Understanding Home Buying
If you’re in the market for a new home, you’ll want to understand mortgages and the home buying process. Taking out a mortgage and other loans can be intimidating if you don’t feel knowledgeable and prepared, so it’s important to know what to expect when looking for a new place to call home.
Know More About Mortgages
In basic terms, a mortgage is a loan used to finance property, like a townhome, condo or traditional home. It essentially allows homeowners and businesses to make large purchases without having to pay the full price of the property right away. The average mortgage has a loan term of 30 years, but there are many other options and types of home loans to explore as well. Being informed is the best way to choose a mortgage that suits your financial needs.
In order to better understand how a mortgage works, you’ll need to know what the important qualifiers are. There are different types of mortgage loans that you qualify for depending on your credit score. If your score is under 600, you’ll likely be eligible for an FHA loan. Similarly, you’ll need to demonstrate long-term responsibility with proof of income. The longer your consistent employment history, the better your chance of qualifying will be. So, be prepared to provide about two years of tax returns when you apply for a mortgage.
Many factors will determine your mortgage rate, or the rate of interest being charged on your loan. Your credit score, down payment, home purchase price and loan amount all impact your mortgage rate. Other indicators that predict how reliable you’d be in making payments ultimately decide your rate.
Though your mortgage rate depends on your financial situation and the kind of home you decide on, there are ways to figure out where you stand even before visiting a credit union or other lender. Many institutions have online forms to fill out to see if you prequalify. You can also explore average mortgage rates in your state to get an idea of what others in your area are paying. Note that rates can change, but doing your research can help you notice trends around the time you’ll be taking out your loan.
Different Types of Loans
Before deciding on a mortgage, be sure to research your options. There are three basic mortgages that are most common for homebuyers: fixed rate, interest-only and adjustable rate mortgages.
Fixed Rate Mortgage
Fixed rate loans are popular because there’s never a question of how much you’ll be paying each month. Your rates will stay the same over the course of your loan unlike some other mortgage options. Still, these adjustments can be beneficial for some.
With an interest-only mortgage, you can choose to pay only interest on your monthly payment rather than the full amount. This option is available for the first five or ten years, then you’d pay the standard amount like a fixed rate mortgage.
Adjustable Rate Mortgage
Adjustable rate mortgages come in different forms. Across the board, ARMs will have various interest rates overtime and a lower monthly payment in the beginning.
There are multiple reasons to get an additional loan on your home, or a second mortgage. Many home owners make the choice to get a second mortgage to fund their child’s education, finance home repairs or cover debts.
Throughout the home buying process, you’ll be facing additional costs that you may have not prepared for. Of course, whether you choose to work with a real estate agent will determine one extra fee. The more you pay for your home, the more you can expect to pay your agent, so take this into consideration when deciding on your budget for both a home and what comes with it.
Once you’ve put in an offer on a home and received acceptance, you’ll have to schedule at least one inspection to make sure that the home doesn’t have any underlying issues. Inspections typically test heating and cooling systems and interior plumbing, and check for wood-eating insects. These inspections can increase with the age of the house because older homes may require a bit more attention to check for certain damages.
After qualifying and ordering thorough home inspections, you’re ready to seal the deal. But closing on a home has a few costs of its own. In order to finalize your transaction, you may be facing appraisal, survey, wire transfer, underwriting and recording fees to ensure that nothing gets in the way of you and your new home. Some closing costs are negotiable and some can be eliminated entirely, which is why doing adequate research about the home buying process can help to alleviate anything unexpected.
Still have questions about mortgages and the home buying process? We have mortgage advisors with the answers you’ve been looking for so you can focus on finding your future home.