There used to be so many mortgage options that it was almost hard to choose. But that's the past. Right now. And anyone who wants to buy a home right now needs to be ready for fewer options. Lenders are going back to what they know best. But not everything is bad. A homebuyer should still be able to get a home mortgage loan if they have proof of income, cash on hand, or good credit. But you have to be ready and willing to shop around, compare prices, and negotiate, just like you would when buying a new car. Talk to more than one lender. It's also a good idea to get in touch with a few mortgage brokers. They act as middlemen between lenders and people who need money.
It's never been more important to know what you're doing when you buy a home. Find out what you need to do at the very least to get a mortgage. Start by asking the lender if a down payment is necessary, how much it is, and if you can afford it. Because of how the housing market is right now, most people who want to buy a home must have enough money for a down payment. That's because loans with no down payment, which were easy to get during the boom, are almost impossible to get now. Many lenders now require at least 5% down, but more is even better.
You should also find out if you'll have to pay Private Mortgage Insurance (PMI), which will be added to your monthly mortgage payment. Many lenders require this because it keeps them from losing money if a borrower doesn't pay. As a general rule, you can expect PMI if your loan is more than 80% of the value of your home. Some people get a "piggy-back" mortgage, which is basically taking out two loans, to avoid the extra cost of PMI. The first loan pays for 80% of the price of the house. The second option is a home-equity line of credit that pays off most or all of the remaining balance. But you should know that these "piggy-back" loans are hard to find these days because many lenders don't want to take the risk. That's because if the homeowner loses the house, the money from the sale would go to pay off the first mortgage, leaving very little to pay the second mortgage.
Now, what about those loans that didn't require much or any paperwork? So, they're pretty much gone. Why? Because a borrower's credit score is now the most important thing to lenders. Lenders depend more than ever on this score to figure out if a borrower will be able to pay back a mortgage on time. Those low-interest loans with good terms won't go to people who look like they might not pay back the loan. In fact, they probably won't get any kind of mortgage at all. A few months ago, people with credit scores of, say, 660 could get loans. Now, they can't.
But even if your credit score is good, you should know that you need to use it wisely. For example, if you want to borrow more than $417,000, think carefully about what you want to do. This is called a "jumbo loan," and lenders are very wary of mortgages that are more than this amount because they are seen as much riskier than "conforming" loans.
So what should a person who wants to buy a house do? If your credit score isn't great, you should work hard to raise it before you look for a mortgage. It will definitely increase the number and types of mortgages available, as well as the rates and terms of those mortgages. If you have a good credit score, keep it that way. Don't try to get the biggest mortgage you can. Don't take risks.
With careful care, the mortgage landscape in your little corner of the world will start to look much more lush, healthy, and beautiful.
