All You Need To Know About Home Loans

Close-up of a mortgage application on a desk with a pen and keys on top of the applicationHere at Advantage One Credit Union, we provide a variety of products and services to meet your specific financial needs and in the most ideal ways possible. One such example is our home loans. Let’s take a closer look at this product 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. You will, however, need to make a down payment, which is typically between 3.5-20% of the home’s appraised value, 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?
Before you get started, you’ll need to choose a mortgage type. A conventional loan will necessitate a 5-20% down payment on the home. There’s also an FHA loan, which only requires a down payment of 3.5%, but necessitates mortgage insurance. If you’re a military veteran, consider obtaining a VA loan, which lets you buy a home with zero down payment.

Once you’ve chosen the kind of loan which is best for your scenario, you may be given a choice of repayment arrangements for that loan. Here are the three common types of mortgages:

  • 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. Most lenders will only grant a home loan to borrowers with a credit score of 650 or higher. You can check your score for free on Credit Karma. You might also consider ordering a free credit report from all three major credit bureaus once a year at AnnualCreditReport.com.

During the time leading to your mortgage applications, make sure to pay all your bills on time, don’t open new credit cards and work on paying down overall debt. A higher credit score will help you get approved quicker and it will net 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. Most lenders will only allow a maximum DTI of 36%. Here at Advantage One Credit Union, we allow our members to take out a home loan with a DTI of [XX%].

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 house you can afford so you don’t face disappointment later.
When initially 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 Advantage One Credit Union, stop by and ask a representative to help you get started. 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.

If you’re ready to apply for a home loan, stop by Advantage One Credit Union today. We’re completely committed to your financial success.

Your Turn:
How did you prepare for a home loan application? Share your tips with us in the comments.

Learn More:
thebalance.com
rubyhome.com
thelendersnetwork.com

Should I Buy A House During The Holidays?

Close-up of the front of a Colonial style house with a navy blue front door decorated with holiday wreath.Q: I’m in the market for a new home and wondering if I should push off my search until after the holidays. Is it a good idea to buy a new home during Christmas?

A: While spring and summer tend to see the highest volume of home sales, it doesn’t mean they’re the only time to buy a house. Let’s take a closer look at some of the myths and lesser-known facts about timing the purchase of a home and explore the pros and cons of buying during the holidays.

The myth about buying in the spring
Contrary to popular belief, springtime can be the worst season to purchase a home. While the longer daylight hours do make it easier to check out the exterior, shopping for a new house during the hottest real estate season can mean facing all kinds of drawbacks and difficulties.

First, and most importantly, sellers tend to mark up their prices when they see heightened demand for their homes. Also, the flooded market can lead to expensive bidding wars with buyers who are also interested in the same property. Plus, if your search is successful and you find a new home during the spring, the closing process can drag out much longer than necessary as title companies, inspectors and movers may not be able to service you in a timely manner during their busiest season of the year.

Why Christmas can be a better time to buy
Shopping for a home during the winter, and especially during the holidays, offers the following advantages:

  • Homes are priced to sell
    Most of the houses you’ll find on the market during the late fall and early winter will be holdovers from the spring and summer season. At this point, homeowners may be desperate to sell and get their property off their hands. Alternatively, the houses may have just been put on the market because of the owner’s sudden and urgent need to relocate due to unforeseen factors like a job change, divorce or another life-altering event. In either case, the owner is looking to sell quickly, and will likely be more willing to compromise on their original asking price than homeowners selling in the spring and summer. In fact, according to The Wall Street Journal, home prices can drop to a 12-month low in December.
  • Holiday spirit makes people more agreeable
    People tend to be in a more generous frame of mind around the holidays. Let this factor work in your favor by shopping for a home during the holiday season. You can walk away with a dream home at a dream price, and you may even be able to negotiate some extras, like furniture or a fresh coat of paint, into the selling price.
  • Fewer buyers on the market
    With more people looking to relocate during the spring and summer months, you’ll have less competition when house-hunting around Christmas time. This will give you an edge in bidding wars and it will make it easier for you to negotiate to bring down an asking price on a home.
  • Professionals of the field are more available
    December is usually the slowest month of the year for home sales. This can work to your advantage if you choose to buy a home around the holidays. Your real estate agent will likely have plenty of time to show you around since fewer other people are looking to buy during this season. The various professionals you’ll need to hire during the home-buying process-including an attorney, home inspector, underwriter and mover-will likely be able to service you promptly as well.

Before you go house hunting
While buying a house during the holidays can be a great idea, keep these factors in mind before you give your agent a call:

  • Daylight hours are short during the winter, giving you a small window of opportunity to search.
  • You won’t be able to see a home’s property in its full glory during the winter months.
  • Some sellers may not be too keen on throwing their homes open to viewers during the holidays.
  • Unexpected inclement weather may delay some parts of the home-buying process, like the inspection or even the closing.
  • You’ll have fewer homes to choose from when house-hunting during the winter, as a cooler real estate market means slimmer pickings.

Shopping for a new home during the holidays may not be conventional, but it can mean finding your home sweet home quickly, easily and for a far better price.

If you’re in the market for a new home, make sure to stop by Advantage One Credit Union to ask about our home loan options. We’ll help you move into your dream home with the most favorable terms.

Your Turn:
Have you bought a home during the holidays? Tell us about it in the comments.

Learn More:
fitsmallbusiness.com
thebalance.com
freddiemac.com
loans.usnews.com
blog.nationwide.com
thebalance.com
realestate.usnews.com