Financing your home purchase starts with speaking to a loan officer to determine two very important things:
What kind of loan you have, what your down payment is, and how much you can afford to pay a month will all factor into financing your home purchase.
To be “pre-approved” means you have a letter from a loan officer stating that they have run your information through a preliminary approval process and “pre-approved” you to buy a home.
There are more steps for final approval, but a pre-approval letter lets a seller know that, according to the information you have provided, you are able to buy the home, which is a great comfort to sellers who are always nervous about sales falling through. In a competitive market, sellers want to know that you have been pre-approved before they accept an offer. If you’re in a situation where a home has multiple offers from buyers, you’ll definitely want to have your pre-approval letter ready to go. Buyers with a pre-approval letter are much less risky for sellers.
You can either get pre-approved before finding a real estate agent, or have your agent direct you to a loan officer who can guide you through the process. Remember, your real estate agent should have verified contacts for loan offers who communicate well, are knowledgeable, and know how to navigate the pre-approval for a variety of home buyers. Every buyer’s situation is unique.
There are a wide variety of options for home loans. Ultimately, you and your loan officer will determine what kind of financing is best for you and what you qualify for, but here are a few example options.
FHA loans (Federal Housing Administration) have been helping people finance their home purchases since 1934. These loans are insured by the U.S. Department of Housing and Urban Development (HUD) so that lenders can give buyers better deals and work with buyers who might otherwise not be pre-approved.
FHA loans are great for home buyers who may be seen as higher risk borrowers (lower credit scores, less money for down payments) and have a better chance of being pre-approved for FHA loans.
They’re also very popular with first time home buyers.
Conventional loans are not government-backed loans, like FHA loans or VA loans. They’re backed by private lenders and, therefore, tend to be best for well-qualified buyers.
VA Loans are available to servicemen and women, veterans and eligible surviving spouses of the armed forces to help them buy, fix up or retain a home. A portion of the loan, which is provided by private lenders, is guaranteed by the Department of Veterans Affairs (VA). This provides lenders with extra confidence and makes loans to our country’s serving military and veterans more attainable.
Borrowing from the bank may be the most obvious option, but it’s not the only option. Some sellers may be willing to finance the sale of their own home to buyers who don’t qualify for bank loans due to low credit scores, lack of credit, or being self-employed and lacking documentation of income.
If you need further assistance in buying a home, there are home buying grants and down payment assistance programs.
Minnesota Mortgage Programs, offered through the Minnesota Housing and Finance Agency, have several programs that help Minnesotans get into a new home.
The Agency’s programs provide a list of benefits, including fixed-rate loans that come with several down payment and closing cost options. Tax credits may even be made available through their Mortgage Credit Certificate (MCC) program.
The Minnesota Housing and Finance Agency has a list of participating lenders and several brochures that explain the programs in more detail.
Have more questions? Contact us and we’ll be happy to help.