Closing Costs, Preapproval and Best Rates, What Do They Mean? Here’s a Helpful Guide
Find Out if You Qualify
You don’t likely know much about buying a house unless you have bought or worked in real estate. According to a recent GOBankingRates survey, this is the norm for most Americans.
Only 26% of the 1,000 respondents across the country felt that they were familiar with the homebuying process and finding the right mortgage lenders. Preapproval, followed by closing costs, was the most confusing part of this process for those surveyed. This is a quick explanation of the most important aspects of buying a home, home loans and home loan interest rates.
What does it mean for you to be preapproved to purchase a home?
You will need a mortgage lender unless you are paying cash to purchase your home. Preapproval refers to approval for a home mortgage lender. Preapproval allows sellers to know that you have a lender for home loans willing to give you credit to purchase a home.
Before you begin the home buying process, it is necessary to contact a mortgage lender in order to obtain preapproval. The lender will verify your employment and creditworthiness, as well as your income and assets. Based on these factors, the lender will approve you for a specific amount of money. Most lenders require a credit score of at least 620. A lower credit score might mean that you will need to pay a higher down payment when you purchase a home.
A preapproval letter will be prepared by the lender indicating the amount that you have been approved for. The preapproval documentation expires after 60 to 90 days. You might need a preapproval letter from some real estate agents to view the homes that you are interested in.
What type of mortgage should I get?
According to the GOBankingRates survey 14% of respondents were confused about which home mortgage loan they should get. There are six types to choose from, so it makes sense that people would be confused.
A conventional loan can be obtained if your lender has established that you have good credit and a steady, regular income and are able to make a down payment of 3% on a home. These home loans are usually backed by Fannie Mae or Freddie Mac, two government-sponsored companies that manage most conventional mortgage loans.
The federal government sets maximum loan limits for these home loans. For one-unit properties, the loan limit is $647,000. However, it can be higher if there are more than average homes.
Non-conforming Mortgage Loans
These loans are typically more expensive than conventional mortgage loans. You will need to have a large amount of cash to be eligible. You will typically need to pay 10%-20% of your down payment, and you must have great credit. There are several home loan lending companies that focus on this type of home loan product.
Federal Housing Administration (FHA), Government-Insured Loans
FHA loans may be available to you if this is your first home purchase and you have a low or moderate income. You will typically have to pay a 3.5% down payment and a mortgage insurance premium upfront.
Government-Insured Veterans Affairs Loans
The VA loan can be used to purchase 100% of the home for military service personnel, veterans and their spouses. You don’t have to make any down payments if you are eligible. There is usually less closing cost. Some people who are eligible will have to pay a funding fee.
USDA Loans (Government-Insured)
A USDA loan may be available to you if you have low income and live in rural areas. As long as your home meets the eligibility requirements, these loans don’t usually require any down payment.
After you have selected the type and amount of mortgage that you are eligible for, you can look at your repayment options:
Fixed-rate mortgages are available for those who plan to stay in their home for a prolonged period of time. This means that you will pay the same interest rate for as long as you own your house. Your lender can negotiate the length of your mortgage and the interest rate depending on how much you are able to afford each month.
An adjustable rate mortgage is a loan that allows you to refinance or flip your house in the future. These loans have a fixed interest rate for 10 years. After that, you and your mortgage lender will be able to adjust the rate based on market conditions. Your interest rate may rise after those 10 years. If you plan to keep the house for 10 years or more, be ready for this possibility.
Your situation and qualifications will determine which home mortgage and what rate you can get. There are options for first-time homebuyers that will lower their monthly mortgage payments. For information about your state’s programs, check with your lender or contact us we have a qualified list of top home lenders in the area.
What are the closing costs?
Additional fees are charged for closing costs in addition to the price of your home. These fees cover costs such as a loan application fee and a credit report fee. They also pay for property tax and appraisal fees. Underwriting the mortgage, real-estate commissions, title, record filings and other costs that can vary depending on state and home type.
Closing costs typically amount to between 3% and 6 percent of the total cost of a home. You must get estimates of closing costs from the lender you spoke with to obtain preapproval. These will be based on the amount you have been approved for. Your lender must give you the exact closing cost number three days before closing on the property you have purchased.
What is the Best Rate?
APlusMortgageRates.com is the authoritative source of information with access to the best interest rates in the real estate. We have compiled a list of the top mortgage companies in the nation. Every home mortgage is unique and finding the right home mortgage loan for you is our duty.