Buying a home is an important step in life and a great investment. If you have found the
perfect home and now want to secure financing, you probably have a thousand questions,
which is perfectly normal. To buy a home, the first thing you should have already done is put
together a budget to determine if you can afford to buy a home and if so, how much. The rule
that lenders follow as set forth by The Department of Housing and Urban Development, or
HUD, is that your mortgage payment should not go over 29% or your monthly gross income.
Once you have determined that you fall within the range, you need to have money saved for
the impending expenses, which would include closing costs, appraisals, title search, credit
check, and so on.
For the actual mortgage loan, you want to start wherever you bank to see what type of interest
and loan they can offer. Once you are armed with that information, continue your search
talking to credit unions, mutual savings banks, mortgage companies, savings and loan
companies, and even commercial banks. With all the information, you can make an educated
decision based on the best terms.
You want to look for certain things in a mortgage loan. For instance, what type of loan, what
is the interest rate, will you have to pay any points, and what options do you have for the length
of the loan, just to name a few. Most lenders will offer and FHA loan, which is backed by a
federal agency. Other loan options include Conventional, which are not insured by the
government, and VA loans, which are backed by the Department of Veterans Affairs and
designed for veterans. Most people have an FHA loan.
If you are on a tight budget and just starting out, the longer you can spread the loan out and the
more money you can put down, the lower your monthly mortgage payment will be. However,
by having a long-term loan, this also means that you are paying more interest. Obviously, you
want to secure the lowest interest rate possible. Keep in mind that in some circumstances,
the amount of money you put down will have some affect on the interest rate. Your credit score
will also have an impact, meaning a good credit score will provide you more advantage than
a less than perfect credit report. You also want to think about points. A point is equal to 1%
of the loan amount. Therefore, typically the more points you pay at the time of closing, the
lower the interest rate.
Another important part of the mortgage process is an adjustable or fixed rate. Most people
go with a Fixed Rate Mortgage, or FRM. This means that whatever interest rate you lock into
at the time of closing will stay with the loan for its life. With this type of rate, your monthly
payment stays the same. An Adjustable Rate Mortgage, or ARM, means the interest rate will
vary. In most cases, the rate starts low but within a one-year period, it could go up or down,
which can make budgeting more of a challenge.
One of the most important things you can do when buying a home is buy Title Insurance. The
purpose of this insurance is to protect you and your home. Interestingly, Title Insurance is only
required when securing financing, but even if you have money to pay for a home with cash, you
should always purchase Title Insurance. Additionally, regardless of where the home is
located, always ask about flood insurance. In truth, any home can flood but homeowner
insurance generally does not cover it unless you specify or live in a zoned flood area. If you
are not listed in a flood zone, your insurance company may not even offer it. This exciting time
of buying a home will forever change your life. By following some simple guidelines and
understanding home financing, you can make the process much more enjoyable.