The more you know about buying a home, the less stressed you will be. By having more knowledge about the process, you may get a better deal on your new home mortgage. If you are just starting to look for a home, here are a few tips to be aware of before beginning:
Know the different types of home loans.
There are various loan types, and over 90 percent of home buyers will use one of the four leading loan programs: FHA, USDA, VA, or Conventional. There are options for those with low credit scores, large loan size, low down payment, self-employed, and many more. Figure out which loan best fits your needs.
Contact three mortgage lenders.
To ensure you receive the lowest rate, don’t just talk with one lender. First-time homebuyers sometimes make the mistake of going with the first lender they speak with and miss out on saving a lot of money.
Know your price point and monthly payment.
Remember to include principal, interest, insurance, and taxes when calculating your mortgage payment. It is essential to understand your mortgage rate along with your budget. You will be able to shop for your new home and the mortgage confidentially.
What is a mortgage?
What exactly is a mortgage? The National Association of REALTORS says only close to ten percent of home buyers purchase the property with cash. Everyone else borrows some or all of the money to purchase their new home. This is possible with a type of loan called a mortgage.
How is a mortgage different from other kinds of loans?
Extended repayment periods – Most people take 30 years to pay off their mortgage.
Low interest rates – Interest rates are at an all-time low right now.
Home loans are “secured” – Mortgages are secured by your home’s value. If you do not make payments, the mortgage company can foreclose (or take back) on your home to recoup the losses.
Generally fixed rates and payments – You can “fix” your mortgage interest rate, so the monthly payment stays the same over the entire loan period. Adjustable-rate loans are also available. In some cases, although rare, a mortgage can cover the entire purchase of the home, but most people pay some toward the purchase. The amount you pay out of pocket is called a “down payment.” The loan covers what is left.
How Much Down Payment is Needed?
First-time homebuyers often believe they need 20 percent down on a home. That is not the case. The average down payment is actually six percent. Some loan programs allow you to buy with less than six percent. Study your home buying goals and your personal finances to decide on the right down payment for you.
How Much House Can You Afford?
Once you have decided the mortgage loan type that works best for your situation, you will need to decide on a monthly budget and the amount of home you can afford. Start by deciding on a monthly payment, then work backward to determine the maximum home purchase price. A mortgage payment comprises four different parts, called PITI- principal, interest, taxes, and insurance.
How to know if you are ready to purchase a home.
Ask yourself the following questions to know if you are ready to buy a home:
- Do I have enough money for a down payment and closing costs?
- Do I have a steady and reliable income?
- Do I have a strong credit history?
- Do I plan to stay at the same location for at least five years?
There are many other questions to ask, but these answers should give you a basic feel for your home purchasing readiness. If you answered yes to the above questions, you are probably ready to ask for pre-approval for a loan and begin looking for the home of your dreams.
Wendy Gimpel- Your Real Estate Professional in Minnesota
If you are looking for the perfect home for you and your family in Stillwater or the surrounding areas, Wendy Gimpel Real Estate is ready to assist you. Wendy is a knowledgeable agent with over 20 years of experience who can help you navigate the demanding real estate market. Wendy’s honesty and savvy attention to detail are what makes buyers and sellers want to work with her. During this pandemic, virtual showings are available for iPhone users. Contact Wendy today to see what is available.