Buying a home is a major financial decision, and it's important to be prepared before you start the process. One of the most important things you'll need to do is get pre-approved for a mortgage loan. This will give you a good idea of how much you can afford to borrow, and it will also make the home-buying process go more smoothly.
When you're getting pre-approved for a mortgage loan, there are a few things you'll need to keep in mind.
1. Your Credit Score
Your credit score is one of the most important factors that lenders will consider when you're applying for a mortgage loan. A higher credit score will get you a lower interest rate, which can save you a lot of money over the life of your loan.
According to Experian, the average credit score for a homebuyer in 2020 was 710.
2. Your Debt-to-Income Ratio
Your debt-to-income ratio (DTI) is another important factor that lenders will consider when you're applying for a mortgage loan. Your DTI is the percentage of your monthly income that goes towards paying your debts.
Lenders typically want to see a DTI of 36% or less. However, some lenders may be willing to approve loans for borrowers with higher DTIs.
3. Your Down Payment
The amount of money you put down on your home purchase is also an important factor that lenders will consider. A larger down payment will lower your monthly mortgage payments and it will also give you more equity in your home.
The average down payment for a home purchase in 2020 was 6%.
4. The Type of Mortgage Loan You Choose
There are a variety of mortgage loans available, and the type of loan you choose will depend on your financial situation and your goals.
Some of the most common types of mortgage loans include:
- Fixed-rate mortgage
- Adjustable-rate mortgage (ARM)
- FHA loan
- VA loan
- USDA loan
5. Mortgage Loan Insurance
If you're putting down less than 20% on your home purchase, you'll likely be required to purchase mortgage loan insurance (MLI). MLI protects the lender in case you default on your loan.
The cost of MLI varies depending on the size of your loan and your credit score. However, you can typically expect to pay between 0.5% and 1% of your loan amount each year for MLI.
6. Closing Costs
In addition to the down payment and the monthly mortgage payments, you'll also need to pay closing costs when you purchase a home. Closing costs typically range from 2% to 5% of the purchase price of the home.
Some of the most common closing costs include:
- Loan origination fee
- Appraisal fee
- Title insurance
- Recording fees
- Transfer taxes
Conclusion
Getting a mortgage loan is a complex process, but it's important to be prepared before you start. By understanding the essential mortgage loan considerations for homebuyers, you can make the process go more smoothly and you can get the best possible deal on your loan.
If you're thinking about buying a home, I encourage you to contact a mortgage lender to get pre-approved for a loan. This will give you a good idea of how much you can afford to borrow, and it will also make the home-buying process go more smoothly.
MinaRabbi Loan Insurance
At MinaRabbi Loan Insurance, we're committed to helping homebuyers get the best possible deal on their mortgage loans. We offer a variety of mortgage loan insurance products that can help you save money and protect your investment.
To learn more about our mortgage loan insurance products, please visit our website or contact us today.