Many people seem to believe that with record-low mortgage rates, now is the perfect time to take out a mortgage and buy a home. If you are one of these people, there are a few mortgage facts you should be aware of before getting started. This mortgage lender in Eagan, Minnesota is going to explain below.
1. You don’t necessarily need a high credit score to qualify for a mortgage.
In today’s real estate market, most mortgage lenders want a minimum FICO® score of 620.
This threshold is required to comply with the Federal National Mortgage Association (or “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (or “Freddie Mac”) guidelines. It should not be an issue if you maintain a high credit score. That being said, if you have run into some credit problems in the past, you may have another alternative.
FHA mortgage loans — backed by the U.S. Federal Housing Administration — require a FICO® score of no more than 580. This is an excellent option if you are working on rebuilding your credit profile.
With an FHA loan, even if your credit is less-than-stellar, you can qualify for a mortgage at a competitive rate. Furthermore, at 3.5%, the down payment required for an FHA loan is lower than that of Fannie Mae and Freddie Mac.
2. There are no fixed mortgage interest rates or fees.
When you are approved for a home loan, your mortgage lender in Eagan, Minnesota will provide you with a good faith estimate (or a loan estimate) that outlines the various costs associated with the loan. These costs include appraisal fee, home inspection fee, application fee, credit report fee, recording fee, document preparation fee, and title insurance fee. Moreover, you must pay the lender a 1-2% loan origination fee to cover the costs of considering and organizing your mortgage application.
Most of your loan fees and costs are paid on the closing date, and these “closing costs” can range from 3% to 6% of the sale price. That is a large amount of money. Unfortunately, if you do not have the money to pay your closing costs, you may be denied your mortgage. But you can still browse for cheaper rates. Shopping around has no negative impact on your credit profile. In fact, multiple mortgage applications submitted within a 30-day period count as a single inquiry.
3. How much are you paying in interest?
Some lenders advocate 30-year mortgages because of their “affordability.” However, a 15-year or a 20-year mortgage can help you save in interest as well as build equity in your new Eagan, Minnesota home faster.
The more you pay in interest, the more money your mortgage lender earns. A shorter-term mortgage may raise your monthly payments, but if you can afford it, it may be more beneficial.
4. Beware of “no closing costs” claims.
To lure new home buyers, some unscrupulous lenders claim mortgages and refinances with 0% closing costs. However, you must understand that lenders must turn a profit in some way.
You may save out-of-pocket expenditures at closing, but lenders often charge higher interest rates in situations like these. This is how they make up for providing a no-cost mortgage.
Discuss Your Options with the Top-Rated Mortgage Lender in Eagan, Minnesota
Securing a mortgage can be stressful, but the right mortgage lender in Eagan, Minnesota can help you along the way. Connect with our home loan specialists at Compass Mortgage to learn how we can help you can get the best mortgage for your needs. Contact us today at (877) 793-9362 to discuss your options.