Buying Your Home: Finding Your Way Through Finance
The right way to get a mortgage
Most home buyers in the US need some form of home loan when buying a house, and around 4 in 10 of these are mortgages taken out by first-time homeowners. Financing is one of the areas that people find confusing and it can be a challenge so we have put together some of the key points that first-time buyers should consider before they look for a mortgage loan.
A 20% Down Payment is not Essential
Most home buyers will need a mortgage but they will also have to find a down payment and this puts off a lot of people at the start because of the common myth that this cash down payment has to be 20%.
Many home buyers cannot meet: a 20% cash lump sum but there are plenty of mortgage lenders who will accommodate this if the buyer will pay extra to cover their risk by taking out private mortgage insurance. While this may sound like an extra expense it is almost always better than paying rent.
There are a number of ways you can look: at raising extra capital for the down payment in order to maximize the percentage you can put down. If you are renting, downsizing may be a good option and give you the opportunity to save some of the money you were paying in rent.
Asking friends and family: members for loans is something many home buyers find helpful, however you should be aware that this will count towards any debt expenses from the perspective of the mortgage lender. Financial gifts could be set aside and put towards a mortgage down payment.
Many first time home buyers: still believe that the down payment presents their biggest challenge, however, the myth and the figures do not agree and there are ways around the situation if you find you cannot meet the full 20%.
In reality, only 24% of buyers: will meet a 20% down payment requirement. Most first time homeowners put down around 2-9%.
Not all Home Loans are the Same: home loans, just like real estate, vary considerably. There are a lot of options out there and if you want to get the mortgage that is most suited to you it pays to do your research.
Many people who buy their own home: especially first-time homeowners, assume that they will end up with a fixed loan over a 30-year term. This does offer the advantage over other loans that you know exactly how much interest you’ll pay regardless of market fluctuations. However, most people do not stay in their first home forever, so looking at an adjustable mortgage may be a much better option. With this type of mortgage, the interest rates start lower compared to the fixed-rate loans. However, the rate can fluctuate so you would need to look at the likelihood that interest rates may rise considerably before making the final decision.
If you are struggling: to get a down payment together or have problems with your credit some government loans may be appropriate. Federal Housing Administration (FHA) VA Loans and USDA loans are something to consider.
Always take into account: your own particular financial needs when looking for a loan to make sure that it is a good fit. If you want to look at some mortgage options, just click here.
Shop Around to Save Money: most home buyers only visit one lender to discuss their mortgage needs meaning that around 52% of buyers are missing out on an opportunity of saving thousands of dollars. The Consumer Financial Protection Bureau advises that buyers looking for a mortgage should discuss their needs with a minimum of 3 home loan companies.
Using sites like reacasa.com: and mortgage comparison sites like bankrate.com can give you a good idea of the range of loans and the repayment schedules available.
Making a comparison: of rates and terms means that you will get the best deal, so avoid sticking rigidly to one lender and take a look at the other offerings in the home loans marketplace.
Go for Early Pre-Approval for Your Home Loan: don’t leave pre-approval too late. Get your home loan pre-approved early in the house buying process because it plays such a huge role in financing a home that buying a property without it can be a major barrier. The vast majority (92%) of buyers who finance their home with a mortgage get pre-approved first. Getting it done early can prove to be beneficial.
At the early stages: a pre-approved loan helps you zone in on a price range for your new home. Narrowing your search means using your time effectively and it also prevents you from setting your heart on a home that you cannot afford to buy.
The pre-approval process: involves looking at all your financial information so if you do it early you can catch and resolve any problems like poor credit, for example. If you can fix the problem before you buy your home you could save thousands of dollars by qualifying for lower interest rates on your home loan.
Showing a real estate agent your pre-approval letter means that they are likely to take you more seriously and move forward more rapidly. Most agents recommend that their clients get pre-qualified as soon as possible.
Once pre-approved: you can move forward and obtain a home buyer loan with any suitable lender so you can still shop around to get a good rate.
The Takeaway: doing plenty of research and fact-finding before you start the home buying process means that you will be aware of the potential challenges. This gives you time to work on any issues before you need to close a sale, making the process much smoother and taking away a lot of unnecessary stress.
Shopping around: looking at different mortgage lenders and discussing your needs and level of cash down payment with them can save you time, anxiety and money and get help you move into your new home more quickly.