Are you considering buying a home and plan on using a mortgage loan to help finance your purchase? If so, there are some requirements you should be aware of before you start the process.
Buying a home is a significant investment that most often requires mortgage assistance to finance such a large purchase. To secure a mortgage, you will need to be pre-approved and meet the specified requirements.
Mortgage Down Payment Requirements
Your down payment range may be between 3% to 20% of the purchase price, depending on the home loan you are using. However, with a VA loan, eligible borrowers are offered 100% financing with no down payment. An FHA home loan, a popular mortgage program among first-time homebuyers, has a minimum down payment requirement of 3.5%. It is possible to receive down-payment gifts from family, friends, and other approved donors.
Mortgage Credit Score Requirements
Another critical requirement when purchasing a home is your credit score. Homebuyers get high credit scores from maintaining punctual payments and responsible credit use. Frequently delayed payments cause low credit scores.
There is no exact credit score requirement for mortgages, but this differs from one lender to another. In general, a credit score in the 600s or higher will put homebuyers in a decent position to qualify for a loan. A higher score does increase your chances of getting approved for a mortgage with a lower interest rate.
Home Appraisal Requirements
When using a mortgage loan to purchase a home, your lender will want to ensure the property you are buying is worth the price. They will send in a licensed home appraiser to assess the current market value of the home.
As long as the home appraises at purchase price, you won’t run into any issues. If the appraisal comes in lower than the planned purchase price, your lender may have to adjust the final closing costs to account for the appraisal shortfall.
Mortgage Closing Cost Requirements
Closing costs are the various fees buyers face when purchasing a new home. Closing costs can accrue from lenders and third parties involved in your loan transaction, such as escrow, home appraisers, and title companies.
Some fundamental elements contribute to the total amount of closing costs you will have to pay for your home purchase. These elements include the type of loan you choose, your down payment amount, the property type, and occupancy type.
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The above requirements are just an overview of some general requirements when using a mortgage loan. Each type of home loan has specific requirements. To learn more about particular home loans, visit our loan types page detailing each loan offered.