Chicago, IL (PRWEB) March 30, 2014
Most Americans need to apply for a mortgage to finance a new home purchase. During the application process, credit scores are used by lenders, like The Federal Savings Bank, a veteran owned provider, to determine what type of a borrower an applicant is. They will check payment history to see if borrowers are likely to pay their mortgage bill on time and how much debt applicants currently owe. Both of these factors contribute to a person's credit score, but can also determine which type of mortgage is best suited for them. In general, higher credit scores receive better loan terms and interest rates. Potential homebuyers should seek out a mortgage that fits their credit score, as some loans are better suited for different scores.
Check your credit report and score
Prior to applying for a mortgage, borrowers should check their credit report, which details credit history. This includes the number of credit cards, debt owed, outstanding balances and payment history. Applicants should carefully review this document and look for any mistakes that could negatively impact a credit score. Information about credit history can remain on a report for seven years, and in some cases, may be permanent. This means that it can take several years to improve a low credit score. Not all credit reports will come with the calculated score, which may need to be requested for an additional fee. Everyone is entitled to a free credit report once a year from each of the three major credit reporting companies: Equifax, Experian and TransUnion. To order a free credit report, visit annualcreditreport.com.
Down payments and mortgage insurance
Lenders often allow a borrower with less-than-perfect credit to receive a mortgage, but it may require a larger down payment as the lender will likely consider the loan as risky. The amount a homebuyer will need to make on a down payment depends on the type of mortgage. Some lenders that approve jumbo loans may require down payments as high as 20 percent. For many first-time home buyers, this is not always a viable option. Conventional loans may have a lower down payment, closer to 5 percent. Some first-time home buyer loans have the option to receive a down payment as low as 3.5 percent.
First-time home buyers tend to go for home loans with lower down payments because they may not have the extra capital all at once, which makes long-term mortgages a better option. Other homeowners with a riskier loan may need to purchase mortgage insurance, which will protect the lender in the event that the mortgage falls into default. This is typically added onto monthly mortgage payments.
Compare shop and negotiate
Shopping around is one of the best ways to find a low-rate mortgage in any state and receive more favorable terms. This can also help a potential homebuyer figure out which home loan will work for their credit score. For example, a first-time home buyer with good credit may want to look into FHA mortgages, which generally offer low down payments and interest rates.
Contact the Federal Savings Bank, a veteran owned bank, to find out more about a first-time home buyers programs and affordable mortgage options.