Buying a home is a huge transaction, so we wanted to give you a brief overview of the process to show you what lenders look at for your mortgage. Here’s what you need to know for your first home purchase.
Depending on the type of loan you want, you’ll have to put down a certain percentage of the value of the house up front. This can range from 0% in a VA Loan, to 3.5% for an FHA Loan, to 20% for a Conventional Loan. The amount that you have to put down generally informs the type of loan you’ll be applying for.
Loan-to-Value, or LTV, is the ratio of what you’re borrowing to what you’re buying. So, if you are buying a $100,000 home, and borrowing $80,000, you have an 80% LTV. That would be a Conventional Loan, since you’re putting 20% into the loan, and you’d likely qualify for a lower interest rate.
Your debt ratio is generally split into two numbers. There’s your home ratio, if you are currently a homeowner, which is the determination of how much you still owe on your home and how long you have to pay it, and your debt-to-income ratio, which is more important if you are a first-time homebuyer. That is the ratio of your debts to your income. Essentially, it’s your ability to pay the mortgage and how comfortable you are making a higher payment against your debts.
The lender will run your FICO credit score to help determine your worthiness and likelihood to pay the loan back. If your score is too low, you won’t qualify or will qualify at a higher interest rate. Ways to lower this are to lower your debt-to-income ratio and make your payments on time. Every late or missed payment is a mark against your FICO score.
If you’re a first-time homebuyer, or you’ve done it before and are ready to get pre-approved for your mortgage now, call us in St. Louis at (314) 781-9700, Chicago at (773) 770-4727, Indianapolis at (317) 550-1515 or Nashville at (615) 810-8555. You can always apply online at www.thehomeloanexpert.com, and we’re also open on Saturdays to better serve you. We work hard to make it easy on you. Nobody gets lower rates on better loans than The Home Loan Expert, Ryan Kelley, why go anywhere else?