Mortgage Rates

To determine how much house you can afford you will need to take into account several things including your income, other debt you might have, as well as the amount you have available for a down payment.

It's also important that you factor in all the costs of a mortgage. This means considering not only the principal of the loan, but also interest, taxes and insurance.

This calculator can help you determine your potential mortgage payment, and that will allow you to figure out exactly how much house you can afford.

You should be able to get a home loan even if your credit score is in the 500s, but then you're in the market for subprime loans only.

Subprime loans have interest rates that are a couple of percentage points higher than those offered to prime borrowers. Subprime loans also often come with additional fees.

Obviously, a better credit score grants you access to lower interest rates and better terms.

Each ARM is defined by a few major criteria. First of all, the initial interest rate and the initial interest period. The initial interest rate on an ARM will be defined by the bank. As a general rule, this interest rate will be lower than a fixed rate mortgage, in order to make the ARM more attractive to customers. The initial interest period is the length of time that this fixed interest rate will be applied. In a 5-1 ARM, the 5 indicates that the initial interest period is five years long.

The next major part of an ARM is how the interest rate will change. In an 5-1 ARM, the rate will change every 1 year. If a mortgage were a “5-2” ARM, the interest rate would change every 2 years. The change of the interest rate will depend on what the ARM is linked to. If the index that the ARM is linked to has increased, then the rate of interest on the mortgage will increase, and the mortgage will become more expensive overall.

Because the economy generally improves over time, an ARM usually will cost more, not less, than its original fixed rate. A fixed rate mortgage is generally a better option for home-buyers. At this time, fixed rate mortgages are at incredibly low interest rates due to the financial downturn. There is not really any reason one would go with an ARM instead of a fixed rate right now.

In addition to the increase in cost over time, ARM's have also had a bad reputation with errors. Banks admit that “up to 50% of ARM's” are miscalculated, causing homeowners to pay more than they should.

Sources:

https://www.nytimes.com/1994/07/23/business/costly-errors-lurk-in-some-mortgages.html

https://homeguides.sfgate.com/definition-variable-rate-mortgage-8870.html

https://articles.latimes.com/1991-09-22/business/fi-4310_1_adjustable-rate-mortgage

You cannot use a credit card for a down payment on a house. Home sellers and lenders do not accept credit card payments directly. Mortgage lenders typically require down-payment funds to spend at least 60 days in a bank account to get “seasoned.” Besides, credit card limits generally are not high enough to accommodate a down payment for a house.

Even if you could use a credit card for a down payment on a house, it is not a good idea. It would almost certainly result in high credit utilization and an increase in your debt-to-income ratio. That could cause a drop in your credit score right when you're applying for a mortgage, which could in turn cost you thousands of dollars over the life of the home loan if the lower score results in a higher APR. It could also cause your mortgage application to be rejected.

If you really want to use a credit card for a down payment on a house, you could potentially do so in a very roundabout way. For example, apps like Venmo make it possible to move money from a credit card to a friend's bank account, and your friend could then transfer the funds to your bank account to get seasoned for a down payment on a house. But there are fees and daily limits to contend with. The other method is to take out a cash advance, which is very expensive and won't give you much spending power. A credit card's cash advance limit usually is a lot lower than its purchase limit, after all.

Here's why you shouldn't use a credit card for a down payment on a house:

• Major lenders do not accept down payments via credit cards or third-party money-sharing apps.
• Mortgage lenders typically require down payment funds to spend 30-90 days in a bank account to get “seasoned.” Sixty days is most common.
• Fannie Mae underwriting standards require at least two months of deposit-account history to verify cash used as a down payment. In unusual circumstances, such as through Fannie Mae's HomeReady program, “cash-on-hand” can be used without “seasoning.”
• You could do a cash advance, via either an ATM withdrawal or a convenience check, to use for a down payment. But that's too expensive to make sense. Cash advances come with 3%-5% fees and high interest rates (over 20%). Interest also starts accruing immediately, with no grace period.
• A balance transfer credit card won't help you make your down payment, but it could save you some money after the fact. You'll have to take out your mortgage first, then transfer part of that balance to a credit card with a 0% balance transfer APR and a low transfer fee.

In the end, using a credit card for the down payment on a house isn't the best idea, if it's even possible. You won't be able to pay most official closing costs with a credit card, either. But there's usually a wide range of expenses associated with moving into a new home, and you can charge many of them to a credit card. They may include things like inspections and appraisals, for example.

You might be able to get approved for a home loan with bad credit. While credit scores in the mid 600s typically make it more difficult to qualify for a mortgage, there are lenders who will approve you. However, be aware that if you do find a lender willing to give you money, you will have to pay a much higher interest rate than the market average.

To increase your chances of getting approved for a mortgage and to get lower rates, you should first work on improving your credit score.