The Best Way for Potential Homeowners to Get a Home Loan

For two main reasons, now is one of the best times to purchase a home: home prices have declined to a more affordable level and mortgage rates are at an all-time low.

If you are in the market for a new home, now is the time to begin shopping for your home mortgage. Many financial institutions offer similar home loan programs, so how do you determine which mortgage program is best for you?

First, determine what type of home loan you'll need. Are you a first-time homebuyer or veteran? Are you looking for a jumbo loan (loans generally greater than $400,000)? Are you looking for a loan that offers a high financing percentage of the home's purchase price? These are all conditions that constitute different loan programs.

You will also need to determine where you stand in terms of your credit score and the amount of funds you can put towards the purchase of your home as a down payment. Generally speaking, lenders require that prospective buyers have a minimum credit score of 620 to qualify for any home loan. Depending on the loan program that you'll apply for, you will need a down payment of at least 3.5% of the purchase price of the home. Some lenders can require a down payment of up to 20% of the home purchase price.

Once you establish what type of home loan you'll need, begin speaking to home loan consultants about their mortgage programs, the costs of the loan, and the required down payment. If you already have a relationship with a bank, begin there. When looking at the costs of the loan, consider the following:

- the interest rate in which the bank is charging for the loan;

- the term of the loan (number of years for your mortgage);

- the origination fee (the upfront amount the lender charges to provide the loan);

- discount points (the fees paid to a lender in order to lower your mortgage interest rate; the cost of each point is equal to one percent of the loan amount);

- application and processing fees (the fees lenders charge for you to apply for the loan and for them to order your credit report).

These are all factors that will help determine your monthly mortgage payment and your loan closing costs.

Once you find a home loan that meets your needs, you should get pre-approved for the loan. After pre-approval, you will know exactly how much you can afford for a house, and exactly what your mortgage payments will be. You can then begin shopping for your new home.