Financing Your Home
One of the most important parts of the process in buying a home is deciding how you will be financing it. Even today, there are many types of loan options available to homeowners, and depending on your credit history, there is bound to be one that is perfect for you.
You can check our Mortgage Calculator here to estimate some of your options.
Here are a few examples of the most popular programs offered today:
Fixed-Rate Loans
One of the most popular mortgage programs in use today, these loans offer the borrower a fixed interest rate for the life of the loan, typically 15 to 30 years. Borrowers have peace of mind knowing that their monthly payment will not change over time. Conventional fixed-rate mortgages have underwriting requirements established by Freddie Mac and Fannie Mae, and require certain down-payment and debt-to-equity ratios to qualify. Fixed-rate loans are especially attractive to buyers who plan to stay in their home for more than a few years.
Adjustable Rate Loans
With an Adjustable Rate Mortgage (ARM), the interest rate changes periodically, and payments go up or down accordingly. Rates are tied to an index that reflects the cost of money at any given point in time. Generally speaking, lenders charge a lower initial interest rate for the ARM than for the fixed rate mortgage. If you are expecting interest rates to decrease in the future, or if you are trying to maximize your purchase power today knowing your income will rise in the future, then this loan may be right for you. Adjustable rate loans are attractive for buyers who expect to be in the home for a short period of time.
FHA and VA Loans
The Federal Housing Administration (FHA), offers loans for low-to-moderate-income home buyers. FHA loans allow the buyer to put down just 3.5%, and have relatively easier requirements than conventional fixed-rate mortgages. FHA mortgages have no income restrictions and even those with lower credit scores may be considered. Past bankruptcy does not necessarily disqualify borrowers from using this program! In addition, the Department of Veterans Affairs (VA) offers a zero-down mortgage program. To take advantage of this program, borrowers need to be among those listed as veterans and service personnel in the U.S. military. One of the biggest benefits of this program is that it eliminates the need for private mortgage insurance!
Pre-approval and your Good Faith Estimate
If you think you’re ready to start the home-buying process, then we would like you to know that getting Pre-approved and receiving a Good Faith Estimate should be one of the first steps.
We can help you to find a lender in the area that you can comfortably work with to go through the pre-approval process. Giving a chosen lender a clear picture of your income, debt, and credit information allows them to pre-approve you for a loan and help you decide how much you should realistically spend on your next home. You don’t want to fall in love with something just to find out later that it’s more than you can afford. And on the other hand, you may not want to waste time underselling yourself if you have more purchase power than you originally thought.
The pre-approval is important because:
- It will help you to know that you can afford the type of home you want based on your own personal loan scenarios
- Having a pre-approval letter can save you money, because a seller who is confident that you’ve done your background work will be more willing to negotiate with you.
- It saves you time to do this upfront…. You don’t want to be scrambling for a pre-approval letter when you’re writing an offer. You might just find the home of your dreams faster than you expected.
Once your lender has taken you through the pre-approval process, then they can also provide you with a Good Faith Estimate. Armed with this estimate, you’ll be able to make sure that you’re comfortable with what you’ll be spending each month.
The Good Faith Estimate may be even more helpful to you because:
- You’ll get an estimate on what you’ll pay each month in terms of mortgage payment, taxes, and homeowners insurance from the beginning, helping you to make sure the cost of your home matches your monthly budget expectations.
- You’ll also be able to see what your monthly payment will be based on the current interest rates, which can actually have a greater affect on your monthly payment than what you pay for the house.
- You will know up front that lender’s pricing for closing costs, so you know what fees you can expect to pay at closing, and you will know how much you need if you plan to ask for closing costs.
If you’re ready to learn more about what mortgages will work best for you and your family, let us provide you with the contact information for local lenders who can get you started and guide you through your home buying process.
