How To Qualify For A Mortgage And Home Loans

home-mortgage

Financing a new home is often the most confusing part of the home buying process. To make it easier, Brunswick Crossing developed a basic checklist that details how to qualify for a mortgage and explains different types of home loans, and closing costs:

  • Prequalify for a mortgage. Prequalifying for a mortgage on your new home depends on the following four major factors:
    • Your income. Your gross household income takes into account your salary, hourly wages, overtime, bonuses, commission, rental income, capital gains, and alimony and child support. 
    • Your current monthly obligations. Your monthly obligations take into account long-term debt, including student, credit card, or car loan payments, as well as alimony and child support.
    • Your assets. Your assets take a financial snapshot that includes your bank account balances, retirement funds, assets to liquidate, 401K funds, and gift funds.
    • Your credit score. Your credit score is a numerical rating of your ability to repay a loan. Your credit score depends on a number of factors, including payment history (on-time payments, late payments, and past due payments), number of credit accounts, and borrowed credit versus credit limit.

      For information on how to improving your score, check out 6 Tips For Building Credit Scores.
  • Pick your home loan type. Common options for house loans include the following:
    • Conventional loans. A conventional loan is any type of mortgage that’s not secured by a government-sponsored entity, such as the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA).

      A down payment of a conventional loan is between 3 and 20 percent. When a down payment is less than 20 percent, home buyers usually have to pay for mortgage insurance (PMI). Home buyers must have a credit score of 620 or higher.
    • FHA loan. A down payment on an FHA loan is about 3.5 percent. All FHA loans have upfront and monthly PMI, and home buyers must have a credit score of 580 or higher.
    • VA loan. A VA loan is a mortgage loan that’s guaranteed by the U.S. Department of Veterans Affairs. It requires no down payment and a minimum credit score of 630. A funding fee is required unless the home buyer has disabled status through the VA.
    • U.S. Department of Agriculture (USDA) loan. A USDA loan is “issued through the USDA loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program, by the United States Department of Agriculture,” according to NerdWallet.

      It requires no down payment and a minimum credit score of 620. This home loan requires an upfront PMI of 2.75 percent and a monthly PMI of 0.5 percent.

      This loan type is available for individuals or families without “decent, safe and sanitary housing” who are unable to secure a home loan from traditional sources and have an adjusted income at or below the low-income limit for the area where they live.

    • Maryland Mortgage Program. This program is designed to help future Maryland homeowners find a safe and secure home loan from Maryland’s Housing Finance Agency. It promises down payment and closing cost assistance, a 30-year fixed mortgage rate, homebuyer education, and Maryland HomeCredit.

      One of the most popular options is Maryland SmartBuy, “a special home purchase program that makes available selected state-owned properties for sale while removing eligible student debt.”
  • Prepare for closing costs. Some mortgage lending companies offer closing cost assistance or discount points/credits to offset the fees incurred. However, during the cash-to-close process, home buyers should anticipate paying for the following:
    • Property tax, homeowners insurance, and mortgage interest escrows
    • Capital contribution to a homeowners association
    • Loan origination, appraisal, transfer and recordation, process and underwriting, and title and title insurance fees
    • Upfront PMI