The buying of a house is often the biggest purchase that folks will make in their lifetime and while there are those few who may have the cash on hand to buy a home the majority of us will need to get a loan. A loan for a home is referred to as a mortgage loan and it is secured by a mortgage or a security interest on the real property.
A mortgage loan is credit that is collateralized by the real property, which is usually the home that you’re purchasing. The mortgage note shows the presence of the underlying loan and the encumbrance of the real estate. This is generally a deed that is recorded at the recorders office in the County that you reside in.
Mortgage loans are very diverse and they can vary significantly in factors like the amount of down payment that is required, the maturity of the loan, the method of payoff and the interest rate. There are three categories for mortgage loans. FHA and VA loans are backed by the government and conventional loans are backed by the private sector. The down payment required by the buyer is typically lower on the government-backed loans.
Mortgage loans are much harder to obtain than they were just two or three years ago due to the subprime mortgage crisis and the economic downturn. However, properties are still selling and people are still getting mortgages every day and now that home prices are going down it may possibly be a good time to buy a home.
Prior to going out looking for a home you should pre-qualify for your mortgage. It may be very disheartening to locate a great home you want to purchase only to find out that you cannot get a mortgage for it. A well-prepared homebuyer will always have a pre-approved mortgage in place before they start looking for a home.
You’ll need steady and dependable income, a clean credit report and high credit score and possibly a down payment that ranges between 3% and 20% of the purchase price, depending upon the type of loan that you are trying to obtain. You will have to be able to qualify for the mortgage and the house you are getting must also qualify. The house must have an appraisal for the purchase price or above in order to be financed.
The mortgage lender will consider your income and your debts together with your credit history. There are specific guidelines that they must follow but a general rule of thumb is that your monthly house payment should not exceed 29% or your gross monthly income and your house payment along with your recurring bills, such as credit cards and car payments, should not exceed more than 41% of your total monthly gross income.
For those who have any glitches on your credit you need to address them prior to applying for your new mortgage loan. For those who have outstanding debts you will need to pay them off and you will have to repay anything that could put a lien on your new home, such as judgments, taxes or any mechanics bills. Prior to you making your first appointment with the mortgage lender you need to get your credit report and begin repairing and improving what you can.