How to get the house you want with a mortgage loan you can afford

good credit score

Getting an affordable mortgage doesn't have to involve good credit scores, high down payments and 30-year terms. Image: CC Keven Walter/Flickr

You don’t need a stellar credit score and a large down payment to buy a house. By gaining some knowledge about how mortgage lending works, you can make decisions and take actions that result in a good deal. Here are some basic guidelines on how to get the house you want at a price you can afford.

Credit scores and mortgage lenders

A good credit score of 700 or above isn’t necessary to buy a house, no matter how tight credit is these days. An average credit score of between 600 and 700 can qualify for a mortgage loan. The interest rate will be higher for an average credit score, but if mortgage lenders were just interested in good credit scores, business would be slow. You may not need a high down payment to get into a home either. The Federal Housing Administration backs first-time home buyer loans at 3.5 percent down. But to avoid the expensive private mortgage insurance required for loans with less than 20 percent down, you may need a second trust loan, or “piggyback loan” to augment your 3.5 percent down payment.

Get approved, then go house hunting

When it’s time to go house hunting, turn the tables on what most people do. Instead of finding the house you want and then trying to get a mortgage loan for it, get approved for a loan first. Then you will know what you can afford and avoid wasting time looking at houses that are outside your price range. By focusing on realistic expectations, you could find a gem that may have otherwise been overlooked. Plus, by starting out within your budget, future troubles that many face by getting stuck with mortgages they can’t afford can be avoided.

What type of mortgage loan is right for you?

When you set out to find approval for that mortgage loan, try not to be married to the idea of a 30-year home loan. Most people choose 30-year mortgages because monthly payments, spread out over three decades, are lower. But the interest paid is also spread out over those three decades. A 15-year home loan, with half the mortgage payments, will end up costing significantly less overall, and be over with twice as fast. And when it comes to debt reduction, keep in mind that a mortgage is some of the cheapest credit there is, and the mortgage interest is tax deductible. Pay off those credit cards first.


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