Frequently Asked Questions
Not necessarily, but it will certainly help. It is possible to get a conventional mortgage with a FICO credit score as low as 620, and you can obtain a higher-cost FHA mortgage with a score in the 500s. However, be aware that the lower your score, the higher your interest rate will be.
The short answer is that you can get a conventional mortgage with as little as 3% down, an FHA loan with 3.5% down, and a VA or USDA loan with no money down at all. However, with a conventional or FHA loan, you'll have to pay private mortgage insurance, aka PMI, if your down payment is less than 20% of the home's sale price. (Those payments won't be a permanent fixture in your monthly payments, however. Once the loan-to-value ratio on your mortgage falls to 80%, you can ask your lender to drop them. And even without your request, lenders are required to cancel PMI when the loan-to-value ratio drops to 78%.)
The term "closing costs" refer to all of the charges you'll need to pay before your loan is completed. This can include origination fees, title insurance, prepaid escrows, and more. Closing costs can vary significantly, but generally, expect to pay around 2% to 3% of the home's price in closing costs.
Your lender may ask for many different items, but in general, be prepared to show all of the following:
- Income verification (Last two years' tax returns, W-2s, 1099s, and your last few pay stubs)
- Drivers' license and Social Security card (or alternative ID)
- Bank statements
- Proof of funds to close (and an explanation of where they came from, if it's not obvious)
- If some or all of your down payment is coming from a gift, you will need gift letter from the source of the funds that confirm they are gift, not a loan.
When you obtain a mortgage, you'll probably be asked to put money into an escrow account to guarantee the lender that the ongoing expenses of owning the property will be handled -- specifically taxes and insurance. You'll pay a lump sum into the escrow account at closing (also known as your "prepaids"), and add to it further with each of your monthly mortgage payments.
One of the biggest mistakes you can make while in the process of purchasing a home is opening a new line of credit. “The biggest detriment to buying is to get new credit. You get people that are excited and run down to buy new furniture or a new car,” Hatfield said. “That has to be factored into their debt ratio. If it puts them over, they can lose out on the home.”
Once you’ve submitted your paperwork for preapproval, stop spending money on any of your credit cards. Don’t make any large purchases until after you have the keys to the home. Even if the expense doesn’t push you over the debt range, it could delay the approval process, which could cost you your dream home, especially in a competitive market.
Still have questions? Please contact A Mortgage Boutique today and we can provide you more information or help you apply.