If you’re thinking about buying a home, then it is important to know the basics of home mortgage loans. This is a big decision and the more informed you are, the more comfortable you will be throughout the process.
🤔 When and How to Apply for a Mortgage Loan
Once you find a home and your offer has been accepted, it is time to formally apply for the mortgage loan. This is the time when you’ll need to be prepared to hand over personal documents including pay stubs, tax returns and other financial data including any debts you have. It is crucial during this time that you don’t take out any new debt. Keep all your payments current and ensure your finances are in order. This is the time when the lender is going to examine your finances with a fine-toothed comb. You will feel like they are asking for your life history and they pretty much are as far as your finances are concerned. Just provide what is requested quickly to keep the process moving along.
📝 Different Types of Mortgage Loans
When obtaining a mortgage loan, you may choose a conventional loan. This is a loan that is not backed by the government in any way. There are different terms for conventional loans and you can choose either a fixed or variable rate.
There are three government-backed loans. These are:
- Federal Housing Administration (FHA) Loan – This type of loan is administered by the Department of Housing and Urban Development. It is available to all types of borrowers. The major advantage of such a loan is that your down payment can be as little as 3.5 percent.
- VA Loan – This loan is administered by the Department of Veterans Affairs. These loans are available to military personnel and their families. Borrowers receive 100 percent financing, meaning no down payment is required.
- USDA / RHS Loans – Such loans are administered by the Department of Agriculture. This loan is available to rural borrowers who meet certain income guidelines.
Finally, depending on the size of your loan you will either receive a conforming or jumbo loan. Jumbo loans require excellent credit and a large down payment.
💲 Different Terms for Mortgage Loans
Thirty years is the most common loan term. However, you can get terms of 10, 15 or 20 years. The advantage to choosing a shorter loan term is that you will pay less over the life of the loan because you will be saving thousands on interest. The downside, however, is that your monthly payment will increase with shorter loan terms. If you can’t commit to a large monthly payment, then it is best to choose a longer term.
💡 Difference Between Variable and Fixed Rate Loans
You can either choose between a variable rate or fixed rate loan. Both have advantages and disadvantages. The obvious advantage to a variable rate loan is that the initial interest rate is low, making this option attractive to home buyers. On the flip side, however, the interest rate can fluctuate, and you never know when your house payment is going to go up. If you haven’t planned for an increased monthly mortgage payment, this could get you into some real trouble financially. Because of the uncertainty with variable rate loans, many people choose a fixed rate loan. You can still get a decent interest rate and that rate will stay the same throughout the life of the loan. Your mortgage payment will always be the same. This is attractive to buyers who prefer consistency and predictability.
📌 Importance of Pre-Approval when Buying a Home
The absolute first thing you must do before you even start looking at homes is to get pre-approved. A pre-approval will tell you how much money you’ll be able to spend on a home. Don’t make the mistake of skipping this step because you are setting yourself up for disappointment. You might think you can afford a certain amount and start looking at homes within that price range only to find out later in the process that you can’t afford that house. There’s no denying you will be disappointed. Avoid this situation and get pre-approved so that every home you look at is in your price range.
Becoming familiar with the home loan process and the different options available to you can make a stressful process more tolerable. In fact, if you know what to expect and how to approach the prospective transaction, you can stay one step ahead throughout the process and look forward to a successful conclusion.
Your real estate agent is the best source of information about the local community and real estate topics. Give The Cappozi Team a call today at 716-578-5444 to learn more about local areas, discuss selling a house, or tour available homes for sale.