There are various kinds of loans that financial institutions can issue to their eligible customers. Among them is the mortgage loan. A mortgage is an agreement that permits you to borrow money from a financial institution, mostly to buy a house. A mortgage also refers to the amount of money you borrow to finance a house. The loans come with interest rates that vary according to the duration of payment as well as your credit score. A mortgage interest rate with 700 credit score will probably be low, bearing in mind that the score is fair.
Companies or individual people may also apply for mortgage loans to buy real estate properties. Moreover, the loan you apply for other purposes while using your house or real estate as the security is also a mortgage loan. The loan arrangements can be made directly/indirectly through intermediaries. A mortgage loan can vary from one person to another or from company to company on issues such as interest rates, loan maturity dates, payment method, duration of payment, and the loan amount itself.
For most people, it is normally difficult to construct a house from savings. Middle-class people might take many years to save enough money for a house. Furthermore, you might not achieve that target since financial demands are unpredictable. You end up withdrawing part of your savings. That is why a mortgage loan serves better. Banks deposit mortgage loans into your account so that you can manage the expenditure from there. You can then transfer money using the routing number to the suppliers of materials among other key people during your construction.
What are the requirements for a mortgage loan?
If you are looking for a mortgage loan, you need to find a broker. A broker/underwriter does not provide loans directly but has good relationships with various institutions that give mortgage loans. When engaging a broker, you also need to do the following things.
- Undergo a credit check.
- Provide a valid source of income.
- Indicate the area of residence over the past two years.
- Document your savings, checking, as well as other financial account information.
- Produce a copy of the purchase and sale agreement.
You may not need to meet all the above requirements as some lenders may omit some and focus on others. You may also get a pre-authorization before you submit an offer on a home to buy so as to speed up the process.
Also, most lenders will need you to deposit a down payment before getting the loan. It means that they will finance a certain percentage of the house as you do the rest. Normally, they take a bigger portion while you contribute little.
I have witnessed people who got over 80% financing while they had only to have 20% of the total required amount to qualify. Most traditional banks request a 20% down payment. Moreover, you can get 100% financing, although you may need excellent credit scores to qualify.
Can I get a mortgage loan with bad credit scores?
You can get a mortgage loan if you have bad credit. The lowest conventional credit score requirement for a mortgage loan is 500. There are exceptions to people who do not have a credit history but have a verifiable income source, among other requirements. However, not all financial institutions consider that.
For example, Freddie Mac’s minimum credit score is 660, while Fannie Mae’s is 620. With a credit score of 620, you can qualify for a loan at Freddie so long as you make a down payment of 25%.
FHA loans can give mortgage loans for people with as low as 500 credit scores. However, you need to deposit a 10% down payment. FHA allows you to deposit a down payment of 3.5% if you have a minimum score of 580. The loans offer borrowers a second chance after a bankruptcy or foreclosure. Talking of second chance, you can get a second chance credit card with no security deposit from the relevant financial institutions to build your credit scores so that you can qualify for better mortgage loan terms in the future.
How many types of mortgage loan rates do we have?
There are two main types of mortgage loans depending on the nature of the interest rates. We have fixed mortgage rates loans and the variable mortgage rates loans.
A fixed mortgage rate does not change throughout your payment period. In most cases, the rates are high, but you are sure you will pay the same rates until the end.
Variable interest rates may change with time. However, the initial interest rates are normally low and luring. You will be lucky if the rates shoot down but more disadvantaged if they shoot up as time goes on.
How can I get a mortgage loan with a 700 credit score?
According to the FICO Score guide, a 700 credit score is in the category of ‘good credit score’. You stand in a better chance to get a loan to build or buy your own house. You will even qualify for a loan from conventional lenders since their minimum score requirements are 620.
Interestingly, you will be able to get Jumbo loans. The minimum requirement to get a Jumbo mortgage loan is 680, and you are already past that. Despite having good credit scores, you still have to follow the necessary steps which include;
First, you need to get a pre-approval. You should have a lender pre-approval in hand when approaching a real estate agent to show that you are serious about purchasing a house. Pre-approval involves getting a three-bureau credit report where a lender will see your credit scores and your credit history from the three credit bureaus.
2) Mortgage pre-qualification
Mortgage pre-qualification is different from pre-approval as it involves a bank officer asking you various questions about your credit history, credit scores, source of income, etc. It helps to determine the ability of an individual to pay a certain loan amount.
3) Get the documents needed
You need several documents to proceed. These include the following.
- Identification document to identify who you are
- Tax returns. You need two years of tax returns and W-2 forms if you are employed in a company. If you are self-employed, you will provide a profit & loss (P&L) statement as well as the federal tax statements for the last two years. You may need to provide a business license too.
- Pay stubs
- Bank statements
You may even need other documents such as;
- Divorce decree
- Pension statement
- Mortgage gift letter
- Bankruptcy discharge paperwork
- Divorce decree
- Pension statement
- Home Owners Association (HOA) Statement
- Social Security/Disability Statement
- Current mortgage statements and a homeowner’s insurance declaration for the property if you already own other properties.
4) Search for a house
Search for houses on sale on the internet. To get accurate results, enter a location. You can search ‘house on sale in California‘ and all available properties pop up. Also, check that you look for a house on genuine websites. The only problem with the online house search is that most sellers won’t give accurate prices.
Also include price depending on the amount pre-approved for you. You should note that you may even see a few samples online. If you go personally to the location, you may see other better houses.
5) Make an offer
Upon getting the right house, you need to make an offer whereby you will state the conditions you want to be met with the house. You can also deposit some percentage of the total price of the house, mostly 1%-2%. It indicates that you are serious about purchasing the house. You then sign the binding agreement with the seller.
6) Apply for the mortgage loan
Now that you are ready to purchase the house, you can now apply for the loan. Documentations concerning other properties, current loans, employment status, and mortgage type will be needed. After that, you can get a loan estimate, including closing costs, interest rate, and monthly payments.
7) Loan processing
Once you have applied for the mortgage loans, the loan issuer reviews your documentation to see that they are genuine. The issuer will order for verification of the source of income, title search, property inspection, and property appraisal.
The underwriter/broker will confirm that all the details are okay. Underwriters will mainly confirm that all the details and documentation verified by the loan processor are correct. The underwriter will also review your capacity to repay the loan based on your credit history. He or she might decide to approve or reject your loan application.
During the closing period, the loan documents are printed out and sent to the title company (or attorney’s office) where the closing meeting takes place. At this time, the loan is already approved by the underwriter. It is the final stage before getting your loan, and you should review all documentation to ensure that they are in order.
It is difficult to build a decent house using your savings. It is because everyone has various financial needs that may not allow them to save abundantly for a house. The need to get a mortgage loan comes in. The good thing is that you can get a loan with a bad credit score, although it may attract high-interest rates.