Information is more accessible now than ever before. Thanks to the internet, you can find out pretty much everything you need to know by searching the right phrases. Yet, with all of that handy information at our fingertips, it’s hard to separate vital knowledge from unsubstantiated rumors—even flat-out incorrect information.
When it comes to home buying and home loans, knowledge is power. That’s why a big part of our mission at Bison State Bank is educating our clients about their home loan options, and helping them sift through the wealth of available information.
It can be a difficult task figuring out what you need to apply for a loan. So, in this blog we’ll dispel some of those rumors and go over what your online mortgage lender wants you to know before applying for a home loan.
You don’t need 20% down to buy a house
One of the biggest concerns we see, particularly from first-time home buyers, is that they won’t be able to afford the down payment on a house. There’s a popular misconception that purchasing a house requires a 20% down payment, but that’s just simply not true.
Depending on your loan and your mortgage lender, your total down payment can be as little as 3%. And for veterans with a VA loan, you’re not even required to provide a down payment.
Here’s a quick look at some common loan types provided by an online mortgage lender like Bison State Bank.
Conventional 30-year fixed loans
A conventional 30-year fixed home loan is the most popular loan in the United States today. These loans have a “fixed” interest rate that doesn’t change for the life of the loan, making it an ideal choice during times of low interest rates.
Conventional 15-year fixed loans
Just like the 30-year fixed loan option, a conventional 15-year fixed loan has the same interest rate over the life of the loan. You can use these kinds of loans when refinancing your old mortgage, and they can have even lower interest rates than their longer counterparts.
FHA Mortgage
An FHA loan is a mortgage backed by the United States government to help make homeownership possible for borrowers who don’t have the means for a large down payment or excellent credit. Borrowers can qualify for an FHA loan with a minimum of a 500 credit score with a 10% down payment, but a 3.5% down payment is acceptable for 580 credit scores and above.
VA Loans
The main benefits of VA home loans include no required down payments, lower interest rates, no private mortgage insurance, and limited to no closing costs. All uniformed service members are eligible for VA home loan benefits, including members of the Army, Navy, Air Force, Marines, Coast Guard, Space Force, National Oceanic Atmospheric Administration (NOAA), and Public Health Service.
Related: How much money do you need to buy a house?
Have all your assets together before applying for a loan
The most common advice we offer clients at the start of their home loan search is to get your assets organized before applying for a loan or deciding on an online mortgage lender.
We often hear criticism about other online mortgage lenders asking for materials late in the process, and that’s usually due to the lender not getting all of your information and documents up front.
Check this list of documents you will likely need during the mortgage application process:
- Pay stubs from the last 30 days
- W-2s from current and past employers
- Income tax returns
- Alimony or child support
- Bank statements from past two or three months
- Retirement and investment account statements
- Proof of rent payments over last 12 months
- Government-issued identification
- And more
Renting isn’t cheaper than owning
Another of the biggest myths we hear as an online mortgage lender is clients assuming that renting is cheaper overall than buying a home. Everyone’s situation is different, but we believe owning a home is more financially advantageous in almost every scenario.
Here are some direct comparisons between renting and owning a home for you to consider.
Cost
Comparing the cost of rent vs. a mortgage comes down to short-term vs. long-term investment. In the short term, renting can be cheaper. If you find an affordable rent amount, then your lease might be cheaper than paying a mortgage along with property taxes and insurance. However, that rent is far from guaranteed to stay the same, and you run the risk of needing to move before you’re ready because of rising rent costs.
In the long term, owning a home is more cost effective because you are investing in your own equity. The more money you pay into your mortgage, the more equity you build. And if you work on aspects of your home to increase its value, you increase your own equity as well.
Equity
Equity in your home is the difference between what you owe on it and the amount your home is actually worth.
For example
- You buy a home for $250,000
- You pay $50,000 on your principal loan amount, reducing your loan to $200,000
- In that time, your home also increased in value to $275,000
- $275,000 (what your home is worth) – $200,000 (how much you owe on your loan) = $75,000 (your equity)
You can use this equity when selling your home to upgrade to a newer, more expensive home, or you can use it to make improvements on your current home. When renting, you aren’t building any equity. In fact, your rent payments are going directly to build up your landlord’s equity, rather than your own.
Community
When purchasing a home in a neighborhood, you’re not just investing in a property. You’re investing in the community around you. If property values in your neighborhood rise, your home’s value can rise as well. When renting, you may not feel as tied to the community because the lease is temporary, so you may not be as invested in bettering your neighborhood. It’s in your best interest to invest in your community, not just because of financial gain, but also for a sense of community pride.
See a full breakdown of renting vs. owning
Do your own research on prospective lenders
When you’re ready to jump feet first into the housing market, don’t just settle for the first options presented. It’s always best to have multiple options, both in the choice of your new home and in your mortgage lender.
Keep in mind that housing prices and mortgage rates aren’t the only factors to consider when shopping around. Some online mortgage lenders will fit your loan into a cookie-cutter, one-size-fits-all mortgage.
At Bison State Bank, our seasoned loan officers match you with the right loan, not just the best rate. We focus solely on building relationships with our clients. Our team sacrifices short-term profits for long-term satisfaction that has clients returning to work with us years down the road.
Shop around for the best loan
Finding the right online mortgage lender is an incredibly important part of the homebuying process. That’s why it’s crucial to shop around and find the right option for your needs. Even if you get pre-approved by a lender for a certain amount, you aren’t locked into using that lender for your home loan.
Pre-approval
A mortgage pre-approval is a preliminary evaluation of your potential buying power. With this information, buyers have a better understanding of what level of house they can afford, and realtors can adjust their showings to better fit your needs.
Don’t get too hung up on current rates
When searching for the right online mortgage lender, you’ll likely see a whole lot of variation in loan rates. We’re proud to have some of the best online loan rates in the business at Bison State Bank, but the rate market is constantly evolving.
The good news is, you’re not necessarily tied to your entry rate for the life of your mortgage. Refinancing your home is a simple and effective process, and you can refinance as early as six months after your initial loan!
Refinancing can help homeowners with a variety of situations, like lowering interest rates, changing your term length, reducing your payments, or even getting cash in hand.
Our complete guide to home loan refinancing
Come to Bison State Bank for an online mortgage lender you can trust
Buying a home is one of the biggest financial decisions of your life. It’s important to have the right team to support you throughout the process.
Our experienced mortgage professionals at Bison State Bank are passionate about helping our clients with their first steps toward a better future.
Unlike other online mortgage lenders, our loan officers won’t try to fit you into a loan that’s not right for your situation. We are seasoned professionals in this industry with the experience to fit each client with a tailored loan solution. The end result leaves them satisfied with their purchase and confident in their decisions.
Contact us today to see how our honesty, integrity, and experience helps with finding you the right home loans.
A special thank you to our Mortgage Loan Originator, Trevor Weinrich, for providing his expertise on this topic.
