All You Need to Know About Home Loans

If you’re in the market for a new home, you’ll likely need to take out a home loan or mortgage. Let’s take a closer look at this product and its application process.

What is a home loan?
A home loan, or a mortgage, enables you to buy a home without having to pull all the cash directly from your pocket at the time of purchase. You’ll need to make a down payment, which is typically between 3.5-20% of the home’s value, along with closing costs and some other fees. However, there are some programs available that offer 100% financing, closing cost and other fees not included. The lender will finance the rest. You’ll then repay the loan, along with interest, generally over the course of 15 to 30 years.

Are all home loans alike?
There are several kinds of home loans, each with its own attributes. Here are a few common types:

1.  30-year fixed-rate mortgage. The interest rate on this 30-year mortgage remains fixed despite any changes to the national rate.
    
2.  15-year fixed-rate mortgage. This fixed-rate mortgage will only last 15 years. Monthly payments will be higher, but the overall interest paid on the loan will be much lower.
    
3.  Adjustable-rate mortgage (ARM). An ARM will give the borrower a lower interest rate in the early years of the loan, followed by a gradual rate increase over the rest of the life of the mortgage.

What do I need to know before applying?    
To qualify for a mortgage, you’ll need to prove you are financially responsible and you can afford the monthly mortgage payments.

The primary way lenders gauge your financial responsibility is through your credit score. This number tells lenders how you’ve handled your past debts. Most lenders will grant a home loan to borrowers with a score of 620 or more. To boost yours, pay your bills on time and keep your credit card usage to a minimum. A higher score will help you get approved and will net you a lower interest rate on your loan.

Another factor in determining your eligibility is your debt-to-income ratio (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 allow a maximum DTI of 36%. We allow a maximum of 43%.

When should I apply?
It’s a good idea to start the mortgage 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. At this point, you can also ask for a pre-approval letter, which confirms you are qualified for a mortgage and shows sellers you’re a serious buyer.

How do I apply?
To apply for a home loan at Acclaim FCU, stop by and ask a representative to help you get started. Make sure to have all of your financial documents in order. You can also begin the application process online here: Apply now

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 Acclaim FCU today. We’re completely committed to your financial success.