It’s unusual for a home buyer to have enough cash on hand to purchase a home without the need for a home mortgage loan, so it’s common to seek help from a lender.
We understand that this process can seem confusing or intimidating, and we want to help you with some of the basics of a home mortgage loan.
? What is a home mortgage loan?
When a buyer asks a bank or other lender for money to purchase a property, the money loaned is called a home mortgage loan.
The buyer repays the amount of the loan, with interest, in the form of monthly payments sent to the bank or lender.
? Traditional Mortgage Loans
A traditional mortgage loan is when a buyer secures a conventional mortgage loan through a bank, credit union, or other lenders.
Conventional mortgage loans require a down payment that is a percentage of the selling price of the home.
✋? Veterans Administration Loans
A buyer who wishes to secure a home loan through the Veterans Administration is choosing to apply for a VA Loan.
This person must be an active member of the military, a veteran, or a military family member.
It’s important to note that the Veterans Administration does not provide the loan to the home buyer. The VA guarantees payment on the loan through one of their approved lenders.
? Rural Housing Loans
A rural housing loan is available in some areas on properties that meet their qualifications. The property doesn’t have to be used for farming purposes as the name may imply.
? Federal Housing Administration Loans
A buyer seeking a loan through the Federal Housing Administration (FHA) may do so as an option to pay a lower down payment.
Like VA Loans, the FHA does not provide the loan, but they do guarantee the payments, making it more secure for lenders.
? Fixed Rate Loans
You may have a choice when it comes to your home mortgage loan on interest rates. A fixed rate loan is the most predictable as loan payments remain consistent throughout the life of the loan.
With a fixed rate loan, the interest rate is locked in at the time of the investment and does not change over time.
✍? Variable Rate Loans
In some cases, borrowers may choose to do a variable rate loan, which typically
With a variable rate loan, however, the interest rate changes with the market.
A buyer may begin their loan term with a low-interest rate and a lower monthly payment. The payment amount will change if the interest rate gets higher.
? Credit Score & Credit History
Your credit history, work history, and credit score are vital when it comes to mortgage loan approval. The lender looks for a stable credit history that includes a variety of credit forms.
Most lenders want a credit score of at least 630, but some loans require less. It’s a good idea to check your credit score ahead of time when preparing to purchase a home.
Fortunately, the Fair Credit Reporting Act allows you to check your credit score once each year without cost. The three central reporting agencies are TransUnion, Equifax, and Experian.
Be sure to check all three reports because each report could contain different information. If you find an error, report it right away as it can take time to clear up such issues.
Just as important as your credit score is your debt-to-income ratio. When you’re planning to purchase a home, you want to stay away from other large purchases that impact this number.
? Applying for a Mortgage Loan
When you’re ready to apply for a mortgage loan, you’ll need to provide a lender with proper documentation for things like payroll, work history, and current debt and assets.
? Mortgage Loan Pre-Qualification
An option when beginning your search for a home is getting pre-qualified for the loan. A pre-qualification is different from a pre-approval, and can be helpful.
A pre-qualification tells you whether you could be approved for a loan, and it does not leave a hard inquiry on your credit report. This type of qualification does not hold the same power as a pre-approval.
? Mortgage Loan Pre-Approval
A mortgage loan pre-approval is more in-depth when it comes to verifications than a pre-qualification. This pre-approval does make a hard inquiry on your credit report and requires paperwork that proves your work history and financial stability.
The mortgage loan pre-approval comes with a price range that can be helpful when it comes to searching for homes because it saves you time and keeps you from setting your sights on a home outside of your price range.
A mortgage loan pre-approval may hold weight with a seller if your offer comes up against the competition of another buyer without this letter of approval. Your pre-approval tells the seller that you are serious about the purchase and can follow through if the offer is accepted.
? Mortgage Approval Process
During the mortgage loan approval, the lender checks and verifies all facts through an underwriting process before they grant the loan. This underwriting process lowers the risk of the buyer being unable to meet the repayment terms of the loan.
It’s important to have all documents that are needed in proper order when this process begins to avoid delays. If the underwriters find the papers out of order or in need of additional details, they send the account back to the lender and more time is needed to restart the underwriting process again.
During the underwriting process, the agency will check your credit history, verify your employment, and judge your debt to income ratio. They will also confirm your down payment, make sure the home appraisal is complete, and do a title search.
There’s no set period for the completion of the underwriting part of the mortgage loan process. Some loans have strict guidelines on their investments that require additional, time-consuming steps for underwriting.
? Conclusion – How You Can Help
You can help make the mortgage loan process more manageable by having all the documents needed when you file for the loan. Don’t make any large purchases during the time you’re purchasing a home that can impact your debt to income ratio.
Communication is essential when it comes to the timely completion of tasks, so make sure you answer all emails and calls from your lender as soon as possible. Above all, be honest with your lender about all matters to keep delays from occurring.
?♀️ How can we help?
We have plenty of experience when it comes to mortgage loan details, and we would be happy to answer any questions you have about the process as you begin your search for a home.
We can help you find the perfect home that fits within the parameters of your home mortgage loan pre-approval. This knowledge and access to recently listed homes saves time by letting you know about homes that meet your price range.
Give us a call today to set up a time when we can discuss any questions you have about mortgage loans and how we can help you find the home that meets your needs. We can even help you set up home search alerts that let you know when new homes come on the market!
The Exceptional Home Team is the best source of information about the local community and real estate topics. Give us a call today at 612-250-2335 to learn more about local areas, discuss selling a house, or tour available homes for sale.
