The SCOOP! Blog by ChangeMyRate.com® 'Stress-Free Mortgages'

We’ve all been cautioned by well-meaning friends and family. “It’s hard to qualify these days, even with a good income.” “You’ll need to put 20 percent down and have perfect credit.”

While there are plenty of mortgage misconceptions floating around these days — from how hard it may be to qualify to how much you should put down — it’s important to learn the facts and how they apply to you.

Not doing so could delay homeownership, and the benefits you would gain, by years.

What You Could Gain

If you are renting now, buying a home could be a better financial decision. Of course, that depends on several factors, such as where you live, current mortgage interest rates, and what you now pay in rent. Assuming your home appreciates in value, you’ll also gain equity. That’s money you’ll benefit from when it comes time to sell.

Aside from the financial aspect, owning a home means you can stay in one place, perhaps ensuring a short commute to work, or allowing kids to grow up in the same neighborhood and stay in the same schools.

Taking the Plunge May Be Easier Than You Think

Despite what you may have heard, getting a mortgage won’t require perfect credit or a large down payment. (However, it’s safe to say you should get your finances in order before you start house hunting or talking to lenders.)

So don’t count yourself out before learning the facts. You may qualify for one of many mortgage options, down payment assistance, or affordability programs once you know what’s fact and what’s not about the mortgage process and products. Here are a few common myths we’ve debunked to help you get started.

Myth #1: Find a home first, then worry about financing.

This is a very painful lesson for many first-time buyers who fall in love with a home only to learn they can’t qualify. That’s why it’s important to consult with a lender before you embark on your home-buying journey.

A lender will ask a few questions and check your credit to pre-approve you. This process will give you a good idea of your price range, and also of any credit hurdles you may need to overcome to secure a lower interest rate, potentially saving thousands over the life of your loan.

You can start the pre-approval process with ChangeMyRate.com online by clicking this link.

Myth #2: You’ll need perfect credit.

Few people have perfect credit — and that’s not what lenders are looking for anyway. If you have a steady income and pay your bills on time, it may be possible to qualify for a mortgage. The minimum credit score you’ll need depends on the loan type. For example, conventional loans typically require at least 620, and FHA loans allow for credit scores as low as 500 in some cases. But remember, lenders may also have different requirements based on other factors such as your down payment amount or income.

Myth #3: You’ll need to put 20% down.

This is something most first-time homebuyers hear from well-meaning parents or friends, but it’s simply not true. According the the ZIllow Group Consumer Trends Report, only one-quarter of buyers (24 percent) pay 20 percent of their home’s purchase price upfront as a down payment. Qualified borrowers can secure home financing today through many different programs with much lower down payments, such as 3% down with programs backed by Freddie Mac and Fannie Mae and 3.5% down with FHA. Some buyers can qualify for USDA and VA programs that require no down payment at all.  

Myth #4: You can’t use gifts/grants for your down payment.

Many mortgages today allow the down payment to come from any source as long as those sources are documented. According to the 2017 Zillow Group Consumer Housing Trends Report, 20% of buyers used a gift or loan from family or friends.

Not only can your down payment include gifts from parents or friends, but there are also grants from non-profits or other sources out there that could help, such as company-sponsored home-buying programs.  If you’d like to see what’s available, you can search for down payment assistance programs in your area at www.downpaymentresource.com.

Myth #5: It’s always best to get a 30-year fixed-rate mortgage.

Wrong again. The 30-year fixed mortgage is certainly a popular option, but there are many mortgage options out there. Something besides a 30-year fixed rate mortgage might be better for your needs, perhaps offering a short-term solution (and super low rate) if you know you’re only going to live in an area for a couple of years.

Because each situation is unique, you should talk with several lenders to determine the best loan options for you, taking into account your financial readiness, how long you plan to own the home, and other factors.

Myth #6: You must use the lender that pre-approved you.

While getting pre-approved by a lender is considered the first step towards getting your new home loan, it does not obligate you to work with that lender once you’re ready to purchase. In fact, it’s in your best interest to shop around and compare terms from several lenders. As mentioned just above, there are many types of mortgages with options that could lower your interest rate and save you tens of thousands over the life of your loan.

Ready to look into your buying options? In addition to your local bank or credit union, or lenders referred by real estate professionals or friends, ChangeMyRate.com can provide a loan estimate.

 Source: To view the original article click here

Posted by Jackie A. Graves on December 5th, 2021 8:23 PM

Americans with near-perfect credit scores are reaping the rewards of record-low mortgage rates, a trend that underscores the economic divide created by the coronavirus recession. However, there are signs that lenders might be easing their super-tight standards a bit.

The typical credit score for mortgage borrowers was 781 in the third quarter, down from 786 in the second quarter and just off the first quarter’s record high of 788, the Federal Reserve Bank of New York said in a quarterly report. During the era of loose lending that led to the Great Recession, by contrast, the median credit score of mortgage borrowers fell to as low as 707.

Meanwhile, only a quarter of borrowers who landed home loans during the summer months had credit scores of less than 729. Just 10 percent had credit scores below 677, according to the New York Fed’s data.


The numbers have been skewed upward in part by the large share of mortgage refinancings in 2020 and 2021. People who already own homes generally have higher credit scores than first-time buyers.

What’s more, mortgage lenders grew more risk-averse during the coronavirus pandemic. In the early months of the recession, mortgage brokers described being required to complete near-obsessive verifications of borrowers’ employment and incomes.

A symptom of the K-shaped recovery

Americans’ fortunes have diverged widely during this recession. Those who can work remotely have continued to collect paychecks. Home prices have soared, and stocks have recovered the value they lost earlier in the year.

However, lower-wage workers struggle as restaurants, hotels and other service-sector employers continue to be battered by the pandemic. Economists have invoked the K-shaped recovery to describe the disconnect — affluent Americans’ fortunes are rising like the top half of the letter, while the working classes are experiencing the downward slope of the bottom half of the K.

“A symptom of the K-shaped consumer recovery is that those on steady financial footing or with higher incomes are able to buy a home or refinance the mortgage on an existing home,” says Greg McBride, CFA, Bankrate chief financial analyst. “The pool of borrowers in 2020 seems to increasingly come from the upper leg of the K.”

The highest possible credit score in the FICO system is 850. A score higher than 740 is considered excellent.

“A FICO score is not an indication of wealth,” says radio host and author Chris Hogan, a personal finance expert. “It’s more of an indication of how you’ve dealt with debt.”

Rising scores come with an upside for both lenders and borrowers: A homeowner with a credit score approaching 800 is exceedingly unlikely to default. For borrowers, that means little risk of a financially devastating foreclosure.

“If you sign on to buy a home before you’re ready, it can be more of a curse than a blessing,” Hogan says.

What you can do about your credit score

Your credit score is the single most important factor in determining your mortgage rate. Here’s how you can boost it — and what to do if your score won’t go any higher:

Pay down credit card debt: If you have a choice between tackling debt or scraping together a larger down payment, it’s wiser to focus on the debt, because that should improve your credit score.

Pay monthly bills on time: Payment history plays the biggest part in your credit score. To keep from forgetting to write a check, automate your routine payments. To avoid a missed payment, build your emergency savings.

Consider an FHA or VA loan: Compared to conforming loans backed by Fannie Mae and Freddie Mac, mortgages backed by the Federal Housing Administration and the U.S. Department of Veterans Affairs carry less stringent rules about credit scores. However, the upfront fees are higher.

Know when enough is enough: The best mortgage deals go to borrowers with scores above 740, but improvements beyond that point won’t do much to affect your rate. Keep an eye on your score, of course, but understand that boosting it from 790 to 800 won’t get you a better deal.

Source: Click here

Posted by Jackie A. Graves on December 4th, 2021 11:03 PM

Mortgage rates held steady this week as the world awaits more information about the severity of the omicron variant of COVID-19 and ongoing supply chain issues. The 30-year fixed-rate mortgage averaged 3.11%, Freddie Mac reports.

“Mortgage rates continue to remain stable notwithstanding volatility in the financial markets,” says Sam Khater, Freddie Mac’s chief economist. “The consistency of rates in the face of changes in the economy is primarily due to the evolution of the pandemic, which lingers and continues to pose uncertainty. This low mortgage rate environment offers favorable conditions for refinancing.”

Omicron Variant Threatens More Disruption in Real Estate  

Higher Mortgage Loan Limits Set for 2022

Freddie Mac reports the following national averages with mortgage rates for the week ending Dec. 2:

  • 30-year fixed-rate mortgages: averaged 3.11%, with an average 0.6 point, rising slightly from last week’s 3.10% average. Last year at this time, 30-year rates averaged 2.71%.
  • 15-year fixed-rate mortgages: averaged 2.39%, with an average 0.6 point, dropping from last week’s 2.42% average. A year ago, 15-year rates averaged 2.26%.
  • 5-year hybrid adjustable-rate mortgages: averaged 2.49%, with an average 0.3 point, increasing from last week’s 2.47% average. A year ago, 5-year ARMs averaged 2.86%.

Freddie Mac reports average commitment rates along with average points to better reflect the total upfront cost of obtaining a mortgage.

Source: Click here

Posted by Jackie A. Graves on December 3rd, 2021 10:36 PM

The Federal Housing Finance Agency announced Tuesday that conforming loan limits for mortgages backed by Fannie Mae and Freddie Mac will jump in most of the country to $647,200, an increase of $98,950 from 2021’s limit of $548,250. The higher levels are in response to rising home prices over the past year.

The FHFA’s House Price Index shows that home prices rose 18.05%, on average, between the third quarters of 2020 and 2021. The 2022 conforming loan limits are increasing by the same percentage, the FHFA reports.

However, in areas where the local median home value exceeds the baseline conforming loan limit, the limits will be much higher, the FHFA says. In higher-priced locations such as San Francisco and New York, the conforming loan limits for 2022 will increase to $970,800. In 2021, that baseline was $822,375.

Find out the conforming loan limit for 2022 in your area at FHFA.gov. You can also view the interactive map below on the site.

Source: Click here

Posted by Jackie A. Graves on December 2nd, 2021 12:04 PM

Mortgage rates are still low but creeping up. The median home price is up in Southwest Louisiana, but nothing compared to the national median list price, and government programs could help first-time homebuyers.

Mortgage rates have been historically low for quite some time. Some 15-year rates have been as low as two percent, higher for 30-year loans.

“Rates will vary depending on the program, down payment, credit score, number of years, and paid discount points,” said Jennifer Spees, Louisiana Mortgage Associates. “For someone with good credit and limited to zero discount points, you may see a rate of 2.5 percent to 3.5 percent depending on the term and type of loan.”

Rates have risen since the beginning of the year .5 to .75 percent, according to Spees. Once employment improves and inflation stabilizes, it is possible the feds will feel comfortable raising the federal funds rate, which dictates the prime rate and variable mortgage rates.

For the third quarter – and for 2021 as a whole – home affordability declined for many potential buyers across the United States. The national median hit $303,288, a 17.7 percent increase year over year, a 45.6 percent increase compared to 2017. The good news is, despite high demand and low inventory, Southwest Louisiana is not seeing these dramatic increases.

Housing demand increased across the United States. More people started working from home because of the pandemic. Space and floor plan needs changed. For the first time, some professionals could live anywhere, have the ideal home address and/or live in a rural community where real estate can be more affordable without regard to commuting times.

COVID also impacted material supply. In Southwest Louisiana, demand and supply of building materials and labor were further exasperated by hurricane damages to homes.

In Calcasieu Parish, the median home price is $180,065, up 1.4 percent since last year. Median household income in the parish is $51,246, according to the latest study from Porch.

Porch is a website that connects homeowners with home improvement contractors. Porch researched the information to find the least expensive places to live in the United States using parish/county data from Zillow and information from the Census Bureau. Only parishes/counties with at least 200,000 residents were considered.  The median household income for the United States is $65, 712.

The Southwest Louisiana Association of Realtors posted the median home price at $235, 000, up 3.1 percent from $242, 500 the previous year. In 2018, the median sales price was $213,200, according to Tonya Meche, 2021 President-Elect, Board of Directors of Southwest Louisiana Association of Realtors. The Southwest Louisiana Association of Realtors cities and towns include but are not limited to Lake Charles, Sulphur, Iowa, Westlake and Ragley.

“If a house is appropriately priced, it sells quickly,” said Amanda Cox, SRES, RENE, CRS, APR with Latter Blum.

She said because of high demand and low inventory – new houses are slow to be built here — some sellers of existing properties have established unrealistic expectations.

“While a few of my listings did receive multiple offers, sellers receiving an offer over the list price is not the norm,” she said, “not here.”

Comps (a list of similar properties in the neighborhood and what those properties sold for) and appraisals continue to be the driving factors behind pricing property. A dearth of appraisers because of relocation due to the hurricanes and other weather events, slows getting appraisals.

“Even if demand is higher, appraisal is governed chiefly by the value of the home,” Cox said.

The appraisal, in addition to the applicant’s credit score and other factors, determines the mortgage interest amount.

“I am encouraging buyers to make decisions,” Cox said. “I am encouraging sellers on the fence to get their house on the market, while buying power continues to be robust due to the low interest rates. Interest rates affect this power dramatically.”

Combining today’s low interest rates with new government programs could make home ownership a reality for first-time home buyers. The Downpayment Toward Equity Act will make it possible for qualified applicants to receive $25,000 in cash/grant to purchase a new home.

The First-Time Homeowner Act has been OK’d and it establishes a tax credit equivalent to ten percent of the purchase price of the home not to exceed $15,000.

Source: Click here

Posted by Jackie A. Graves on December 1st, 2021 8:13 PM

Contract signings climbed 7.5% in October, and home sales for 2021 are on pace to hit a 15-year high, the National Association of REALTORS® reported Monday. Pending home sales rebounded after a decline in September.

Despite rising mortgage rates, home buyers appear undeterred by higher financing costs and home prices. Contract activity increased month over month in all four major regions of the U.S. NAR’s Pending Home Sales Index is a forward-looking indicator of home sales based on contract signings.

“Motivated by fast-rising rents and the anticipated increase in mortgage rates, consumers that are on strong financial footing are signing contracts to purchase a home sooner rather than later,” says Lawrence Yun, NAR’s chief economist. “This solid buying is a testament to demand still being relatively high, as it is occurring during a time when inventory is still markedly low.”

Yun notes that the gain in October assures that total existing-home sales in 2021 will exceed 6 million. That will mark the top performance in home sales in 15 years, Yun says.

He does forecast; however, home prices will increase at a “gentler pace” over the next several months and expects demand to be milder as mortgage rates increase. The 30-year fixed-rate mortgage averaged 3.10% last week, up from a 2.72% average a year ago, Freddie Mac reports.

Last month, contract signings increased at the strongest pace in the Midwest and South regions. The Northeast increased 6.9% in October, but contract signings are still down 10% from a year ago. The Midwest saw contract signings climb 11.8% in October; pending home sales are up 5.1% from a year ago.

Source: Click here

Posted by Jackie A. Graves on November 30th, 2021 10:32 PM

With its record-breaking prices and sharp-elbowed bidding wars, this housing boom poses challenges even for deep-pocketed homebuyers. But for borrowers financing their purchases with mortgages backed by the Federal Housing Administration or the U.S. Department of Veterans Affairs, the hurdles are especially high.

Bidders using FHA loans and VA loans often find their offers rejected by sellers and listing agents weighing multiple offers. No official statistic tracks denials for buyers financing with FHA loans and VA loans, but real estate professionals say the reality is clear: Sellers place the highest value on cash offers, followed by bids financed with 20 percent down payments and loans that fit the guidelines of Fannie Mae and Freddie Mac. In bidding wars, FHA and VA buyers can be shunted to the back of the pack.

“It’s hard to quantify it, but everybody who works on the street feels and sees it,” says Brian Floyd, a loan officer at Fairway Independent Mortgage in Concord, North Carolina. “The market is hypercompetitive. When it’s hypercompetitive, you’re stacking up multiple deals. A lot of sellers are trying to simplify that exhaustive amount of information that’s in front of them. How in the world are you supposed to analyze 50 offers?”

For sellers overwhelmed with bids, the analysis often means simply eliminating bids backed by VA or FHA loans. With their low-down payment requirements and looser rules around credit scores, the conventional wisdom goes, VA or FHA loans pose more risk.

“FHA and VA buyers are at a disadvantage in today’s marketplace,” says Gary Acosta, CEO of the National Association of Hispanic Real Estate Professionals. “It’s hurting first-time homebuyers across the board, because they’re more likely to use government programs.”

How VA, FHA loans differ from conventional loans

Both VA and FHA loans impose less onerous restrictions than conventional loans. While the standard down payment is 20 percent, VA loans require nothing down, and FHA loans have a minimum of 3.5 percent down.

For conventional loans, the best mortgage rates go to borrowers with credit scores of 740 or higher. But VA and FHA loans offer competitive rates to borrowers with credit scores in the 600s.

Many sellers and listing agents hear about the permissive standards for VA and FHA loans, and they think bidders using those mortgages must be “bad buyers,” Floyd says.

There is some logic to that assumption: If a buyer doesn’t have money for a down payment, how will that borrower respond if the appraisal comes in lower than expected, or if the inspection finds surprise repairs? Many sellers decide there’s too much uncertainty associated with VA and FHA loans.

“They’re worried about who’s going to be on the hook when the inspection and the appraisal comes back,” Floyd says.

Myths endure about VA, FHA mortgages

Meanwhile, there are quirks in inspections and other processes around FHA and VA loans that frighten some listing agents.

“Maybe an agent had a bad experience with a VA loan in 2012,” Floyd says. “Since then, they’ve put VA loans in a box.”

The VA has made strides to streamline its once-clunky processes. For instance, VA borrowers no longer have to wait weeks to be declared eligible for VA loans; that step now can be completed quickly online.

While VA lenders have worked to dispel what they call the myths that dog VA loans, old reputations die hard.

“We have Realtors who have not updated their understanding,” says Leigh Brown, a Realtor in Concord, North Carolina. “In their head, the process is onerous.”

Borrower tip: Find the right Realtor

When Brown took the stage at the National Association of Realtors’ annual conference this month, she urged fellow agents to rethink their stereotypes about FHA and VA loans.

“As Realtors, we need to stop being so prejudiced and biased against VA loans and FHA loans,” Brown told the group. “Those loans are not of the devil.”

The mortgage programs play an important role in the housing market, she argued. FHA loans help first-time buyers achieve homeownership, and VA loans provide a valuable perk to current and former members of the military.

In an interview with Bankrate, Brown said buyers should ask their real estate agents a simple question: “How do you feel about FHA loans?”

“If they say, ‘You’ll never win,’ find another Realtor,” Brown says.

An agent who understands FHA and VA loans can serve as an advocate on behalf of borrowers using those loan programs. A Realtor with a strong reputation in the market can smooth over some of the reticence about government-backed loans, Acosta says.

Borrower tip: Find a lender who takes your side

Floyd says he takes an active role on behalf of borrowers with VA loans. After they submit an offer, Floyd often calls the seller’s agent to allay any concerns.

“I want to let you know that this is a very solid offer,” Floyd tells the listing agent. He asks if the agent has any concerns about VA loans, and then he explains the appraisal process or offers reassurances about the buyer’s financial position.

Floyd is a VA borrower himself. He served two tours in Iraq as an Army infantryman, and he likes the VA mortgage program’s option to put nothing down. As a buyer, Floyd had money to pay for repairs, but he preferred financing the entire purchase price.

“The VA loan is just such a better deal,” he says.

As a loan officer, Floyd sometimes submits offers with approvals for both a VA loan and a conventional loan. He tells the seller and the listing agent that the buyer prefers to take advantage of the military benefit but will change course if the VA process hits a snag.

“If anything pops up, fine,” he says. “I’ll flip the switch to conventional.”

Source: Click here

Posted by Jackie A. Graves on November 29th, 2021 12:10 PM

Getting a home loan? Here's some important information.

Key points

  • There are different factors that go into mortgage approval and knowing what they are could increase your chances of approval.
  • You should also make sure the home loan you sign really works for you.

Most people who want to buy a home need to finance it, and that's where mortgages come in. If you're planning to apply for a mortgage, here are a few essential things every mortgage applicant should know.

1. Your credit score makes a huge difference in getting approved 

Of the different factors mortgage lenders look at when approving home loan candidates, credit scores carry a lot of weight. That's because your credit score speaks to how reliable a borrower you are. If your score is high, it sends lenders the message that you pay your bills on time and can be trusted to borrow a large sum of money. If your score isn't in the best of shape, a lender might hesitate to loan you several hundred thousand dollars to purchase a home. 

You'll need a minimum credit score of 620 to qualify for a conventional mortgage. But some lenders may require a higher score than that. If you want to snag the best mortgage rates lenders have available, you'll generally need a score in the mid- to upper-700s or higher.

It's a good idea to find out your credit score before you apply for a mortgage. That way, if you're not thrilled with the number you see, you can take steps to boost it

2. Too much existing debt could stop you from getting a mortgage

Even if your credit score is in good shape, having too much existing debt could make it harder to get a mortgage. If a lender sees too high a debt-to-income ratio on your application, that lender might worry that you're so loaded with debt already that you won't manage to keep up with your home loan payments.

If you're able to pay off some debts before applying for a mortgage, that could increase your chances of getting approved. But if that's not possible, another option is to boost your income with a side job. 

Your lender will take your total income into account when determining if you're eligible for a home loan. It may be easier to increase your earnings than to come up with the money to pay off debt you're already carrying.

3. The amount you're approved to borrow may not be the amount you want to borrow

The amount of money you're eligible to borrow for home-buying purposes will hinge on your credit score, existing debt, and income. It will also hinge on the value of the property you're looking to purchase. But just because you're able to qualify for a $300,000 mortgage doesn't mean that's a comfortable amount for you to borrow. And it's you who should make that determination, not your lender.

Before you apply for a mortgage, take a look at your budget and figure out what housing expenses you're comfortable with. Then, run some numbers to see what that translates to in terms of a mortgage.

Applying for a mortgage may seem like a daunting process, so the more you know ahead of time, the better. If you're looking to buy a home, check up on your credit score, see about lowering your debt-to-income ratio, and figure out how much housing debt you actually want to take on. Doing so could help you approach your home loan application with more confidence. 

A historic opportunity to potentially save thousands on your mortgage

Chances are that interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.

Source: Click here

Posted by Jackie A. Graves on November 28th, 2021 1:04 PM

STRUGGLING homeowners may be wondering what support is available - and whether there's a mortgage stimulus program.

It comes as Americans have got used to receiving stimulus checks during the coronavirus crisis. We explain what you need to know.

Is there a mortgage stimulus program?

There’s no current mortgage stimulus program from Congress with that exact name, but federal funds have been made available to help homeowners.

This is known as the Homeowner Assistance Fund (HAF), which was part of President Joe Biden’s American Rescue Act.

The fund provides nearly $10billion for states, the District of Columbia, as well as other US territories.

These funds can be used for assistance with mortgage payments, homeowner’s insurance, utility payments, and more.

Although the support comes from federal funds, the cash is sent out to states to then distribute it.

Who is eligible and how to apply explained?

The fund is available for those who've experienced financial hardship after the pandemic initially hit the US.

To qualify, incomes must be 150% or less of the area median income or 100% of the median income for the US, whichever is bigger.

Plus, the homeowner’s mortgage balance must be less than $548,250.

How much you can get can vary by state and other factors, but qualifying households in Connecticut will be able to claim as much as $20,000.

While those in Illinois can soon apply for up to $30,000 per household.

According to the National Council of State Housing Agencies (NCSHA), states are working with the Treasury to finalize and implement their HAF programs "very soon".

Some states are also using the funds they've received to set up pilot programs so they can start helping homeowners sooner.

To find out when your state is rolling out the support and how to get help, check the NCSHA website.

There is also another way to get mortgage relief - and that’s through a federally backed refinance program.

Homeowners are missing out on savings worth more than $300 per month by not refinancing their mortgage.

Source: Click here

Posted by Jackie A. Graves on November 27th, 2021 5:34 PM

So, you’re in the market to buy a home. Whether it’s your first foray into the exciting home-buying process or you’ve been through it before but forgotten the details, this guide provides first-time homebuyer tips to prepare you for what’s ahead.

What is a first-time homebuyer?

A first-time homebuyer might refer to someone who has never purchased a home before, but in some contexts, the definition is actually much broader. Homebuyers who don’t have a substantial down payment could be eligible for down payment assistance through first-time homebuyer grants and loan programs, even if it isn’t their actual first time buying a home. To qualify for many of these programs, buyers must simply not have owned a home for at least the previous three years.

Step-by-step first-time homebuyer guide

Step 1: Assess your finances

Check your credit reports and score, examine your budget and assess your ability to make a down payment and pay closing costs.

With a higher credit score, you can get favorable loan terms that will save you lots of money over the life of your mortgage — although you can still get a loan with a score as low as 500 (for an FHA loan) or 620 (for a conventional loan). Generally, a score of 760 or higher is enough to qualify you for the lowest rates and most favorable terms.

Look at how much debt you have relative to your income, or your debt-to-income (DTI) ratio. According to conventional wisdom, the ideal spend for housing costs, including the mortgage payment, property taxes, homeowners insurance and homeowners' association dues, is 28 percent of your gross monthly income. For all of your monthly debt payments, including housing costs, the ideal spend is 36 percent. Many mortgage lenders look for a DTI ratio of no more than 43 percent, but some go higher, up to 50 percent. The higher your DTI ratio, however, the more likely you are to pay a higher interest rate for your mortgage because you’re considered a riskier borrower. A higher DTI ratio can also be a strain on your finances.

Next is the down payment. If you’re interested in a conventional loan and can put 20 percent down, you’ll avoid paying private mortgage insurance (PMI), which covers the lender should you default on the loan. You don’t have to put down 20 percent, however — you can pay as little as 3 percent or 5 percent, depending on the type of conventional loan you get, with PMI. If you’re getting a VA loan or a USDA loan, you don’t have to make a down payment at all. FHA loans, meanwhile, require a minimum of 3.5 percent down.

Then, assess your ability to pay closing costs, which can range from 2 percent to 5 percent of the home’s purchase price. Depending on how much your lender charges in fees, you could be paying a significant amount of money on closing day, so you’ll need to have these funds set aside.

There’s also the earnest money deposit, which is a smaller deposit submitted with your initial offer to buy a home. Some states require a deposit of 10 percent of a home’s purchase price from a buyer, while other states might allow earnest money of just a few hundred dollars.

Don’t forget: You’ll also want some cash set aside for moving expenses and furniture, or possible repairs or updates you’d like to make before moving in. This is all in addition to the funds you’d ideally have reserved for emergencies.

Having considered these factors and what you can afford, gather your pay stubs and bank statements from at least the past two months, your W-2 forms and federal tax returns from the past two years and any other information related to other assets and debt you have. This information will help your lender determine what you qualify for.

Step 2: Decide which type of mortgage to get

There are a lot of different types of mortgages. Your first consideration is whether you want a fixed-rate or adjustable-rate mortgage (ARM). Fixed-rate loans tend to have slightly higher rates, but the rate never changes, so you know what your monthly payment will be for the length of your mortgage. An ARM typically starts with a lower rate for a period of time (such as five or seven years), then adjusts up or down at a predetermined interval (such as once a year). If the rate goes up, your monthly payment will increase with it.

Also consider the term of your loan, such as 15 years or 30 years. Shorter-term loans have lower rates, but larger monthly payments, so while you’ll have less flexibility in your budget each month, you’ll pay less over the life of the loan in interest. It’s up to you whether a lower monthly cost or overall savings is more important.

Most first-time homebuyers get a 30-year, fixed-rate loan. If you don’t plan to live in a home for a long time, however, an ARM can be a good way to save some money. Fixed-rate loans offer more stability for those who plan to stay in one place.

There are also many loan programs to choose from, including conventional and FHA loans. Some programs you might not qualify for unless you meet specific requirements, so look into the precise terms to see if any might be a good fit for you.

Step 3: Get quotes from at least three mortgage lenders

Getting a rate quote is a good starting point for comparing loan offers. Because mortgage rates change regularly and can vary considerably from lender to lender, aim to get rate quotes from at least three lenders. Often, you can get a quote for free through the lender’s website if you provide some basic information, like the loan amount you’re looking for, your down payment and credit score range. In general, you’ll want to pay the lowest interest rate because that means less money spent monthly and overall.

If it’s your first time buying a home, you might also want to get a sense of how rates fluctuate and the current rate environment, so you know what to expect when you seek a quote. You can sign up for a Bankrate account to determine the right time to strike on your mortgage with our daily rate trends.

You might also consider working with a mortgage broker who can do the comparison-shopping for you. Brokers typically don’t charge borrowers a fee for their services.

Keep in mind that while quotes can be a valuable means for comparison, your rate won’t be finalized until you lock it in with the lender.

Step 4: Get preapproved for a mortgage

After you’ve gotten quotes from a few lenders, you’re ready to get preapproved for a mortgage. A preapproval is a preliminary commitment from a lender to loan you a certain amount of money, not a finalized offer. Getting one is necessary before you start searching for a home because sellers won’t consider your offer unless they know you have the financing lined up. The preapproval letter typically spells out how much you’re qualified to borrow, what loan program you’re using and the expected down payment you can make.

When you request a preapproval, be prepared for your mortgage lender to dig into all aspects of your financial life. This is where the paperwork you organized ahead of time comes in handy.

Be sure you’re actually getting a preapproval, not a prequalification. A prequalification could indicate that you might be approved for a mortgage but is better used to help you determine how much you might be able to afford. It will not pass muster when you make an offer for a home.

Step 5: Find a real estate agent

A real estate agent can help enormously in the home-buying process because the agent knows the area and the local housing market well, and can provide valuable insights about neighborhoods, school districts and more.

If you’re not sure how to find an agent, start by asking around for recommendations for a buyer’s agent. Many agents work by referral. You can also research online for highly rated agents and review testimonials from past clients.

Aim to interview at least three buyer’s agents. Ask them about their experience and track record, and whether they specialize in any particular area, such as condos. Ask for references, as well, to verify whether their experience with the agent was positive.

In today’s market, you could be competing against many offers, so you’ll also want an agent who’ll be able move quickly on a home you’re interested in and help you navigate a bidding war, if that happens. Talk to your agent about their communication style and how they’ve helped guide other buyers through the current market.

When you’re ready to look at homes, enlist an agent to help you find the right one and negotiate the best price. You’ll likely need to sign an agreement with the agent, but you won’t have to pay the agent’s commission — this is paid by the seller, who also pays the agent representing them in the transaction.

Step 6: Shop for your home

This is the fun part. Talk to your agent about your budget and top requirements so that you don’t waste time looking at homes that don’t meet your needs. If possible, visit homes in person, and avoid buying a home sight-unseen, even if it seems like the perfect fit based on an online description and photos.

During showings, tour the home and the neighborhood. How would you feel if you discovered the neighborhood was too congested with traffic, is next to a loud airport or the nearby schools are underperforming? The location is often just as important as the home itself. For a home in a homeowner's association, get a copy of the HOA documents so you know what the rules and fees are.

Step 7: Be prepared to make an offer — fast

If you tour a home in your desired location and price range and like what you see, be ready to make an offer fast. Your agent can run an analysis of comparable listings (“comps”) that have recently sold in the area to help you make a competitive offer.

The offer should include an offer price, deadline for the seller to respond (usually within 24 to 48 hours) and any contingencies you want to request. At minimum, the offer should include appraisal and home inspection contingencies, which mean that if the home appraises lower than the price you offered or an inspection turns up significant issues, you can walk away from the deal without losing your deposit. If a bidding war seems likely, the offer should also include an escalation clause with a limit of how high a price you’re willing to pay.

While some buyers waive contingencies to get their offer accepted, avoid doing this if possible — you won’t want to buy a home and later find out it has issues way beyond what your budget can accommodate to repair.

Once a purchase agreement is presented to the seller, your offer can be accepted, rejected, or countered with a different price. Tap your agent’s experience to negotiate with the seller for the best possible outcome. If you do find yourself in a bidding war with multiple offers, it could help to write a letter to the seller describing why you love the home, but don’t get discouraged if you lose out to another buyer. In today’s market, with many homes selling quickly and for above list price, it’s entirely likely you might not get the first home you place an offer on.

Step 8: Negotiate closing costs

If your offer has been accepted, it’s time to apply for your mortgage. Within three days of your application, you’ll get a loan estimate that details the loan terms and estimated closing costs, among other information. Some closing costs are negotiable; your lender might charge an origination and underwriting fee that could be waived or discounted if you ask or offer a no-closing-cost option that rolls these fees into your loan. (You’ll typically pay a higher interest rate to go this route, however.) Ask your lender to clarify any fees you don’t understand.

If you need help with closing costs, you could also look to your state’s housing finance agency or local housing organizations for down payment and closing cost assistance programs. If you meet program requirements, you could get a few thousand dollars to help cover expenses. You can explore first-time homebuyer programs by state on Bankrate.

Another consideration to make is whether you should pay for points to reduce your mortgage rate. Effectively, by paying points, you’re prepaying some of the interest on your loan. Generally, each point costs 1 percent of the total value of your loan, so buying one point on a $250,000 mortgage will cost $2,500. Each point you pay usually reduces the rate by 0.25 percent.

In general, the longer you plan to stay in a home, the better it is to pay for points as you’ll recoup the cost of the points by way of the lower monthly payment on your loan. To calculate the breakeven point, divide the amount you pay for a point by the amount you’ll reduce your mortgage payment by each month.

For example, if you were to pay $2,500 for one point and that will drop your monthly payment by $30, you’d need to stay in the home for about 84 months ($2,500/$30), or roughly seven years, to break even.

Step 9: Hire a home inspector

After your offer is accepted, hire a home inspector to evaluate the property. Your agent can recommend a home inspector, or you can locate one through the American Society of Home Inspectors, International Association of Certified Home Inspectors and the National Academy of Building Inspection Engineers. As you did when researching agents, consult the Better Business Bureau, HomeAdvisor, Yelp or other online resources to check for complaints and read testimonials.

An inspector will check the home’s structure, roof, heating, plumbing and electrical systems, but typically won’t check for the presence of lead paint or mold. The inspection can take about two or three hours and range from $300 to $1,000, depending on the home’s size and the extent of the inspection.

You and your agent should be present during the inspection so you can ask for clarification on any issues. Once you have the inspection report, review it with your agent and decide how to move forward. If the inspection uncovers major problems, you could try to ask the seller to fix them, but the seller might not be willing to if there are other offers that won’t require them to pay for repairs. If you have an inspection contingency in your purchase agreement and the seller is unwilling to address the issues, you might choose to walk away instead.

Step 10: Get homeowners insurance, finalize your move and (finally!) close

Mortgage lenders require homeowners' insurance, which helps protect your (and their) investment. Insurance premiums vary, so get quotes from several companies or work with an insurance broker who can shop rates for you. Assess your needs and ensure you buy adequate coverage to completely rebuild your home if it’s destroyed or seriously damaged. If your home is located in a federally-designated flood zone, you’ll need to buy flood insurance, too.

Depending on how quickly you plan to move, you’ll likely want to start planning for the move before the closing. As you prepare for move-in day, contact your utility, cable and internet providers to arrange new service for your move-in date. Then hire a reputable mover and start packing.

Finally, it’s time to put pen to paper and seal the deal. The closing is when you finalize the purchase contract and officially become a homeowner. Just before the closing, get updated pay stubs and other financial paperwork to prove your employment status hasn’t changed and that you’ll be able to make your mortgage payments. If you’re paying closing costs on closing day, obtain a cashier’s or certified check made out to the escrow company for the funds ahead of time. Don’t forget to bring your identification, too.

Within 24 hours of closing, you’ll do a final walkthrough of the property to make sure repairs, if any, were made and that the home is vacant. At the closing table, you’ll sign a lot of paperwork to finalize the loan and transfer ownership of the home from the seller’s name to yours.

What’s next for new homeowners

Buying a home can be a long process, but once you move in, there’s still some work to do.

First, assess your home and think about what you might want to change or fix. (The inspection report will be a big help here.) If you haven’t already, start building a home improvement fund for these projects, and set aside separate funds to cover unexpected repairs, too.

As time goes on, keep an eye on the housing market, and especially mortgage rates. If home values are rising, you might consider tapping your home’s equity in a cash-out refinance or with a home equity line of credit (HELOC) or home equity loan. If interest rates have fallen, refinancing to a lower rate could save you money. Of course, weigh the pros and cons of each of these options. Even if a lower-rate environment, the math on a refinance doesn’t always work out positively.

Depending on the terms of your loan and how your finances change, you might also want to reevaluate your mortgage payment schedule, such as making extra payments or paying off your mortgage early. Consider your goals and whether there are other financial moves you could be making before focusing on a payoff. If you do decide to prepay, talk to your lender beforehand to ensure the extra payments are going to the loan principal, not interest.

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Posted by Jackie A. Graves on November 27th, 2021 11:10 AM

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