Home buying – beyond the basics

By now you’re familiar with the basics of buying a home and off to a great start! This section covers a few additional topics you’ll want to learn about before continuing your journey. 

 

Click below for more info about homeownership... 


Prequalification and pre-approval can boost your confidence and could make house hunting easier — but it’s important to understand the difference between prequalification and pre-approval, and when to do which.

 

Prequalification vs. pre-approval

Mortgage prequalification differs from a pre-approval in that prequalification assesses whether your debt-to-income ratio fits the U.S. Bank program guidelines for home loans. It also provides an estimate of how much you may be able to borrow - a good first step in your house-hunting journey.
 

Why is prequalification so important? 

 

  • It helps you know what homes to look for in your price-range.

Exploring how much mortgage you may qualify to borrow is a great place to start your home-buying journey. Prequalification isn’t just a step in the home-buying process. It’s your secret weapon when it’s time to make an offer on a home you love.

 

  • It gives you power when its time to make an offer.

Your prequalification shows real estate agents and sellers that you mean business. If you have a lender like U.S. Bank on your side, you may be taken more seriously when it’s time to make an offer since you've already started the process.

 

  • It can streamline the application process.

A prequalification is created using some of your personal information in order to be as accurate as possible. So when it’s time to complete your application, lenders will already have some of the information they need to make the process smoother.

 

Just remember... 

While the prequalification number is informative, keep in mind how much you may qualify to borrow is often more than how much you can afford to spend on your new home and still have money left over for the other important things in your life; like furniture for your new home.

 

Getting prequalified doesn’t require a commitment from you or the bank. You should be aware that when you apply for a mortgage, your credit score will affect your ability to qualify. If you have concerns about your credit history, talk to your mortgage loan officer now to find out what loan options might be available to you.

 

When you get prequalified, you can request a letter stating how much you may be able to borrow, based on the information you provided to the bank. You can give this letter to your real estate agent to show you’re a serious home buyer.

 

 

Click below to learn more about the benefits of getting prequalified for a home loan.

 

It helps you know what homes to look for.

Exploring how much mortgage you may qualify to borrow is a great place to start your home-buying journey. Prequalification isn’t just a step in the homebuying process. It’s your secret weapon when it’s time to make an offer on a home you love.

It gives you power when it's time to make an offer.

Your prequalification shows real estate agents and sellers that you mean business. If you have a lender like U.S. Bank on your side, you may be taken more seriously when it’s time to make an offer.

It can streamline the application process.

A prequalification is created using some of your personal information in order to be as accurate as possible. So when it’s time to complete your application, lenders could already have some of the information they need to make the process smoother.

 

See how much you can afford

Exploring how much you may qualify for is a great place to start. Mortgage prequalification gives you an idea of how much you maybe able to spend. Learn how much you may prequalify for.

Prequalify

 

Mortgage pre-approval

On the other hand, mortgage pre-approval involves the same steps as a mortgage application — you’ll provide detailed information about your income and assets that will be reviewed by the lender’s underwriters. If pre-approved, you’ll get a conditional commitment by the lender for a specific loan amount. (When you apply for a mortgage, you’re applying for credit to purchase a specific property as well.)

 

Mortgage pre-approval: Making it official

Pre-approval shows you have the resources to make the purchase and it helps you act quickly when you find the perfect home. From the sellers’ point of view, a pre-approved buyer is more attractive than someone who says they can buy a house but have nothing but their word to back up their offer. By proving you have your bank’s backing, a mortgage pre-approval could help you negotiate on price — and it may be a deciding factor for sellers who receive multiple bids.

 

One note on timing: Dont apply for a pre-approval until youre fairly certain youll want to buy a home within the next 90 days. A pre-approval involves requesting a copy of your credit history and an examination of your application information and the documents you provide. A pre-approval will show as an inquiry on your credit report, and it’s only good for a certain amount of time.

 

If you decide to proceed with the loan, you may also be required to pay an application fee and prepay for the home appraisal and other costs. An estimate of costs or fees to be paid at the mortgage closing will also be determined at this stage.

 

To get pre-approved, you’ll need to provide some personal information and financial documents, including detailed proof of your income for the past two years. You can start your mortgage application by contacting a mortgage loan officer today.

 

If you know your price range, have a real estate agent and are shopping for homes, a pre-approval is your next key step. Here’s what you'll typically need to see if you're pre-approved.

Pre-approval checklist

Which type of mortgage best fits my needs?

 

With so many types of mortgages to choose from, how do you know which one will fit your needs? Here’s a breakdown to help you sort out what's available and what will best suit your financial situation. 

 

Mortgage programs

When you’re comparing different types of mortgages, you should look at these key points:

  • Home requirements
  • Borrower requirements
  • How mortgage payments are structured

Not all types of home loans will work for all buyers, so it’s helpful to talk to your lender to sort through the best option for you. To get you started on understanding what might be available to you, below are some types of mortgages you may want to consider. 

 

Fixed-rate vs. adjustable-rate mortgages

The matter of fixed-rate versus adjustable-rate mortgages will come into play with nearly all types of mortgage programs. As the name suggests, a fixed-rate mortgage is one that maintains the same interest rate throughout the life of the loan.
 

With an adjustable-rate mortgage (ARM), the interest rate can change after the initial fixed-rate period, which could be between 1-10 years. For example, the 5/1 ARM, has a fixed interest rate for the first five years. After this period, the interest rate is subject to change on an annual basis for the remaining term. The monthly payments on adjustable-rate mortgages are based on the fully indexed rate figured over the amount of years still left on the loan. Buyers often choose them with the intent of refinancing or selling before the loan goes into the adjustable-rate period. 
 

Conventional mortgages

Several types of home loans fall within the category of conventional mortgages. These mortgage programs are essentially anything that's not backed by the federal government. Conforming loans are those within the limits of the Fannie Mae or Freddie Mac programs. Non-conforming loans fall outside these guidelines and may be more expensive.

 

For a conventional loan, many lenders require a minimum FICO score of 620 and a debt-to-income ratio of 45 to 50 percent. If your down payment is less than 20 percent of the sale price, you may be required to pay private mortgage insurance.

 

A conventional mortgage offers the following: 

  • No private mortgage insurance required with a 20%+ down payment
  • Flexible terms
  • Potential for lower rates through good credit or purchasing points
     

Government-insured mortgages

The government offers three types of mortgage programs to help Americans purchase homes.

 

FHA loans

Ideal for first-time home buyers, FHA loans typically require a low down payment from qualified borrowers.

 

 An FHA loan offers the following: 

  • Allows for lower credit scores
  • Low down payment requirements (as little as 3.5%)
  • Mortgage insurance premium required
     

VA loans

VA loans can offer financing with no down payment. This is one of the few loans that doesn't require you to purchase mortgage insurance.

 

USDA loans

Homes in rural areas may qualify for USDA loans. These loans require no down payment and offer low mortgage insurance fees.

 

 

Mortgage Loans – Explained

See the difference in loan types. 

 

Conventional 

95% Loan-to-value More Financial options
Good credit All Occupancy types

Purchase

Refinance

Renovate

  • Various fixed term options provided by your lender
  • 5, 7 & 10 year Adjustable Rate Mortgage
  • 1-4 Units

FHA

96.5% Loan-to-value Low payments
Low credit score option Easier to qualify

Purchase

Refinance

Renovate

  • Various fixed term options provided by your lender
  • 5 year adjustable rates
  • 1 unit

USDA 

Zero down payment Low payments
Good credit Limited to rural areas

Purchase

Refinance

  • Various fixed term options provided by your lender
  • 1 unit

VA Loan

Zero down payment Low payments
Limited to eligible veterans No mortgage insurance

Purchase

Refinance

Renovate

  • Various fixed term options provided by your lender
  • 5 year adjustable rates
  • 1-4 units

An ally by your side

Don’t think you have to figure this all out on your own. Your mortgage loan officer can be your guide throughout the entire process, giving you options for real estate agents, builders, home inspectors and homeowners insurance agents.

Be sure to take full advantage of their experience. Let them use their knowledge to help you lay out all your options. They can let you know which loans to consider and how to structure them. Above all else, don’t rule out a house you might want to buy before consulting with your mortgage loan officer.

Finding the right real estate agent

When choosing a real estate agent, it pays to do a little research. Too often, people default to the agent whose name they see on the sign in the front yard, but that could be risky. If the real estate agent represents both the sellers’ and buyers’ sides, they will be able to make a commission from the sale of the home and from the purchase of the home. The agent might offer a discount to the sellers when representing both parties – but you as the buyer might not actually benefit from this discount unless the purchase price is lowered or the agent decides to contribute some of their commission toward your closing costs.

 

Shop around to find someone you feel comfortable with or someone your family and friends recommend. Find an agent who can work with your schedule and has a confident understanding of the neighborhoods you’re looking at. Make note of how responsive they are when you leave them a message.
 

The right agent likely lives or works near the areas you’re looking into. So they have all the inside information on how other homes have been selling and which homes have had a difficult time selling. Because of this, they’ll be able to tell you whether or not you’re getting a good price.

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Planning calculators

Run your numbers and make a plan.

 

Deciding whether or not renting or buying is right for you? Run your numbers through our rent vs. buy calculator. 

Rent vs. buy calculator

 

Interested in checking your numbers to see how much you might be able to afford? Try our affordability calculator. 

Mortgage affordability calculator

 

Calculate a VA or FHA loan, determine a down payment number, see your fixed-rate numbers and more. Find the right calculator for your needs. 

Other mortgage calculators

 

Check these off your list

 

Put pen to paper and keep track of these key steps when buying a home. Fill these in, print them off and keep them handy during your journey..

 

 

Ready to see if you're pre-approved for a loan? It's a good start to see how much home you may be able to afford. Here's what you'll need to get pre-approved.

Pre-approval checklist

 

This monthly planner will help you analyze your current and future housing-related expenses. 

Monthly budget planner

 

Print and bring this checklist when you visit an open house or tour a listing. It may help you narrow down your options.

Open house checklist

 

Make sure you’re getting the most out of the inspection by asking these questions.

Inspection checklist

Find a U.S. Bank mortgage loan officer

An experienced mortgage loan officer is just a phone call or email away. Contact them with any home buying questions, big or small. 

Find a loan officer near you

Prequalify for a mortgage with U.S. Bank

Understanding how much you may qualify for is a great place to start. Online prequalification with U.S. Bank is fast, free and won't affect your credit score.

Click here to prequalify
Ready for next steps?
Start your application