Mortgage Purchase Guidelines

Preparation for the Home Buying Process

Before starting the home buying process, borrowers should consider or have the following preparations in place:

Check Your Credit: Review your credit report and credit score to ensure they are accurate and in good shape. A higher credit score can lead to better mortgage terms. Typically 580 is the minimum credit score

Budget and Savings: Determine your budget and how much you can afford to spend on a home. Save for a down payment, closing costs, and an emergency fund. Lenders like borrowers DTI to be under 45%

Mortgage Pre-Approval: Get pre-approved for a mortgage, a mortgage pre approval is NOT a mortgage loan approval

Identify Must-Haves: List your priorities and the features you need in a home, such as location, size, and specific amenities.

Home Inspection: Be prepared to hire a qualified home inspector to assess the condition of the property before finalizing the purchase. Normally $300 .00

Review the Neighborhood: Research the neighborhoods you’re interested in for factors like schools, safety, and property values.

Down Payment / Closing Costs: Starting the process, ask for down payment estimate and closing cost estimates. Down Payment can range 3.5% – 20% of purchase price (subject to loan product). Closing Cost typically 3% -6% seller can pay towards those.

Long-Term Planning: Consider your long-term plans and whether the property meets your future needs.

Paperwork and Documentation: Gather necessary financial documents, such as tax returns, pay stubs, and bank statements for the mortgage application.

Having these preparations in place can help make the home buying process smoother and more informed.

Understanding Mortgage Programs, Benefits and Guidelines

Here are the most common types of mortgage loans, along with explanations of each, their benefits, and general lender guidelines:

  1. Fixed-Rate Mortgage (FRM):
    • Explanation: A fixed-rate mortgage has a consistent interest rate and monthly payments over the life of the loan, usually 15, 20, or 30 years.
    • Benefits:
      • Predictability: Stable monthly payments for budgeting and planning.
      • Long-Term Planning: Ideal for those planning to stay in their homes for an extended period.
    • Lender Guidelines:
      • Good credit score (typically 620 or higher).
      • Debt-to-income ratio usually below 43%.
      • Down payment requirements vary but typically start at 3%.
  2. Adjustable-Rate Mortgage (ARM):
    • Explanation: An adjustable-rate mortgage has an interest rate that can fluctuate after an initial fixed-rate period, usually 5, 7, or 10 years.
    • Benefits:
      • Lower Initial Rates: Initial rates are often lower than fixed-rate mortgages.
      • Flexibility: Ideal for those planning to sell or refinance before the rate adjusts.
    • Lender Guidelines:
      • Initial fixed-rate period with specific rate caps.
      • Credit score requirements similar to fixed-rate mortgages.
      • Sufficient income and employment stability.
  3. FHA Loan (Federal Housing Administration):
    • Explanation: An FHA loan is a government-backed loan with a low down payment requirement, designed for borrowers with lower credit scores.
    • Benefits:
      • Low Down Payment: Requires as little as a 3.5% down payment.
      • Flexible Credit Requirements: Suitable for those with less-than-perfect credit.
    • Lender Guidelines:
      • Minimum credit score typically 580 or higher.
      • Debt-to-income ratio usually around 43% or higher.
      • Down payment as low as 3.5%.
  4. VA Loan (Department of Veterans Affairs):
    • Explanation: A VA loan is a government-backed loan available to eligible veterans, active-duty service members, and certain members of the National Guard and Reserves.
    • Benefits:
      • No Down Payment: Typically requires no down payment.
      • No Private Mortgage Insurance (PMI): No monthly PMI payments.
    • Lender Guidelines:
      • Typically no specific credit score requirement, but a good credit history is necessary.
      • Debt-to-income ratio generally around 41% or higher.
      • Proof of military service or eligibility.
  5. USDA Loan (United States Department of Agriculture):
    • Explanation: A USDA loan is a government-backed loan for eligible rural and suburban homebuyers with specific income requirements.
    • Benefits:
      • No Down Payment: Often requires no down payment.
      • Low Mortgage Insurance: Lower mortgage insurance costs than FHA loans.
    • Lender Guidelines:
      • Typically a credit score of 640 or higher.
      • Debt-to-income ratio varies but often below 41%.
      • Eligibility based on location and income.
  6. Conventional Loan:
    • Explanation: A conventional loan is not government-backed and is offered by private lenders or financial institutions.
    • Benefits:
      • Flexibility: Various terms and down payment options available.
      • No Upfront Mortgage Insurance: Avoids upfront mortgage insurance premiums required by FHA loans.
    • Lender Guidelines:
      • Typically a credit score of 620 or higher.
      • Debt-to-income ratio often around 43% or lower.
      • Down payment requirements vary, starting at 3%.

Understanding these types of mortgage loans and their respective benefits, along with meeting lender guidelines, can help borrowers choose the best mortgage option based on their financial situation and homeownership goals. It’s important to work with a reputable lender or mortgage advisor to navigate the application process effectively.