Understanding Real Estate Financing

Summary

Understanding real estate financing, what you need to know and what you should know, before you buy. Most people are going to need a loan to buy a house

Understanding real estate financing, what you need to know and what you should know, before you buy

Most people are going to need a loan to buy a house, and getting that loan or mortgage is going to be one of the biggest steps a buyer will have to take to buy a house.

So, what does a new home buyer need to know, and what should they do now to get a mortgage?

I am not going to go into any major detail on getting a mortgage in this article, what I am going to do is give you a general understanding of the progress.

There are 3 things, in general, a lender is going to look at when deciding on giving you a mortgage and at what interest rate they’re going to offer you.

1. Credit FICO scores (the credit scores the credit companies use to rate a person’s credit)
2. Income
3. Expenses

There are a number of different types of loans that someone can get to buy a house, and I am only going to go over the two types that most people use, and that is the Conventional and the FHA mortgage.

Conventional mortgages are use by buyers that have good to very good FICO scores and have a minimum of 5% down.

An FHA mortgage, which is a government back mortgage, is basically for buyers who have a lower FICO score and may not have the down payment needed to get a conventional mortgage.

In a Conventional mortgage as well as in an FHA mortgage, if you put down less than 20% down there will be ether MIP (Private Mortgage Insurance) or MI (Mortgage Insurance), insurance and that money that will be paid monthly included in the mortgage payment to protect the lender from loss if the buyer stops paying the mortgage, and the lender has to take the property back.

The difference is that FHA charges an upfront fee of around 2% of the loan amount and a monthly fee.

The monthly fee for FHA is usually lower than the conventional mortgage, but at the present time that monthly fee with an FHA loan never goes away, with a conventional mortgage loan, the monthly PMI payment will go away after the buyer’s equity is around 20% or more.

What many people looking to buy a future home for themselves need to know is that every dollar they have in debt takes away the amount they can get a mortgage for.

At today’s interest rate of around 7% for every $65 to $80 you have in debt, not including rents, depending on whether the loan will have MIP or MI insurance and, that person has reduced the amount the lender will give a loan for by around $10,000.

So, if a person that wants to buy a house in the future and thinks that buying a car, or boat or whatever will not affect them when they go to buy a house, they need to thinking about how that debt them.

Let’s say a person has a $450 car payment and $300 in minimum payment amount in credit card payments go to get a mortgage, that person has just lost close to $90,000 or more of what a mortgage lender will offer to lend you.