Responsible Homeownership
Practicing Responsible Homeownership
Homeownership is still central to the American Dream.
It is especially true for veterans and military community members, who continue to outnumber civilians regarding home ownership.
A home can be an excellent way to accumulate equity, but it is also a significant financial responsibility. Prospective homebuyers must consider whether they are prepared to handle that responsibility.
The VA loan program does a fantastic job of ensuring that veterans can truly afford the homes they buy. This no-money-down program has had the lowest foreclosure rate of any mortgage market for nearly the last six years.
There are no guarantees, however. Job loss, family changes, and many other factors can all impact your financial health. The mortgage is still owed.
Each buyer’s mortgage process is unique. When applying for a home loan, however, there are usually six boxes to check:
Documentation Required
Down payment
The first requirement for purchasing a home is a down payment. These are the funds you pay in advance to offset the amount you must borrow. There are some options to think about if you are having difficulty saving for a down payment. Down payment assistance programs, for example, can provide eligible depositors with financial assistance with down payments and closing costs.
A lender
Your lender of choice impacts the interest rate you pay on a mortgage loan. The lower your interest rate, the less you’ll have to pay to buy a house throughout the loan. This is why it’s critical to compare mortgage lenders.
Credit score
When you apply for a loan, mortgage lenders consider your entire financial situation, but your FICO score can take center stage. Lenders use your credit scores to determine how likely you are to repay what you borrow. It will be tough to qualify for a mortgage if you have a poor credit score or no credit history.
Debt-to-income ratio
Debt-to-income ratio (DTI) is the percentage of your monthly income that goes toward debt repayment. You can calculate this by adding your monthly debt payments and dividing the total by your gross monthly income. The lower this number, the better for meeting the home-buying requirements.
Closing costs
Closing costs are the charges you pay at the time of closing. If these fees are not paid, the loan documentation cannot be signed, and the mortgage process is not completed. The following are typical closing costs:
- Credit report fees
- Application fees
- Recording fees
- Title insurance fees
- Underwriting or processing fees
- Closing fees
- Escrow fees
- Origination fees
- Prepaid interest
- Survey fees
Documentation
Making sure you have all of your ducks in a row before applying for a mortgage will make the process much easier. Inadequate documentation can cause the loan approval process to be delayed or even halted entirely, so you must determine what you can bring to the table.
More than a mortgage payment
The principal and interest on your loan and a portion of your annual property tax and homeowners insurance bills are typically covered by your monthly mortgage payment. It’s commonly abbreviated as PITI (principal, interest, taxes, insurance). A fixed-rate mortgage has fixed principal and interest payments. However, property taxes and homeowners insurance premiums can fluctuate annually.
Default does happen
Despite the VA program’s excellent track record, Borrowers occasionally default on their loans. Late payments, loan modifications, and foreclosure can all wreak havoc on your credit score and have long-term consequences for your financial situation.