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5 Things To Know About Mortgages When You Buy A Home

Gina Pogol
The Mortgage Reports contributor

The More You Know, The More You’ll Benefit

Nervous about getting a mortgage? You’re not alone.

Consumer studies have found that getting a first mortgage ranks pretty high on the stress scale; it’s right up there with going to the dentist or getting pulled over for driving too fast.

Fortunately, though, a little mortgage knowledge can go a long way toward reducing your anxiety and helping you to get a better home loan.

Here are five things you absolutely must know about mortgages and buying a home.

Verify your new rate (May 19th, 2019)

1. You Don’t Have To Put 20% Down

Mortgage down payment minimum range from 0% (for VA home loans and Rural Housing mortgages) to 20 percent (for non-government loans with no mortgage insurance), with plenty of options in between.

There are 97% home loans for borrowers with above-average credit scores (the Conventional 97) and there are loans requiring just 3.5% down for just about everyone else.

Additionally, there is the piggyback mortgage for buyers with 10 percent to put down, plus a host of other options including three percent down programs from Fannie Mae and Freddie Mac, and programs such as HomeReady.

You don’t need to make a downpayment of 20% to purchase a home.

2. Perfect Credit Is Not Required

Yes, to qualify for most lenders’ advertised rates, you need a sizable down payment and good credit scores.

However, there are a lot of mortgage programs designed to make home ownership accessible to first-time buyers, who are likely to be younger, have smaller incomes, and carry lower credit scores.

For example, the Federal Housing Administration (FHA) insures mortgages for borrowers whose credit scores range as low as 500. And, in some cases, the FHA will insure loans for borrowers with no credit score whatsoever.

In addition, Fannie Mae and Freddie Mac, which buy and sell the majority of home loans in the U.S., allow FICO scores down to 620, as does the Department of Veterans Affairs with its VA loans; and the U.S. Department of Agriculture with its USDA loans.

Some mortgage lenders approve loans with scores under 600.

3. The Seller Can Pay Your Closing Costs For You

When you purchase property, there are fees which are a part of the transaction. There are escrow fees, title insurance fees, lender costs, home appraisal services, home inspections, and more.

Overall, closing costs are lower than what they used to be, but costs can still add up.

The good news is that there are several ways to get someone else to pay your closing costs, if you’re short of cash or just don’t want to pay them yourself.

Ask the seller to pay your costs.

It shouldn’t matter whether you pay $295,000 for a home and pay your own costs, or offer $300,000 and ask the seller to pay $5,000 of your costs.

Or, ask the lender to pay your costs.

Most lenders will agree to this, but you’ll be asked to pay a higher mortgage interest rate. In general, a 25 basis point (0.25%) increase in your rate will cover your costs in full.

This is known as a zero-closing cost mortgage loan.

Lastly, you can ask the government to pay your costs. Many first-time buyer programs include help with closing costs. Some even offer down payment assistance as well.

Verify your new rate (May 19th, 2019)

4. You Don’t (Always) Need 2 Years Of Employment

Ask a mortgage loan officer what kind of work history is required to get approved for a home loan, and the automatic answer will be “two years.”

That’s kinda sorta true, but not totally. It really depends on your history and your prospects.

Someone who worked as an unpaid engineering intern, and was later offered a full-time, salaried position is more likely to get approved than an applicant whose work history includes full-time bartending, followed by a stint at a daycare facility, then by part-time barista work and multi-level marketing.

This doesn’t mean that both borrower types won’t be approved, it just means that you never know until you ask.

5. You Can “Test Drive” A Mortgage

It’s not a big deal.

Call a lender and ask to be pre-approved for a home loan. You’ll learn how much you qualify to borrow, what it will cost, and if there is anything you can do to borrow more, or to pay less.

Pre-approvals can be completed in a few minutes.

What Are Today’s Mortgage Rates?

Nearly all U.S. home buyers use mortgages to help finance the purchase of a new home. The process doesn’t have to make you anxious, though — the more you know, the better off you’ll be.

Get today’s live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

Verify your new rate (May 19th, 2019)