25 Jul Can You Afford To Buy A Home?
Can you afford to buy a home? What’s holding you back? Maybe it’s your credit score or the thought of a 20% down payment. Buying a home is more affordable than you might think! Don’t spend your hard-earned money paying someone else’s mortgage when you can afford to buy your own home.
Most people are under the assumption that a high credit score is needed for a loan. Don’t get me wrong, your credit score plays a huge role in getting a mortgage. However, the requirements may not be as strict as you think. The lowest score required by an FHA loan is 580. A Fannie Mae or Freddie Mac backed conventional loan is set at 620. A VA loan typically starts around 620 as well. That being said, some lenders may require a higher score based on other factors. This includes your income or how much of a down payment you’ll be putting down. These same factors can also affect your interest rates.
Do your homework and know where your credit score stands. Along with determining the kind of loan to apply for, you will see what interest rate you’ll fall under. Take the time to improve your credit if your score is low enough to trigger a higher interest rate. A lower interest rate will increase your ability to afford to buy a home.
- 579 and lower – If you are approved for a mortgage with this low of a score, you will have an interest rate as much as 2% higher than the current lowest rate.
- 580-619 – You can expect an interest rate as much as 1% higher than the lowest rates available.
- 620-679 – With a credit score in this range, your interest rate will be slightly affected. Rates could be .5% higher than someone with great credit will receive.
- 680-739 – This is the range most homebuyers are at currently. Your rate will not be affected much at all in this range.
- 740 and higher – You will be offered the best rates mortgage companies have to offer.
Low on savings? Good news! There are multiple loan types with down payment options of around 3%. For a $200,000 house that’s only $6,000! Many renters may actually be able to enter the housing market sooner than they imagined. You can now afford to buy a home with new programs allowing less cash out of pocket.
- Conventional loans range with down payment options of 3%-20%. Conventional loans typically have better interest rates than government-insured loans. Nonetheless, your interest rate will still rise with a lower down payment such as the 3% option.
- FHA loans are most common with homebuyers with small down payments or low credit scores. They are insured by the Federal Housing Administration which means that they are backed in case of mortgage default. FHA loans start with down payments as little as 3.5%.
- VA loans are only for veterans and insured by the U.S. Department of Veterans Affairs. Much like FHA, VA loans are backed in case of mortgage default. No down payment is required from the borrowers! An upfront funding fee is charged, although, this can be rolled into the loan. The funding fee varies from 1.25% – 3.3% of the loan amount.
Are you a first-time homebuyer? There are local programs that can assist with down payments and closing costs! Read about a couple of them here.
Being able to afford to buy a home is more attainable than you may think! Do your due diligence and find out where your credit stands. Take the time and effort to improve it if necessary. The best way to gauge your current stance is to speak with a loan officer. Your local loan officer will guide you in the right direction with a “to-do” list or find the loan that best suits your needs.
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