What You Need to Know Before Applying for a Home Loan

Real estate agent handing over house keys

If you’re looking to buy a house in Utah, you have several options in obtaining a mortgage. Getting the best loan deals largely depend on your credit rating and financial condition. A low credit rating, however, will not stop you from getting favorable mortgage terms. Aside from private lenders, the federal and state governments also offer home loans.

You can also choose between a fixed rate mortgage and the ones with adjustable rates. Do take note that these options are not the same for every borrower. If you want to get the best mortgage deals, here are some of the things you should know:

Credit Scores

Normally, a credit score of 720 can help you get favorable loan terms from the bank. In case your credit rating is lower, don’t despair. In Salt Lake City, some lenders are willing to give affordable rates even for people with credit scores of around 640. You can expect lenders to give their best rates and terms if your credit score is 740 and above.

Debt-to-Income Ratio and Down payment

Most banks would want to see that you have made at least a 20% down payment on your home. In addition, a debt-to-income ratio of at least 40% makes you a good credit risk. A lender may still accept your loan application, but prepare for possible higher fees and APR.

The bank will also likely require you to get mortgage insurance if your down payment is below 20%. For those under the FHA or a similar federal program, the down payment requirement is waived.

Federal Assisted Loans

For veterans looking for an affordable mortgage, the VA loan is the best option. This federal program does not require a down payment or private mortgage insurance. There is, however, a funding fee requirement ranging from 1 to 3 percent. The only way you can reduce the fee is to make a down payment on the property.

Meanwhile, the Federal Housing Administration offers home loans to people who did not enter military service. You can avail of the FHA loan even with a credit rating as low as 580. The down payment requirement is also much lower at 3.5 percent. If your rating is below 580, you can still qualify for a loan but the down payment requirement is higher. You can also avail of USDA loans if you’re living in the rural areas of Utah.

State-Assisted Home Financing

The State of Utah also offers some of the best home loans to its constituents. First-time homebuyers can receive a Pioneer Grant of up to $10,000 for their down payment. Keep in mind though that there are certain requirements you need to comply with. Also, you have to check first if your county is covered by this program.

Buying a house isn’t as complicated as you think. All you need is to know where to ask for help.