When buying a new home, you can either pay out of pocket in cash or finance the property with a home mortgage loan. For most buyers, paying cash up front isn’t a feasible option. Having a home mortgage means a lender will pay the upfront price for the property and you will repay that money back over time via monthly payments to the bank. Check out these basics to a home mortgage loan before you reach out to a potential lender.
Check Your Credit
When a purchase requires financing, your credit report is a huge part in determining your eligibility. Any negative items on your report reflect poorly on you in the eyes of a lender. Get a copy of your credit report from the three major credit reporting agencies (TransUnion, Equifax, and Experian) and compare the information found on each one for accuracy. Report any errors as soon as possible and make it a point to bring any delinquent accounts current before sitting down with a lender. Thanks to The Fair Credit Reporting Law, you can receive one free copy of your credit report per year. So, getting a copy of your report doesn’t have to be an expensive or complicated process.
Making Major Changes
Your credit report is a major player in determining your eligibility as a buyer, but so are other key factors. Your income to debt ratio will be carefully inspected to see if you can repay the loan or if you are already too far into debt to be considered an excellent buyer. Avoid making large purchases that require financing in the months before buying a home. Changing jobs can also affect your income to debt ratio in a negative way. Getting a new job not only comes with changes in pay (not always an increase), but it affects how a lender sees your stability and reliability. Having a long, steady work history with one company proves that you are a buyer that can be counted on to follow through.
Add Money to Savings
A home mortgage loan will cover the asking price for a home, but not always more than that. Becoming a homeowner means that you will have expenses pop up that you may not have been expecting at any time. In addition to those sneaky costs, you will likely be responsible for a down payment and covering closing costs out of pocket. There are home mortgage loan options that offer small or no down payment options for which you may be qualified.
A typical down payment falls around 20-percent of a home’s asking price. Closing costs vary based on the services provided during the home buying process but usually include inspections, appraisals, and attorney fees. Some sellers will agree to pay some, or all, of these closing costs. It is a good idea to have the funds tucked away just in case you are left to cover them yourself out of pocket.
Check Home Mortgage Loan Rates
Lenders offer different types of home mortgage loans. Do some research ahead of time to determine what loan type fits your financial situation. A fixed rate loan will keep your interest rate at the same amount for the life of the loan. The fixed rate allows you to keep your payment consistent from month to month but could mean that your payment comes in at a higher amount in general. If you choose a variable rate loan, your interest rate will rise and fall with the real estate market trends. Your monthly mortgage payment will adjust based on the changes in your interest rate. Some buyers find this unsettling and prefer the consistency of a fixed rate. Your real estate agent will be able to go over the pros and cons of each type of loan with you, so take their advice and expertise to heart before you decide.
Choose Repayment Options
Just as the interest rate options vary, the loan term length can vary. How long do you want to commit to having a monthly mortgage payment? Is having a smaller monthly payment worth spending several more years in a repayment period? Take those factors into consideration when choosing your loan length, which typically falls between ten, fifteen, or thirty-year spans. Some loans have a penalty for an early payoff. Make sure you know the fine print terms of your repayment requirements before settling on a choice.
Choose a Lender Wisely
There are many options out there for a home mortgage lender. You are not stuck with choosing your personal bank as a mortgage lender if you feel you can receive a better loan from another source. Take some time to research the different rates, terms, and promotions in your area. Your real estate agent may have some recommendations for lenders in your area.
Your real estate agent is the best source of information about the local community and real estate topics. Give John Neal a call today at 305-333-9030 to learn more about local areas, discuss selling a house, or tour available homes for sale.