Most people will have to get a loan to buy a home. You have many options when it comes to choosing a mortgage plan. However, choosing the best one will depend on several factors. Here are a few you need to consider, as shared to us by Altius Mortgage Group.
1. Credit Score
Your credit score is an important factor when choosing a home loan. Lenders look at your credit score to weigh their risks in lending you money to buy a home. While it is not the only factor, the credit score gives lenders a good idea of your capacity to pay them back.
Most lenders would require a borrower to have a credit score of 740 and up on the FICO scale. Some lenders will consider borrowers with a lower score but will require a large down payment, higher interest rates and proof of steady income.
If you have a score of at least 580, you may qualify for an FHA loan. However, you will have to pay for mortgage insurance. You can qualify for a loan with better interest rates and no extra charges by improving your credit score.
2. Down Payment
Another factor you have to consider is the amount you can afford to put down for a home loan. Most lenders require 20% of the cost of the house, although some may accept just 5%.
If you have a good credit score and steady employment, but no money saved for the down payment, consider an FHA loan, which requires as little as 3.5% down for first-time homebuyers. If you are in active military service or a veteran, you may qualify for a VA loan, which requires no down payment.
Keep in mind that a low or no down payment loan means you have to borrow more money. This means you pay more interest. You may want to think about choosing a home on which you can afford to put 20% down.
3. Monthly Payment
You also have to consider how much you can afford to pay on a monthly basis. Ideally, your monthly payment should not be more than 28% of your monthly income.
In fact, many lenders will not give you a loan if the monthly payment is more than that. You may not qualify for a 15-year fixed rate mortgage, but you may qualify for a 30-year one. If you are young, you might want to consider a 30-year mortgage.
Alternatively, you can pay a larger down payment to bring the balance down. That way, your monthly payments go down, and you can qualify for a shorter-term loan.
You have to consider many factors when choosing a home loan. Before looking for your dream home, make sure you understand what those factors are and how they will affect your choices.