If you want to secure a favorable home loan with low interest rates, you have to meet a number of strict requirements. For instance, according to the latest Ellie Mae data, successful mortgage borrowers possess an average ratio of housing debt to income of about 24%. For many families, that requires having two reliable sources of income. Plus, most lenders won’t deal with anyone who has a credit score below 680; even the Federal Housing Authority requires a credit score of at least 620.
Even if you meet all these requirements, even if you find a dream home in your price range, even if you have a lender all lined up, there are still more factors to consider. Just because you can secure a mortgage doesn’t mean you should. If you have significant existing debt, then it’s important to calculate what percentage of your monthly income your debt payments would be. And, yes, that includes those mortgage payments. In general, monthly debt payments that exceed 36% of your gross income put you in a risky financial position.
Home Loans Comparison: I Have Great Credit, Great Income, And I’m Ready To Buy
Although most people take out 30-year mortgages, there are many other types of home loans to consider as well. Because of hard pre-payment fees, many high-income buyers prefer 15-year loans. Veterans, on the other hand, might qualify for generous VA home mortgage rates.
Ultimately, there’s no way to know what the best type of home loan is until you have a complete picture of your finances. It’s crucial to perform home loans comparisons, ensuring that you get several options to choose from. When you compare home loans, always remember to ask about the APR.
Say you’ve been offered two interest rates for home loans from two different local mortgage lenders. One offers you a generous 3.5% interest rate, while the other offers you a 5% interest rate. The APR stands for annual percentage rate, and it includes all the extra fees and payments you’ll make on your home loan each year. These fees can include things like mortgage insurance, lender fees, loan origination fees, appraisal costs, and more. So while the 5% mortgage interest rates might seem much steeper at face value, the cheaper 3.5% loan may actually have a higher APR.
When performing a home loans comparison, always ask for the APR before arriving at any decisions. The best way to secure a good home loan? Find a mortgage lender you can trust, a lender that will work with you, rather than simply trying to profit off of you. How can you tell the difference?
Do as much research you can on the terms of the loan and the fees, then see if the lender is upfront and honest about all these costs.