Whether it’s your first home purchase or your fifth, it’s a good idea to make sure you’re informed with the latest information regarding your financing options. From questions like, “How much home can I afford?” to “Should I rent or buy?” the questions can be seemingly endless.
In this article, we’re going to aim to help you understand the keys to getting a mortgage in Northeast Florida, and how to avoid the common mistakes people make with regards to financing a home purchase.
Before you dive into looking at properties, and thinking about if you’ll need that extra bathroom, let’s go through the nitty-gritty of getting a mortgage.
Questions we will answer in this post:
- Figuring Out Your Budget & Getting Pre-Approved
- How Important is Your Credit Score
- What Types of Mortgages Can You Choose From
- Common Mistakes to Avoid with Property Financing
*This post is meant to be something that you can come back to as a guide, so be sure to bookmark it.
Figuring Out Your Budget & Getting Pre-Approved
This is where the process begins with your budget. Before you ever get the keys to your new home, you’ll need to figure out how much home you can afford to buy. We suggest looking at financing calculators to get an idea of what your ballpark home price looks like in actuality.
Once you’ve decided that you want to move forward with purchasing a home, the next step is to get pre-approved for a mortgage by a lending partner. Getting pre-approved does two things for you, (i) it gives you a precise number on what you can afford and (ii) it strengthens your position as a buyer as sellers will know you’re serious when you place an offer.
How Important is Your Credit Score?
Your credit score is fundamental when it comes to the interest you’ll pay on your loan. Your FICO score is calculated by specific metrics related to your utilization rate (What % of your total credit are you spending or carrying as a balance), your credit history, payment history, and more.
Ultimately, you want to get your score above 740 to secure a better chance of getting favorable interest rates if your credit falls between 580-740 you can expect to receive mixed quotes from lenders, depending on your perceived risk.
Your credit score will affect the interest rate you have to pay on your loan or if you even qualify for a mortgage. Specific metrics calculate FICO scores, and your target rate should be above 740 to give yourself the best chance to receive reasonable rates from lenders.
If your score is low or you are still building it up, it may be a good idea to hold off on applying for a mortgage until you’re at a number you and your lender are comfortable with moving forward. That is so important because a slight change in interest rate could mean the difference of thousands of dollars paid by you over the lifetime of the loan.
What Type of Mortgages Can You Choose From
Several types of mortgages are available to everyone, such as conventional loans and adjustable-rate mortgages. Then there are loan types reserved for particular groups, such as VA loans (Military Veterans) or FHA Loans (guaranteed by Federal Housing Administration). The most common three are listed below.
Fixed-Rate
A conventional (fixed) loan is the standard mortgage where interest rates are locked in, and the payment remains the same every month. These are the traditional loans you see commonly in 15-year and 30-year terms (although other repayment schedules are available).
Adjustable-Rate Mortgage (ARM)
These loans are based on the current mortgage interest rates causing repayment amounts to vary with the performance of the economy. It’s prevalent for lenders to do a blend of fixed/adjustable-rate mortgages such as a 5/1 loan–where the rate is locked for the first five years and then is adjustable for the remaining years on the loan.
VA Loan
These loans are for military veterans of the United States. They are guaranteed by the Department of Veteran Affairs and allow veterans to qualify for zero-down mortgages.
Common Mistakes We See People Make
1. House Shopping Before Getting Pre-Approved
Finding a home is exciting, but the thought of getting a loan is far from a pleasant feeling. As a result, we tend to put the house hunting first and then setting up and qualifying for a loan second.
You should switch the order around, and get pre-approved first to ensure you know exactly where you stand and what you’re approved for price-wise while you shop. That helps to avoid shopping in the wrong price range and also prepares you to strike quickly in making an offer when you find the right home. In a market with tight inventory, like we have today, this could be the difference in getting a home and continuing to shop.
2. Choosing a Lender Solely Based on Rate
Looking around the internet, it’s always easy to get caught up in the numbers game of who has the lowest rates. While having a great rate is important, make sure you truly understand the other factors when looking at selecting a lender. What are the costs associated with getting that rate? How available is that lender to help guide you through what can be a complicated and changing process? In the event something is going awry, how easy is it to get a hold of decision-makers or escalate concerns to get a resolution? How likely is it that your loan will make it through to closing and do so on time? Understanding all the factors of who you work with is vital to make sure you’re getting what you think you are when you sign up for a rate.
3. Making Financial Changes (New Job, Credit Card, Etc.)
Once you work to get your pre-approval, be very wary of making any changes to your situation or you could be impacting your loan approval. Simple changes like moving from one company to another, opening any new credit, or changing how your assets are held can be the difference from your approval being valid and honored or not.
Make sure you’re keeping things exactly as they are at the point of approval to limit the impact and call your lender anytime you’re considering a change to make sure they can give advice on how it may impact your rate, costs, and overall approval.
Conclusion
All-in-all, getting financed for a mortgage can seem very stressful, but if you take the proper precautions and follow the steps above, you should be well on your way to buying your next home.
All first mortgage products are provided by Prosperity Home Mortgage, LLC. (877) 275-1762. Prosperity Home Mortgage, LLC products may not be available in all areas. Not all borrowers will qualify. Licensed by the NJ Department of Banking and Insurance. Licensed by the Delaware State Bank Commissioner. Also licensed in District of Columbia, Florida, Georgia, Maryland, Michigan, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia, and West Virginia. NMLS ID #75164 (NMLS Consumer Access at https://ift.tt/1dl1tJY) ©2020 Prosperity Home Mortgage, LLC. All Rights Reserved. (02/21) Equal Housing Opportunity.
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