Requirements of buying a house
you're a first time home buyer, purchasing a home might seem overwhelming.
You might be thinking, how do I buy a home", "what are the requirements for buying a house", "who has the lowest interest rate", how much can I afford", and last but not the least, your want the "best deal".
Most home buyers purchase a house with a mortgage. But what is mortgage? The word mortgage is a French word for "death contract" (sounds appropriate). The mortgage (loan) ends (dies) when either the loan is paid off or the property is taken through foreclosure.
The first requirement to buy a home in most states is the age of the home buyer, usually 18. However, a co-borrower can sometimes enable a minor to purchase a house.
If the home buyer is financing the purchase with mortgage, the home buyer will require a credit score of at least 620, although, the FHA loan program permits a credit score as low as 580.
Most lenders will require the applicant to be continually employed for at least 24 months prior to application, but the employment guidelines may also include education allowances. The FHA loan program is the most generous with regard to employment requirements.
Buying a house usually requires a down payment and closing costs. The Veteran loan does not require down payment and the home seller is permitted to pay the veteran’s allowable closing costs. The FHA requires a small down payment and closing costs, however, the seller is permitted to pay a percentage of the buyer’s closing costs and the FHA program permits eligible donors to “gift” the down payment and closing costs if the seller or buyer are unable to unwilling to pay the settlement and mortgage costs. The USDA has generous mortgage requirements.
Another requirement of buying a house is the debt to income calculation. Lenders use a formula to compare the ratio of monthly debt to monthly income. The debt to income ratio varies from mortgage program to mortgage program.
There are four primary type of loans to finance a home:
- FHA (Federal Housing Administration)
- VA (Veteran's Administration)
- USDA (United States Department of Agriculture)
- Conventional (Fannie Mae and Freddie Mac)
Each home loan program has it's own guidelines and relative merits. For example, an FHA loan only requires only a 3.5% down payment and you do NOT need to be a first time home buyer, however, there are loan limits. The USDA home loan program(currently) does not require a down payment, however, the home must be located in a designated rural area. The Veteran's mortgage (VA) does not require a down payment and the seller can pay all closing costs . . . but of course, you must me an eligible veteran to take advantage of the VA mortgage.
Banks and mortgage brokers may not offer every loan program!
Banks and mortgage brokers must be licensed or "approved"
to offer FHA, VA and USDA financing. So if you seek out a lender
for mortgage preapproval, and the mortgage company is not approved
for say an FHA home loan, it's unlikely the lender will say, "you
need to speak to the lender down the street, because he offers FHA
financing, we don't".
Or let's say you're a vet and you want to use your eligibility and the mortgage company doesn't participate in the VA loan program, again, the lender will probably steer you into a program that his company offers.
So, the first step in the home buying process is to seek out a bank, mortgage broker or lender who can pre-approve you under different mortgage programs.
Mortgage Questions and Answers
Click on the question below to reveal the answer
► Are closing costs added to loan?
► Are closing costs based on loan amount or purchase price?
► Are FHA foreclosures a good deal?
► Can I get a mortgage with bad credit?
► Do I need title insurance when buying a home?
► Do you need a home inspection when buying a house?
► Do you have to have mortgage insurance?
► How do I figure out my mortgage payment?
► How much is a jumbo loan?
► What affects your credit score?
► What are FHA loans?
How much does it cost to buy a house in Pennsylvania?
Use the PA mortgage calculator to estimate the down payment, closing costs and monthly payment for FHA, VA, USDA & conventional loans.
Frequently Asked Questions
- Are mortgage rates based on credit score?
- Beware of creeks, streams & rivers
- Can you have a cosigner on an FHA loan?
- FHA back to work program
- How much to offer on a house?
- How is pmi calculated on a conventional loan?
- Interest Rate Lock
- Should I buy a for sale by owner?
- Using gift money for the down payment
- What are mortgage points?
- What do closing costs include?
- What do I need at mortgage application?
- What is an FHA mortgage?
- What is a USDA mortgage?
- What is debt to income ratio?
- What is pmi and mip?
- What affects your credit score the most?
- What is a hybrid mortgage?
- What is a seller assist?
- What is a short sale?
- Who approves my mortgage?
Frequently asked questions about credit