PREPARING TO BE A HOMEOWNER
For most of us, purchasing a home is the biggest investment that we ever make. It can be an exciting and fun process. Here are some basic requirements to be eligible for a mortgage.
Normally, a person will need to have established two years of work history. If you are studying to work in a specific field, the time in college or trade school would count towards your work history. If a person is self employed, we would need the most recent 2 years of tax returns to calculate income.
Down payment requirements vary by the program. VA and USDA loan do not typically require a down payment. An FHA loan typically requires a 3.5% down payment. A conventional down payment can be as low as 3% for a first time home buyer. You will be required to document the funds needed for the down payment in order to achieve or maintain a loan approval.
Credit requirements also vary by the program. A Conventional mortgage requires a 620+ middle credit score, no exceptions. A USDA mortgage typically needs a 640+ middle credit score, though exceptions could be made depending on the relative overall strength of the file.
FHA and VA mortgages require 580+ middle credit scores. *Note: FHA DOES have loan programs that will accept sub 580 credit scores, but these programs require at least a 10% down payment instead of the aforementioned 3.5%.
Now that we’ve taken a brief look at employment and credit requirements, let’s say that we are able to prequalify you and/or approve you for a particular home. What you can qualify for on paper and what you and your family are comfortable spending might be two different numbers. The point is that you should ALWAYS take a second look at your own personal budget before purchasing your home, and know that we - as your loan officers - will never pressure you into making a decision that you shouldn’t.
Here are some commonly asked questions.
Why do credit scores vary by lender for FHA and VA?
To participate in the FHA and VA programs, lenders are monitored by their default rate and how it compares to other lenders. If the default rate for a specific lender rises above the national average, they will be asked to make adjustments to the program to correct this. Credit score is the most common additional requirement. As a result, you will see different lenders with different credit score requirements. These are not set by FHA or VA but by the lender.
How long do I plan on living in the home?
If you plan on moving in the next 12-24 months, you may want to consider not purchasing a home at this time. Most people need to live in a home for approximately three years to recoup the costs of the seller.
How much $ will I have after closing?
It is important to have some savings remaining. We encourage you to not put all of your available cash into your new home. While you may have a home warranty to cover major repairs, we all know that life can hit us with unforeseen circumstances as quickly as the weather can change in Texas. So, have a little set aside for medical bills or vehicle repairs. It’s probably not worth losing your home over.
Most programs allow the seller to help with closing costs, so borrowers can lower their cash out of pocket. Our borrowers often only bring the down payment to closing, and structure the contract where the seller is covering all remaining closing costs. That’s not to say that you don’t effectively pay for those costs, but more to say that you’ll often have the ability to choose whether you want to pay those costs up front or rather have them structured into your payment. Make sure to know what is best for you before you write an offer. This is an important conversation to have with us along with your agent.
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BENEFITS OF AN FHA LOAN
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