As part of the youngest credit-eligible generation, you may find yourself overwhelmed with information if you plan to take out a mortgage. You probably have been scouring the internet for a while, have consulted your friends or family members about homeownership, but you end up even more confused. If you’re one of the Gen Z members who are motivated to fulfill their homeownership dreams, here are some of the hard facts about homeownership that you should know:
Fact no. 1: You don’t need a perfect credit score to buy a house
While lenders find it ideal to lend money to borrowers with high credit scores, it doesn’t mean that they’ve already closed their doors for borrowers with below than average credit scores. The Federal Housing Administration (FHA) and conventional mortgage lenders may allow you to take out a mortgage even if you have an average FICO® (Fair Isaac Corporation) score of 667. If you want to secure a lower interest rate, you can work out to improve your credit score first before shopping for a mortgage. If you don’t have an idea about your credit score, you can use myFICO to get an estimate of your score range.
Fact no. 2: You can get a mortgage even if you’re self-employed
If you’re a freelancer with several streams of income or if you own a business and you want to take out a mortgage, a lender may approve you for a loan if you can prove through tax returns that you have a stable source(s) of income. Because you don’t have a W-2 Form to show, lenders will ask for 2 years of your tax return to give them an idea that you are steadily earning an income. Freelancers and business owners may find it complicated to apply for a mortgage because of the additional paperwork, but it doesn’t mean that they cannot apply for a mortgage. The Internal Revenue Service (IRS) can help you determine if you’re required to file a federal tax return.
Fact no. 3: You can buy a home with a down payment below 20 percent
Lenders generally find it ideal if borrowers will put a 20 percent down payment as it reduces their risk of losing their investment. However, if you apply for a government-backed loan like an FHA and USDA, you can put a down payment for as low as 3.5 percent. Some lenders may even allow you to take out a mortgage with a 3 percent down. Take note that if you’ll put a down payment below 20 percent, a lender will require you to take out a mortgage insurance to reduce their risk if you can no longer pay your mortgage. Property value, your credit score, your debt-to-income ratio, and the amount you’re financing typically determine the amount of down payment you need to put. If you’re eligible for a VA loan, you’re not required to put a down payment, but you may need to settle a funding fee.
Fact no. 4: It’s possible for you to avoid a foreclosure
Losing a home to foreclosure can be a frightening experience. Foreclosure is a procedure where the lender works to seize a property when a borrower can no longer pay his or her monthly mortgage. If you think you’re about to fall behind with your mortgage, there are several viable options available to possibly help you prevent a foreclosure. Through a mortgage forbearance arrangement, your servicer or lender can help you make current with your payments either by reducing it or allowing you to temporarily pause paying it for a certain period. Forbearance is an option if you expect to recover from a financial hardship. After notifying your servicer, you may also want to get in touch with a certified housing counselor or an attorney to better understand your options.
Fact no. 5: You can learn the mortgage process
There are lots of official government websites where you can get reliable information about homebuying and on how the mortgage process works. For starters, you may want to familiarize yourself with some of the basic mortgage terminologies. Aside from the FHA, the Consumer Financial Protection Bureau (CFPB) can also give you important information about taking out a mortgage. Moreover, you may want to consult a certified housing counselor or a loan advisor if you want to get more and updated information about your mortgage options.
An RPM loan advisor can help you achieve your homeownership dreams
Buying a home is worth considering as mortgage rates have become more favorable over the recent years. A professional RPM loan advisor can help you understand your options if you think you’re ready to make the biggest investment of your life.