Tips for Buyers
Buyers
Buying a home is a serious venture. It can be an absolute pleasure…..or pain.
When buying a home, you are likely to have many questions. The following information will help you with your
adventure.
+ Pre-Qualification
The first step in home ownership would be to meet with a mortgage lender to find out how much you can afford in a home. Several lenders will be glad to pre-qualify you over the phone to save you time. When shopping for a lender, ask for recommendations from people you trust.
+ Pre-Approval
While knowing how much you can afford is the first step, sellers are much more receptive to potential buyers who have been pre-approved. With pre-approval, the buyer actually applies for the mortgage and receives a commitment in writing from the lender. This way, not only will you be shopping in the correct price range, the seller will also know you are a serious buyer when you make your offer.
We suggest for first-time buyers to make two lists. The first list should include items that you must have, for instance, the number of bedrooms, basic location, etc. The second list is your “wish list”. Things that you would like to have but are not a necessity. Be realistic in your goals and you will be able to find the best fit for your family.
It is important to have an agent that will listen to your needs and wants and help guide you through the process.
+ Types of Mortgages
Fortunately for buyers, there are a variety of loans to choose from. It is in your best interest to investigate each loan to determine which would be the best for your situation. Be sure to choose a mortgage lender that explains each type of loan in detail and discusses those options with you. Basically, there are 4 types of loans. Fixed-Rate Mortgage Adjustable-Rate Mortgage The Convertible ARM Government Loans (FHA/VA)
Fixed-Rate Mortgage Consider a fixed rate mortgage if you plan on living in your new home for many years and/or you are not a risk-taker and prefer the stability of knowing how much your payment will be each month for the life of the loan. Once your loan amount and interest rate are calculated and locked in, a fixed-rate mortgage will guarantee you will have the same payment over the life of the loan (excluding escrows). Making extra payments to principle will allow you to pay off your mortgage early. This is not always the best choice. If interest rates are very high when you take out your loan, you’ll be stuck with the high rate for the life of the loan unless you choose to refinance. If rates are low, you win with the interest rate staying low no matter how high the rates go in the future. The number of years you finance your home will also be a question to ask. The fewer years you choose, the more money you will save in the long run.
Adjustable-Rate Mortgage If you are comfortable taking a risk with your money or if you are not planning to keep your property long-term, an adjustable-rate mortgage (ARM) may be an option for you. Generally, the interest rate when you take out your loan will be lower than a fixed-rate mortgage. Please note that this is true initially and not necessarily long-term. Since the rate rises and falls, your payment will rise and fall accordingly. On the positive side, the lower initial payments will allow you to qualify for a larger loan than if you choose a fixed-rate. The downside is your payments will increase if/when the rates go up. Typically, ARM interest rates are tied to a specific financial index and your payment will be based on the index your lender uses plus a margin, generally of two or three points. Get the formula used by your lender in writing and make sure you understand what that means. Fortunately, the amount an ARM can increase is limited. There are “caps” on how much your lender can increase your rate, both for a period of one year and for the life of the loan. Plan ahead and have your lender calculate what the maximum payment would be if your rate went to the highest amount allowed by the cap for your mortgage. If you are not confident with that amount, this may not be the loan for you.
Convertible ARMs If neither the fixed-rate nor adjustable-rate seems to be the best option, perhaps the convertible ARM will be right for you. This alternative combines the initial advantage of the ARM with a fixed rate after a predetermined number of years. Obviously, this type of mortgage has more advantages when the initial interest rate is low and the future rate is not guaranteed.
Government Loans VA Loans – Veterans may qualify for a loan from the Veterans Administration. There is a limit on the amount you can borrow, so this option works best for those buying a lower priced home. FHA Loans – The Federal Housing Association offers loans to lower-income Americans.
All of the above loans have details that are not listed and only a mortgage professional can explain every detail to every loan. We can not stress enough the importance of finding a mortgage lender that is knowledgeable and one whom you can trust.
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