All You Need to Know About Home Loans
With low rates, now has never been a better time to buy your dream home or refinance your existing one. Let’s take a closer look at home loans and how its application process works.
What is a home loan?
A home loan, or a mortgage, enables you to purchase a home without having to foot all the cash out of your pocket when purchasing. Often times you will need to make some type of down payment, along with closing costs and some other fees. The lender then finances the rest of the purchase. You’ll repay the loan, along with interest, over the course of (generally) 15 to 30 years.
Are all home loans alike?
We offer a variety of home loans including:
- First time homebuyer
We know everyone is different and that’s why we want to find the loan that best fits your needs. We encourage you to talk to one of our mortgage loan experts. They can help determine which loan type would be best for you and your situation.
Three common types of mortgages:
Again, we know everyone different in what will fit them best. That’s why we offer different payment options including:
- 30-year fixed-rate mortgage. The interest rate on this 30-year mortgage will remain fixed no matter the changes to the national rate.
- 15-year fixed-rate mortgage. This mortgage will also have a fixed interest rate, but the term lasts just 15 years. The monthly payments will be higher, but the overall interest paid over the course of the loan will be significantly lower.
- Adjustable-rate mortgage (ARM). An ARM gives the borrower a lower interest rate in the early years of the loan, and then a gradual increase (adjustment) in rate over the rest of the life of the mortgage.
What do I need to know before applying for a home loan?
A home is likely to be the largest purchase you will ever make. To qualify for one, you will need to prove that you are living a financially responsible life and that you can afford the monthly payments.
The primary way lenders gauge your financial responsibility is through your credit score. This number is like a grade that tells lenders how you’ve handled your past credit card accounts and other debts. It will include the length of time you’ve had your credit cards and loans open, the timeliness with which you’ve made your payments, the trajectory of your debt and the amount of available credit you might use. During the time leading to your mortgage applications, make sure to pay all your bills on time and work on paying down overall debt. A higher credit score will help you get approved quicker and usually get you a lower interest rate on your loan.
Another crucial factor in determining your eligibility for a mortgage is your debt-to-income ratio, or your DTI. Lenders want to know how big your collective outstanding debt will be in relation to your income if you receive the home loan.
When should I apply for a home loan?
While you won’t need the loan until you are ready to close on a house, it’s a good idea to start the process before you begin house hunting. Your lender will let you know whether you can expect to be approved for a loan and will provide you with an estimate of how much you can afford so you don’t face disappointment later.
When applying for a home loan, ask your lender for a letter of pre-approval. This letter confirms you are pre-approved for a home loan up to a specific amount. Having this letter in hand shows real estate agents and sellers that you are serious about buying. Most pre-approvals are only good for 60-90 days, so make sure you’re ready to start house hunting before you get yours.
How do I apply for a home loan?
To apply for a home loan at First Community Credit Union, stop by and visit one of our Mortgage Lenders to help you get started or you can apply online. Make sure all of your financial paperwork is in order and hold onto all important financial documents in the months leading up to your application.
To make it easier, we’ve created a list of the information and documents you’ll need:
- Name of current employer, phone and street address
- Length of time at current employer
- Official position/title
- Salary including overtime, bonuses or commissions
- Two years’ worth of W-2s
- Profit & loss statement if self-employed
- Pensions and Social Security check stubs
- Proof of child support payments
- Copies of alimony checks
- Statements for all checking and savings accounts
- Investments (stocks, bonds, retirement accounts)
- Proof of any gifted funds from relatives
- Car loan information
You will also need to explain any blemishes on your financial record; including bankruptcies, collections, foreclosures and delinquencies.