Prior to going out with a Real Estate Agent and looking at homes, you should have your financing in order. There is nothing more frustrating than seeing a home you love first and find out later that you do not qualify. In this blog, we will talk about loan approval and briefly about the different loan programs that are available to you.
Lenders will require you to fill out a loan application and provide documents such as 30 days of paycheck stubs, 2 years of W-2’s, 2-3 months of bank statements, a list of any debt, assets and a copy of your credit report in which they will run through their systems. Lenders will not allow you to provide them with a personal copy of your credit report for the approval, even if it comes from the bureau itself.
At the time of your approval, the lender will issue you a pre-approval showing the amount you qualify for in order to purchase a home. This letter will also include the loan type and down-payment requirement for the loan program.
Here are some the most common loan programs you will see for first time homebuyer and their qualifications:
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FHA Loan – FHA (Federal Housing Authority) are homes loans that are backed by the government. It requires a minimum FICO score of 580 to qualify for the low down payment advantage, which is currently at 3.5%.
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Conventional Mortgage – A conventional mortgage requires a higher credit score and larger down payment than the FHA Loan. Most conventional loan types require 20% down payment and are offered on either a fixed or variable interest rate basis. Lately, I have seen some conventional loan programs with as low as 5% downpayment. Typically with a conventional loan type, the lender wants to see 660 or more in credit score.
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VA Home Loan – A VA (Veterans Affairs) loan is a mortgage loan program backed by the U.S. Department of Veterans Affairs (VA). The loan may be issued by qualified lenders which you can find a list at va.gov. The VA loan is 100% financing, $0 money down to eligible American veterans or their surviving spouses (if they do not remarry).
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USDA Loan – USDA loans are mortgages backed the U.S. Department of Agriculture as part of its USDA Rural Development Guaranteed Housing Loan program. USDA loans are available to home buyers with 100% financing and $0 downpayment. Properties do not have to be located in an area that is deeply rural. You can visit the USDA site here to see if you desired area qualifies:
Eligibility.SC
