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Qualifying for a Mortgage Loan

Feeling Right at Home with Kathy Lyon, Union Bank Mortgage Lender NMLS 413332

You're ready to make the jump from renting to buying a home. That's good news. Buying a home today is actually more affordable than it's been in decades. The first week of June, Freddie Mac reported that the average interest rate on a 30-year fixed-rate mortgage loan was 4.14% and a 15-year fixed-rate mortgage loan was 3.23%. Great interest rates are certainly an indicator that the time is right to get a mortgage loan! But, finding the right home for your budget is the most important step toward home ownership. Before you buy a home, you should make sure that you can afford the monthly mortgage payment and that the payment will not change for the life of your loan. As home loan specialist, Union Bank offers low rates with low fees in an attempt to support the customer in finding comfortable, affordable housing. Here are some questions that you should ask before purchasing your new home:

Can I afford it? 
In general, mortgage lenders recommend that you purchase a home that is no more than two-and-a-half times your gross annual income. In general, if you make $50,000 a year, you'd be able to afford a home that costs from $100,000 to $125,000.

How much money will my lender allow me to borrow?
Mortgage lenders will look at your entire financial picture to determine how much money to lend you. This includes both your monthly income and your monthly debts. Your house payment (including principal, interest, taxes and insurance) and all other monthly debt should not exceed 40% of your gross monthly income. 

How much down payment should I pay?
Of course, you can increase the affordability of your mortgage loan by coming up with a larger down payment. The more money you can put to a down payment, the smaller your mortgage loan will be and the smaller your monthly payments will be. Most conventional lenders today require that you put down at least 5% of your home's purchase price. For a house with a $200,000 purchase price, that would equal a down payment of $10,000. If you take out a mortgage loan insured by the Federal Housing Administration, (FHA) you'll need a down payment of just 3.5% of the purchase price. For a house with a $200,000 purchase price, you would need a down payment of $7,000.

Does my credit score really matter?
Of course, even if you can afford a specific house, and you have the money for a down payment, you must also have a qualifying credit score to ensure that you will get a home loan. Lenders today rely heavily on your three-digit credit score when determining who gets mortgage money and at what interest rate. If you've made wise financial decisions, and you've paid your bills on time, your credit score should be solid. In general, lenders reserve their best interest rates for borrowers who have FICO credit scores of 740 or higher. This is important when it comes to affordability. 

For more information regarding the right mortgage loan for you, please call us today at (870) 460-6400.  

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