Applying for a home loan is a common step in the homebuying process. A loan gives you the ability to finance a large portion of the purchase price. Depending on the terms of the mortgage that you set up, you can reasonably expect to make monthly loan payments for up to 30 years. Budgeting properly for this expense is critical if you want to manage affordability and avoid buyer’s remorse. Because there are many loan options available for homebuyers to consider, you need to carefully walk through a few steps in order to determine what type of loan is right for you.
Review Your Budget
Focusing on your budget is one of the best first steps to take when you are preparing to apply for a new home loan. Your finances will be impacted by the monthly loan payment and your down payment. Different loan programs have different requirements for the down payment, so you need to ensure that the down payment requirement for each loan program that you are thinking about using for your homebuying efforts is reasonable and manageable. Remember to avoid becoming cash poor through the buying process by putting down more money than you can afford. Budgeting also requires you to take a closer look at your monthly budget. Your new loan payment should be reasonable for your budget, but you also need to take into account any changes to utilities, home repair expenses, property taxes and insurance.
Understand the Home Mortgage Options
After you have reviewed your personal budget and available funds for a down payment, you can examine financing options. Some loan programs, such as the FHA program, allow you to make a very small down payment. However, they have stringent underwriting guidelines. A conventional loan may also have a low down payment requirement with more flexible underwriting guidelines. Jumbo loans are another type of home loan that are specifically designed for larger loan amounts. The exact loan limits vary by location. With many loan programs, you can choose between a fixed and adjustable rate as well as between a 15, 20 and 30-year term. Using a mortgage calculator online can help you to estimate affordability for each option before you formally apply for your new loan.
Analyze Underwriting Requirements
Even when you believe that you have found the right loan program to apply for, you must ensure that you can reasonably meet all underwriting requirements. Some loan programs, for example, require the property to be in excellent condition. A VA loan, which is designed for active and former military professionals and their widows, has great loan terms, but it also requires the property to be in good to excellent condition. Some loan programs have minimum credit score requirements or varying debt-to-income requirements.
While homebuying is easier for most people because of the ability to finance most of the purchase price, the matter of determining which loan program to apply for can be challenging. When you understand what your qualifications are and what type of loan program you are searching for, you can educate yourself about the programs available to find the right loan for you.
Edward L. Taylor Jr currently serves as a Clayton County Business Banker with Heritage Bank. With over 15 years of experience in the banking industry, Ed can provide you with the best business products and services to serve your needs now and well into the future.
Vice President Business Banker • 770-515-7032 • [email protected]