One of the largest expenses a person can have is the purchase of a home. While buying a house is an exciting experience and a large part of the American dream, it can also be daunting regarding finances. Most people aren’t able to pay cash for such a large purchase. A home mortgage is when the buyer borrows money from a lender for the purpose of buying a property. Home mortgage loans vary. Before applying for or accepting a home mortgage loan, research should be done to seek out the best lender with the most fitting terms for your needs.
Home mortgage loans depend largely on your credit score and history. Before applying for a loan, obtain copies of your credit report. Repair any negative items. Any derogatory statements on your credit report could negatively affect your ability to receive a home mortgage loan. Lenders need to see a long history of timely payments on borrowed funds. Do not make any major purchases just prior to or during your home mortgage loan application. Purchases such as furniture, automobiles, or other big ticket items affect your overall credit history. Avoid changing employment during your home mortgage loan application. Lenders want to see long employment history to ensure your ability to repay the funds borrowed. If your credit is less than perfect, it is possible to move forward with the loan, provided you have a co-signer. Co-signers accept full responsibility for the balance of your loan if you default, so use this option sparingly.
Many lenders require a down payment for your home mortgage loan. Down payments are typically twenty percent of the amount you are borrowing. The more you’re able to pay in down payment, the lower your monthly mortgage payments will be. Some home loans omit the down payment, but this often leads to higher interest rates and higher monthly payments. You’ll also have closing costs to pay outside of the money you borrow. Closing costs in real estate purchases cover required appraisals, home inspections, and legal fees associated with the transfer of title. You can estimate closing costs between one and eight percent of the sale price of the property. Your lender will provide you, in advance, with an estimate of closing costs. The estimate is subject to change. The bank you’re borrowing from will provide you a statement of actual closing costs three days before closing. Be prepared for your application process by saving funds in advance for your down payment and closing costs.
Lenders require you to have homeowners insurance to protect the property’s value. When borrowing money for your property, you would be wise to figure in the cost of homeowners insurance into your budget to avoid over-extending yourself financially. You’ll also be required to pay property taxes. Property taxes you pay apply to the community in which you live to cover things such as road improvements, schools, and emergency service organizations. Estimate these costs into your financials as these factors may affect your home-buying budget.
You will have to choose between a fixed rate loan or a variable rate loan. Fixed rate loans are loans with interest rates that remain the same throughout the duration of your loan, regardless of changes in the real estate market. The advantage is that you’ll know what your payments will be, and they won’t increase. The disadvantage is that the interest rate for fixed rate loans is typically higher overall. Variable rate loans are subject to change throughout the duration of your loan. While you may initially have a low-interest rate, as the market changes, so will your interest. Your monthly payments could increase over time.
Home buying programs are available for first-time home buyers, military veterans, and others Talk with your lender about FHA and VA loan options if these apply to you.
Buying your home should be an exciting time, not one wrought with trepidation. Know what you can afford, prepare your credit in advance, save funds for down payments and closing costs, and do your research regarding fixed vs. variable rates, and any home-buying programs that may apply to your household.
Need more information on the mortgage loan process or buying a home? Give us a call at 702-917-0755.