Before shopping for a mortgage, there are a few things to know that can help with finding your best loan option and improve your chances for loan approval:
Request and review credit reports and scores. You can check your credit scores for free, but it's also a good idea to request and review credit reports for all borrowers of a home loan. According to federal law, you can order one free copy of credit reports from the three major credit reporting bureaus annually. The Consumer Financial Protection Bureau advises consumers to review each credit report line-by-line to ensure that all information contained in the reports is correct. This can alert you to potential credit card fraud and reporting errors that can lower your credit scores and impact your ability to qualify for a home loan.
Resolve credit reporting issues before contacting lenders for home loan quotes. If you have blemished credit including late payments, high credit card balances, or collection activity, it may be worthwhile to put off buying a home until you can fix your credit problems. If you've filed bankruptcy or have a foreclosure on your credit history, you may be eligible for a home loan three years after a foreclosure and two years after your bankruptcy was discharged by the court.
Calculate how much you can afford for a down payment and closing costs. While it's possible to make a down payment of as little as 3.50 percent of your home's appraised value, most down payments of less than 20 percent of home value will require either FHA mortgage insurance or private mortgage insurance. Premiums for mortgage insurance are always paid by borrowers as part of monthly loan payments. FHA loans also require borrowers to pay an upfront premium that's due at closing. Your real estate agent can help with estimating closing costs, but costs are subject to change from the time you make an offer on a home until the sale closes.
Determine your eligibility for a VA loan. The Department of Veterans Affairs offers home loans to eligible military veterans, servicemembers, and surviving spouses of veterans. VA loans have flexible approval requirements and require no down payment. Eligibility for a VA loan does not guarantee loan approval.
Knowing your credit standing and options for your down payment and closing costs can help prevent unwelcome surprises during the loan approval process and at closing.
First-Time Buyer Programs Offer Down Payment Help
If you're buying your first home and are short of cash for your down payment and closing costs, first-time home buyer programs may help. These programs are typically sponsored by state housing finance agencies and /or local community development programs. They provide down payment assistance funds in exchange for a "silent" second mortgage against the home you're buying. This type of home loan may even require no repayment until borrowers vacate their home.
HUD-approved housing counselors can also help with budgeting, credit counseling, and finding home buyer assistance programs.
When you're ready to shop for a mortgage, please request multiple loan quotes to compare interest rates, lender fees, and costs and loan types. This is a great way to find a home loan best matched to your financial situation.