3 Important Things to Know about Getting a Home Loan


Obtaining a home loan can seem overwhelming, but it doesn’t have to be. When you know what to expect and what to do, it can be an easy process.

The following are the most important things you need to know when getting a home loan.

  1. Why it’s important to be able to explain the relationship between your life and your credit history
  2. The reason you should not make major purchases or apply for credit when applying for a home loan.
  3. How new Fannie and Freddie-backed mortgage loans can help you save money.

What You Need to Know

Know Your Credit Score and It’s Relationship to Your Life

It’s important to know you have a good chance of getting a home loan. You can do that by reviewing your credit report and getting your credit score. One of the reasons you can be declined for a home loan is your credit score… or your history in managing credit. It’s true that the past may not reflect the future. Your credit score may have dipped because you lost your job, but now you’re working… or you had medical bills, but now you have insurance. Whatever your circumstances, when you apply for a home loan, you need to be able to explain the relationship between your life and your credit history to a lender. If your credit score falls below their minimum threshold, you may be able to get your home loan approved as an exception, based on your explanation.

There are many sites to obtain your credit report and credit score for free. A good website for your credit report is www.annualcreditreport.com. This is the only site for free credit reports from all 3 major credit bureaus authorized by federal law.

Avoid Making Major Purchases, Applying for Credit, or Changing Your Financial Picture

If you make large purchases and deplete your savings, this may alarm a mortgage lender. This means that you should wait to purchase furniture for your new home until after you close on your mortgage.

The same goes for applying for credit. This includes applying for a simple store credit card. When you apply for credit cards, your credit report and credit score is requested and new credit applications can lower your score. If your score is already low or on a threshold of changing your loan terms, it could delay the mortgage process or stop it.

Avoid making major financial changes. For example, do not move money from savings into a certificate of deposit. Each transaction could create a headache because the bank will want to see a paper trail to see where the money came from and where it went. Most importantly, avoid paying off large debts with savings because that could cause your lender to worry about how you will pay for closing costs.

Learn about Recent Changes to Fannie- and Freddie-Backed Mortgages

Until late 2014, Fannie Mae and Freddie Mac required down payments of at least 10 percent. This requirement pushed many homebuyers to seek insured loans with the Federal Housing Administration (FHA). These loans only required a minimum down payment of 3.5 percent. The problem was that FHA premiums were costlier than private mortgage insurance. This year, borrowers will be able to obtain Fannie- and Freddie-backed mortgages with down payments as little as 3 percent. Mortgage insurance premiums will vary according to credit score and size of down payment, but private mortgage insurance premiums generally will be more affordable than FHA premiums.

To learn more about getting a home loan, contact us. We are more than happy to sit down with you to make this process as easy as possible.

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