All You Need To Know About Home Loans

Picture this: You, lounging in your dream living room, sipping on a cup of coffee as sunlight filters through the windows in your perfect space. Now imagine that you didn’t win the lottery or stumble upon a hidden treasure chest. Instead, you unlocked the door to your homeownership dreams with the magic key of a home loan!

Whether you’re a first-time home buyer or a seasoned pro, there are a few things you need to know before shopping around for a home loan. Before you start looking for your perfect house, let’s take a closer look at all you need to know about home loans.

What is a home loan?

A home loan enables you to buy a home without having to pull all the cash directly from your pocket at the time of purchase. Most of the time, you’ll need to make a down payment, which is typically between 3.5-20% of the home’s value. There are also closing costs and a few other fees you may need to pay. The lender will finance the rest. You’ll then repay the loan, along with interest, generally over the course of 15 to 30 years.

Are all home loans alike?

There are several kinds of home loans, each with its own attributes. Here are three common types:

30-year fixed-rate mortgage: The interest rate on this 30-year mortgage remains fixed despite any changes to the national rate.
15-year fixed-rate mortgage: This fixed-rate mortgage will only last 15 years. Monthly payments will be higher, but the overall interest paid on the loan will be much lower.
Adjustable-rate mortgage (ARM): The interest rate on this loan can change periodically over the life of the loan.

What do I need to know before applying?   

To qualify for a mortgage, you’ll need to prove you are financially responsible and can afford the monthly mortgage payments.

The primary way lenders gauge your financial responsibility is through your credit score. This number tells lenders how you’ve handled your past debts. Most lenders will grant a home loan to borrowers with a score of 650 or more. To boost yours, pay your bills on time and keep your credit card usage to a minimum. A higher score will help you get approved and will net you a lower interest rate on your loan.

Another factor in determining your eligibility is your debt-to-income ratio (DTI). Lenders want to know how big your collective outstanding debt will be in relation to your income if you receive the home loan. Most lenders allow a maximum DTI of 45%.

When should I apply?

It’s a good idea to start the mortgage process before you begin house hunting. Your lender will let you know whether you can expect to be approved for a loan and will give you an estimate of how much you can afford. At this point, you can also ask for a pre-approval letter, which confirms you are qualified for a mortgage and shows sellers you’re a serious buyer.

How do I apply?

Scott Credit Union can help you secure the house of your dreams. If you want to learn more about mortgage options, visit our website or speak with a representative at one of our locations. SCU is with you as you make your financial dreams a reality.