All of us involved in a real estate transaction aim to make the process as smooth as possible, and Stellar Title knows that one of the major components of buying a home is qualifying for a mortgage. That’s why, to help celebrate National Financial Literacy Month, our team wanted to present you with a few truths about the money side of things.
It’s important to get your finances in order. The first step towards saving for a house is confirming where you stand financially. Start by analyzing your income and expenses to understand where your money goes each month. Then, if you can, pay off debt to put you in a better position to qualify for a loan. High-interest debt, especially from credit cards, can be a major barrier when it comes to homeownership. Why? Credit utilization and debt-to-income ratio are key factors when applying for a loan.
You don’t need a large down payment. Now that we’ve addressed the organization part, we’ll focus on some things to know that may help you buy a home sooner rather than later. You may have heard that 20% down is required to buy a home, but it’s not. Conventional and FHA loans require 3 and 3.5%, respectively, and the median down payment for first-time buyers is 8%.
Private Mortgage Insurance (PMI) can be worth it. Helping perpetuate the 20% myth is the notion that PMI should be avoided at all costs. That’s also not true. So, what is Private Mortgage Insurance then? While it’s an added fee of anywhere from 0.3 to 1.15% of your home’s loan, it’s a sensible tradeoff for most people who don’t want to or can’t put a large payment down.
Pre-approval and pre-qualification aren’t the same. And pre-approval is the one you want, even though it’s a much more stringent process that includes being preliminarily approved (hence the name) by a loan officer and an underwriting representative. It also consists of a credit check and verification thresholds, but gaining this authorization will make your offer look more attractive and legitimate.
Know that when it comes to helping you through buying (or selling) a home, this community has some of the best experts around – including some wonderful loan officers. And when it comes to title and closing expertise, we’re happy to provide a stellar experience. Reach out to us anytime!