When you are in the market for a new home, one of your first steps is to secure the financing that you need to make your dream of owning a house a reality. Yet, trying to navigate your way through the complicated process of finding the right mortgage lenders in Phoenix, with an acceptable interest rate, is often confusing when you are new to home buying or have been out of the market for a number of years.
The Vercellino Team consists of experts in the Phoenix area who know how to guide you through each step of the process for qualifying for a home loan. They will also smooth the way during the closing process so that you never have to worry about a last minute setback.
Before you initiate your search for a new home, you can use this guide to understand more about the process of getting a mortgage loan.
Types of Mortgage Loans Available
When you talk to mortgage lenders in Phoenix, one of the first things that you will discuss is the different types of home loans that are available. The right type of loan for you depends upon factors such as the value of a prospective house, your military status, as well as the amount that you have saved for a down payment.
A quick snapshot:
- Conventional Mortgage – lowest interest rate, most common type of home loan
- FHA Home Loans – ideal for first time home buyer, 3.5% down payment
- USDA Loans – very low interest rate, no down payment
- VA Loans – no down payment, no PMI for military veterans
- Jumbo Loans – for higher priced homes
You can use the overview below to better understand your possible mortgage loan options.
Conventional Mortgage Loans
This is one of the most common types of loans, and you may already be familiar with some of the terms. To be eligible for this type of loan, a lender will check to make sure that you fit the credit score requirements, and you will need to prove that you have a steady income that supports repayment of the loan.
In most cases, you should be prepared to put down at least a 20% down payment, and the procurement of Private Mortgage Insurance (PMI) may be a condition of the loan.
Conventional loans also come with the option of choosing a fixed or adjustable rate mortgage, and your loan originator can help you determine which type best fits your financial goals.
FHA Mortgage Loans
The Federal Housing Administration (FHA) backs this loan, which makes it ideal for first time homebuyers who are looking for benefits such as a low down payment and lower credit score requirements. Although a PMI is required for this type of loan, you can often put as little as 3.5 percent.
If you are a first time home buyer struggling to put together a sizable down payment, then this loan opens up opportunities that you might not have known were possible.
USDA Mortgage Loans
This loan is another one that is ideal for first time homebuyers and those who do not fit the traditional standards regarding credit scores and income levels. Since the federal government backs this loan, you may be eligible for benefits such as putting down no down payment on a house and getting a very low interest rate.
VA Home Loans
The Federal Department of Veterans Affairs guarantees this loan that is provided by private lenders. Although eligibility requirements apply, veterans, active service members and their families can use this type of loan to secure mortgage financing with no down payment and the ability to avoid purchasing PMI.
Most loan types have limitations set in place regarding how much money you can borrow. Jumbo loans help to fill in this gap for people who want to purchase a piece of property that falls outside of these limits. Since the loan amount is higher, you can expect to put down a larger down payment and have a higher credit score than you would for the other types of loans.
What to Expect When Applying for a Home Loan
The process of applying for a mortgage loan requires a great deal of paperwork and strict attention to detail. Mortgage lenders in Phoenix require you to provide documentation of essential information to verify your income.
During the course of securing your loan, you will need to submit bank records, tax reports and income statements. If you apply for a VA loan, then you can also expect to provide proof of your military status.
In most cases, it takes time for a loan to be approved, and you may need to seek multiple offers before you find one that fits your needs. For this reason, it is best to begin the process of working with a Phoenix mortgage lender as soon as possible when you are ready to buy a home.
When PMI is Required
PMI is simply a type of insurance that provides mortgage lenders in Phoenix with additional protection in case you are unable to repay the loan as promised. You may be required to purchase PMI if you are putting down a small down payment or if you are considered high risk for a loan.
The cost of PMI varies depending upon the amount of the loan that is offered as well as the down payment. By putting down a higher down payment, you can lower or even eliminate the need for PMI. If it is required, you can usually choose between paying the full amount in one lump sum or spreading it out in monthly payments.
Understanding Your Debt-to-Income Ratio
Lenders use your debt-to-income ratio to determine your eligibility for a mortgage. To calculate the ratio, the total cost of your monthly debt payments is divided by your gross monthly income to create a percentage total. This rate is then used to decide your capability of repaying a loan.
Reducing your overall debts is one of the easiest ways to improve this ratio so that you have the best chances for a loan approval with an acceptable interest rate.
How to Improve Your Credit Score
Your debt-to-income ratio is one factor that affects your overall credit score. However, you may have other areas where you can improve your credit standing. For instance, you may have outdated or incorrect information on your credit report that can be removed to increase your score. Making payments on time and paying down your debt also improves credit worthiness in the eyes of lenders.
When you consider that the average mortgage loan lasts for 15 to 30 years, taking advantage of every option that you have to get the best rates is essential for your financial security. Never leave your home mortgage up to chance. By working with professional mortgage lenders in Phoenix, you can feel confident about finalizing a loan on your new home.