You’ve decided that it’s time to think about buying a home. Unless you are able to pay cash for a house, you’ll need to secure a home mortgage loan. This is a loan from a bank or lender that pays the cost of the house and allows you to repay the loan with monthly payments. They do change interest on the money borrowed, but for most people this is an acceptable way to secure the money needed for the purchase. Before you visit the lender, check out these home mortgage loan basics.
Your Credit Score Matters
It’s critical that your credit be in top shape before you visit a bank or lender for a home mortgage loan. The lender will run your credit report and look at it closely to make sure you are a good investment and have the ability to repay the loan. Get a copy of your credit report from the top three reporting agencies: TransUnion, Equifax, and Experian. Federal law allows you to get this report once a year without cost to you. Once you have the reports on hand, check for errors and negative items. Report errors to the agency and take care of any delinquent accounts quickly.
Don’t Make Major Changes
The times before and during the home buying process are not ideal for making large purchases or significant life changes. Making large purchases for things like a vehicle or expensive piece of jewelry can have an impact on your income to debt ratio. A lender takes this into account when deciding if you can afford to purchase a home. This is not the ideal time to changes jobs. Your work history is an important factor that shows a lender you are reliable.
Save Some Money
The home mortgage loan will cover the cost of the house, but you will still be required to make a down payment. The down payment is typically around 20 percent of the selling price. While there are some programs that allow for no down payment or a reduced down payment, you should understand that most of these will have higher interest rates and will take longer to repay. There will be closing costs at around 2 – 8 percent of the selling price. Closing costs are the fees associated with things like inspections, appraisals, and services. You are required to pay these on closing day unless other arrangements are made with the seller.
Research Mortgage Rates
There are several types of mortgages, and you may get a choice between them. A fixed mortgage rate remains the same during the life of the loan. The advantage to having a fixed rate is your monthly payments will remain the same for the length of the mortgage period. Unfortunately, these rates sometimes come with high interest rates and monthly payments. A variable mortgage rate changes along with the real estate market. This means your interest rate will adjust with the market and impact the amount of your monthly payments. Your real estate agent can provide you with more information on the different types of mortgages.
Decide on Length of Time
Do you want to pay off the home quickly? Or, is it more important that you have smaller monthly payments? Mortgage loans come with different life spans. Typical time spans are ten, fifteen, and thirty years. The shorter the life span of the loan, the higher your monthly payment. Keep in mind that some loans have early pay-off penalties. Always read the terms thoroughly and do proper research. Don’t be afraid to ask questions.
Shop Around for a Loan
You may want to use your current bank when looking at a home mortgage loan, but don’t feel obligated to choose them by default. Look around and see which lender has the best rates and details that meet your needs. These terms can vary significantly from one lender to another.
Your best source for information about Santa Clara County is your real estate agent. Give Greg Pedone a call today at 408-234-0145 to learn more about the local area, discuss selling your house, or to set up a tour of available homes for sale.