Unless you have deep pockets and can pay for a home entirely in cash, you’re going to need a mortgage. Mortgages are designed to make homeownership possible for people that normally may not be able to get approved for a home loan. In fact, there are special loan programs that cater to first-time homebuyers and those without established credit.
This article will discuss the basics of mortgages, how they work, and how you can apply for a mortgage to make your dreams of homeownership a reality.
What is a mortgage?
A mortgage is a loan from a bank or private lender that is intended to help people buy a home. As we mentioned previously, most people don’t have the cash to buy a home outright. To own a home and enjoy all the benefits that come with it, you’ll need a mortgage to help finance your purchase.
Buying a home is typically one of the most significant financial transactions in your life. You’ll sign a contract that requires you to make regular payments to a lender for sometimes up to 30 years. This means that you’ll want to do everything you can to make sure you qualify for a mortgage and make this important financial transaction easy and stress-free.
Types of mortgages
There is no one-size-fits-all type of mortgage. In fact, there are generally 4 mortgage types, including:
- Conventional loans. As you might have guessed, a conventional mortgage is a preferred choice for most prospective homeowners. However, these loans are typically the most difficult to qualify for. Conventional mortgages require a credit score of at least 620, and these loans aren’t backed by the federal government.
- Federal Housing Administration (FHA). FHA loans are meant to make homeownership possible for first-time homebuyers and those who may not have an established financial record. FHA loans require a credit score of 580 and come with upfront mortgage insurance premiums (UFMIPs) and monthly mortgage insurance.
- Veterans Administration (VA). VA loans are only issued to military members and their spouses. Those who qualify for a VA loan can buy a home without a down payment, but they will have to pay a “funding fee” that acts similarly to an upfront mortgage insurance premium required for FHA loans.
- United States Department of Agriculture (USDA). Believe it or not, the USDA issues loans to people in rural areas of the country. These often include farmers and other people involved in agriculture and food production.
Applying for a mortgage
Those who want to buy a home in the near future will need to prepare for the application process. First, you’ll reach out to a lender in one of several ways. You can leverage the power of word of mouth to see if anyone in your personal network knows a lender, or you can simply search online for lenders in your area.
Lenders will want to do a hard inquiry on your credit and typically want to see a history of your bank statements, tax returns, and several other pieces of supporting documentation related to your assets and debt obligations.
Once you get approved by your lender, you’ll be confident that you can buy a home close to the amount your lender approved you for.
This is how you can get your dreams of homeownership started this year and in the near future. For help finding homes in the Massapequa area, contact the Kim Holland Homes Team today!