to make your mortgage payments.
When you apply for a mortgage, a lender will look at your debt-to-income (DTI) ratio. This number applies to the amount you owe compared to your income. Your DTI will help determine whether a lender extends a mortgage to you and will also help determine the interest rates you may be eligible for.
One of the most common misconceptions about buying a home is that you have to come up with 20% of the home’s purchase price as a down payment on a home. This is not true. Different types of loans require different down payment amounts. You may qualify for a conventional loan by putting down as little as 3% with certain loan types. Others may require no down payment at all.
If you are concerned about your ability to qualify for a loan with a small down payment, check with your builder or lender to determine which loan type might be available to you. This will help determine your down payment requirements.
There are several fees that may worry homebuyers when taking out a mortgage--and closing costs are one of them. But closing costs don’t have to be painful.
Closing costs will vary depending on several factors, but they may include:
That may seem like a long tally, but, in general, closing costs typically add up to between 2% and 5% of a home’s agreed-upon sale price. It’s a good idea to save for closing costs along with saving for your down payment. That way, you will have funds at the ready for closing.
If you are at all concerned about not being able to afford closing costs, look into homeowner’s assistance programs in your area. Some offer significant discounts that can help put a dent in your closing costs.
Now that you’ve learned some homebuying common credit myths, you may feel a bit more informed about this part of the homebuying process. Brookfield Residential is a builder of single-family homes, condos, townhomes, and duplexes. If you are ready to begin your homebuying journey, contact Brookfield Residential today. We can help you learn if you qualify for getting preapproved for a home loan.
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