Looking for a home can be frustrating, since there are hundreds of programs out there and sometimes you are not sure which one will work best for you.  Therefore, it is good to seek professional advice from a lender to determine your qualifications and what programs will work best for you.  Some of these lenders also provide you with free consultation, so why not give them the benefit of the doubt?

What is a credit report and how is it used to determine what you are qualified for?

Your credit report is the foundation for determining what program(s) you are qualified for and how much money can be loaned to you, for the purchase of your new home. 

A credit report can be requested by your lender and consists of information about your credit history as far as how well you pay back your debts, etc…  In addition, credit reporting agencies are usually updated once a month with credit information.

How does Credit Scoring work?

Your credit score is a number that is used to determine your ability to pay back a loan.  The ranges are from 350 to 950.  The lower the score, the more susceptible you are at paying back your loan.  However, the higher the score, the less susceptible you are at paying back your loan. 

All of your past credit behavior, such as delinquencies, derogatory payments, etc… are all included in your credit report and are taken into consideration to determine your actual score. 

One of the most important things that you can do to increase your credit score is simply paying your bills on time, no matter how small the amount you owe.  Late payments or non-payments are the things that will ruin your credit and place you into the bracket of having “Bad Credit”.

In order to be able to generate a credit report and an accurate credit score, you must have at least one account that has been established for a minimum of 6 months. 

The Loan Market

Understanding how to market works, plays an important role in you understanding the various loan programs that are offered.

There are two types of lenders – institutional and private.  Commercial banks, mortgage banking companies, and insurance companies to name a few, are all institutional lenders.  These types of lenders issue loans based on the credit and income of the potential borrower, and deals directly with the borrower itself.  On the other hand, private lenders can be individuals or small companies and are typically not regulated by the federal government.  

What is an FHA Loan?

An FHA Loan primarily targets people who are not qualified for a loan.  This is because HUD takes some of the risks on the loan.  FHA loans allow borrowers to purchase their homes with as little as 3% down.  Borrowers of this type of loan can also qualify for gift programs which require no money from them.

What is a Conventional Loan?

Conventional loans can be made to purchase or refinance single to four family homes with first and second mortgages.  This type of loan is more suitable to those individuals with good credit.  These loans are secured by entities such as Fannie Mae and Freddie Mac to name a few.  Some of the advantages of this type of loan include higher loan amounts and faster processing times.



What's the Difference Between a Fixed Rate and an Adjustable Rate?

Fixed Rate

In a fixed rate mortgage, the interest rate is already set when you initially take out the loan.  This fixed interest rate will remain intact for the remainder of the loan.  With this type of mortgage, any variation to the interest rate would not affect the borrower, but will affect the lender of the loan instead.  As a result, this type of mortgage has a higher rate than that of an adjustable one, due to the risks involved from the lenders standpoint.        

Adjustable Rate Mortgage

An adjustable rate mortgage is just the opposite of a fixed rate mortgage, in that the interest rate changes occasionally.  As a result, your payment may go up or down accordingly.  One of the advantages of an adjustable rate mortgage includes lower initial rates.  On the contrary, these lower rates indicate that you are taking more of a risk.  This is due to the fact that if the interest rates should increase in the future, you will have higher monthly payments.  Therefore, this type of mortgage is good for people who do not plan to stay in the same home for many years.  However, they are still taking a chance, although they are making lower monthly payments.  This is because they are still risking the likelihood of increased interest rates. 

Which Mortgage Program is best for you?

There are so many programs and different loan types out there, to fit each and every possible financial scenario.  Which ones are right for you?  Sometimes it’s confusing because there are just too many of these programs out there.  Therefore, you should sit down with a professional to discuss your current financial goals and well as your future ones.  By doing this, he/she would be able to set you up with the right program and right loan type that best suits your needs.  As a result, you will feel better to know that you are getting into the right program, before its too late.