Buying that first home is a dream come true for many people. Indeed, it’s quite an accomplishment because the home buying experience can be a trying one. In fact, so much goes into the process of buying a home that there are even classes you can take to prepare you for the process.
If you’re in the market for your first home, you have a lot to learn about the process and what lenders require from applicants. Continue reading to get some important information that will make your journey a little easier.
Your credit score has a huge impact on your eligibility for a home loan.
As you know, houses are quite expensive. In fact, buying a home is the largest purchase the vast majority of people will ever make in their life. With the average house costing upwards of $200,000, it’s highly unlikely you can afford to buy a new home out of pocket.
Securing a home loan is the most critical step of the process for prospective homeowners. The higher your credit score is, the easier it will be to get a mortgage on your dream home.
So what credit score is needed to buy a home? The rule of thumb is that you need a credit score of at least 620 to qualify for a conventional home loan. However, there are other types of loans, which we’ll cover later, that you can get with a lower score.
FHA loans are a great option for first-time homebuyers.
When shopping for a mortgage, it’s important to do your research and explore all the possibilities. As you read earlier, there is a wide range of loan options for which you could qualify depending on your credit score and other factors.
We’ve already briefly discussed conventional loans, but the next most popular type of home loan is the FHA loan, which is a loan backed by the Federal Housing Administration. One of the common misconceptions about FHA loans is that they’re only for first-time homebuyers, but repeat homebuyers can qualify also.
The most attractive thing about FHA loans is that they require a lower minimum credit score. Borrowers only have to have a credit score of 500 to qualify, but your down payment will be 10% of the home’s value. However, with a credit score of 580, your minimum down payment drops to 3.5% of the home’s value.
You’re going to have to make a large down payment.
Speaking of down payments, no matter what type of home loan you qualify for, you’re going to have to make a down payment on your mortgage. It’s a good idea to begin putting money away for a down payment as much as a year in advance of purchasing your home.
Sometimes, people try to take out a personal loan to cover their down payment, but it’s usually not a viable option. Even if you can find an institution willing to give you a personal loan for the amount of your down payment, it’s not a good idea to take on two loans at the same time, especially for the same thing.
Having excellent credit decreases how much you pay for your home.
You already know your credit score determines your eligibility as a borrower, but did you know that it also affects how much you pay for your home? The lower your credit score is, the higher the interest rate on your home loan will be. However, if you have excellent credit, you could end up saving thousands of dollars on your home. Furthermore, the larger your downpayment is, the less you’ll have to borrow from the mortgage lender.
It may take a while for you to land your dream home, but with preparation and persistence, it’s an attainable goal. By working on your credit, learning about different home loan options, and saving for a sizeable down payment, you can make the process much easier. The good news is that once you make it through the gauntlet, you’ll be home sweet home!