Getting a Good Financial Start when buying a Home in Knoxville, TN

Written on 04 April 2016.

Start a Go-To File
A Go-To File should contain all of your important financial documents. Regardless of the loan type, lenders will need information about you. Make copies of financial statements; bank accounts, investments, credit cards, auto loans, recent pay stubs and two years’ tax returns.

Check Your Credit Rating
Credit scores range between 400 and 800. 620 + is considered "good". 680 + is considered "premium" and may possibly help get you a lower interest rate.
Below you will find the contact information for the 3 major credit reporting agencies to help you determine your credit rating. Ask your lender how to improve your credit score if you need to. Going forward, treat your credit like gold.

Equifax - http://www.equifax.com         (800) 685-1111
Experian - http://www.experian.com       (800) 392-1122
Trans Union - http://www.transunion.com    (800) 888-4213

Savings & Debt
If you are buying real estate, try to accumulate funds towards your down payment, closing costs (appraisal, miscellaneous fees, escrow, title insurance, etc.) and expenses such as inspections. Furthermore, try to pay down existing revolving and high interest rate debt like credit cards.

Be Proactive
Now is not a good time to change careers, move your money around, or buy big ticket items. Lenders like stability. So if you are considering any major changes, it pays to meet with a lender and ask them how to proceed before you make any changes! Also, remember DO NOT CANCEL any credit cards, this can lower your credit scores.

FHA Loan Program

FHA Loans Knoxville Robin Butler

Whether you're a first time homebuyer, moving to a new home, or want to refinance your existing conventional or FHA mortgage, the FHA loan program will let you purchase a home with a low down payment and flexible guidelines. Depending on the area you want to live in you could qualify for a loan with no down-payment USDA loan.

Veteran loans also qualify for no down-payment loans.

For more information on how you can qualify, go to the FHA website here.

Buyer's Guides

Financing Options

Fortunately for buyers, there are a variety of mortgages to choose from. It is in your best interest to investigate each of them to determine which option is the best for your situation.

Government Loans
Conventional Loans - Fixed-Rate Mortgages 
Adjustable-Rate Mortgages
 Convertible ARM

Government Loans

Other options available to some people are government loans, providing that you meet the qualifications and guidelines for these loans.

VA Loans: Veterans may qualify for a loan from the Veterans Administration. There is a limit on the amount you can borrow, so this option works best for those buying a lower priced home.

FHA Loans: The Federal Housing Association offers loans to lower-income Americans. Look for the phrase “FHA approved” when looking at ads for homes.

USDA/RURAL: These loans are available on homes that are located in certain areas that the government considers low population in rural and suburban areas. The best part about the USDA loan the buyer has no down-payment, low interest rates, and flexible credit guidelines.

Fixed Rate Mortgages

Consider a fixed rate mortgage if any of the following describes you:
You plan on living in your new home for many years, and/or you are not a risk-taker and prefer the stability of knowing how much your payment will be each month.

Since most home loans are for a period of 30 years, a fixed rate mortgage may be what works best for you. Once your loan amount and interest rate are calculated and locked in, a fixed rate mortgage will guarantee that you will have the same payment over the life of the loan. Making extra payments on the principal will also allow you to pay your loan off sooner.

This may not always be the best choice, however. If interest rates are very high at the time you take out your loan, with a fixed rate mortgage you’ll be stuck with that high interest for the life of the loan (unless you choose to refinance). Conversely, if interest rates are very low, you’ll come out the winner with interest rates that will stay low no matter how high interest rates go in the future.

Adjustable-Rate Mortgages (ARM)

If you are more comfortable in taking a risk with your money or if interest rates are very high at the time you take out your loan, an adjustable-rate mortgage (ARM) may be the solution for you. You might also choose this type of loan if your planned ownership of the property is short-term or if you expect your income to increase to cover any potential rise in the interest rate.

Generally, the interest rate when you take out your loan will be lower than a fixed-rate mortgage. Please note that this is true initially, not necessarily long-term.

Since an ARM rate rises and falls depending on the prevailing interest rate, your mortgage payment will rise and fall accordingly. If your income is not sufficient to cover the highest possible payments, then this option is not for you.

On the positive side, the lower initial payments will allow you to qualify for a larger loan than if you choose a fixed-rate. The downside is that your payments will increase if/when the rates go up.

Convertible ARMs

If neither the fixed-rate nor the adjustable-rate mortgage seems like the best option, perhaps the convertible ARM will be right for you. This alternative combines the initial advantage of an ARM with a fixed rate after a predetermined number of years. Obviously, this type of mortgage has more advantages when the initial interest rate is low and the future rate is not guaranteed.

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