In 2018 alone, more than 5.34 million homes sold to homebuyers across the country and for many of those buyers, it was their first time buying a house of their own. No matter what type of house they bought, almost all of them had to finance the purchase.
Taking out a home loan can feel daunting—almost as difficult as finding the house of your dreams.
House financing shouldn’t be the most intimidating part of the buying process. Here are a few simple ways to help you get the best loan for your first home.
Figure Out Your Budget
Before you can buy a house, you need to figure out just how much you can afford. Take a look at your finances and your current expenses. These should include rent, insurance, car payments, utility costs, and anything else you pay every month. Also be sure to include upgrades like a tankless water heater, new floors and other options.
Once you have that number totaled up, look at how much money you bring in each month. Ideally, your new home’s mortgage and utility costs should run about the same or less than what you pay each month currently.
You can use a mortgage calculator to see what homes in different price ranges will cost you each month.
This will give you a firm idea of how much you can afford to spend on a house. Keep in mind that you might not qualify for that amount when you apply for a mortgage. You can keep up to date on the latest advice and guidance for new home buyers by checking out the latest posts here.
Understand Your Credit Score
When it comes to home financing, your credit score will play a huge part in determining the type of loan and interest rate you qualify for. The higher your score is, the better quality loan you’ll get.
Before you apply for a home loan, take the time to find out what your credit score is. If it’s good, you’re ready to start researching your loan options. If it’s low, you could try asking for usda home loans for it doesn’t have a set credit score requirement, most lenders that offer USDA-guaranteed mortgages need only at least a score of 640 or you’ll want to do what you can to boost that score back up.
Start by paying off your current loans, credit card balances, and other debts. Avoid taking out new loans while you pay those debts down. As your total debt decreases, your credit score will improve.
The higher you can get your score before you apply for a loan, the better off you’ll be.
Think About Loan Terms
When you apply for a mortgage, you’ll need to think about the loan terms or the duration of the loans you’re applying for. Most mortgages last between 15 and 30 years and the type of loan you choose depends on your personal goals and your budget.
15-year loans have higher monthly payments, but they can save you thousands in interest payments over the life of the loan. 30-year mortgages give you smaller monthly payments, but you’re stuck paying interest for the full 30 years.
Interest rates will vary depending on the current market. Fixed-rate mortgages allow you to lock in an interest rate that will never increase or decrease. Variable-rate mortgages fluctuate with the market and can save you money if interest rates drop.
Both types of loans are great options. It’s up to you to decide which one fits your needs best.
Always Shop Around
No matter what type of mortgage you’re interested in, you always need to shop around and get quotes from different lenders. Compare their rates, the total amount they think they can give you, and how responsive they are to your concerns.
Make sure you ask each lender about the types of fees they charge and find out if they expect you to cover any additional costs beyond the principal and interest on the loan.
Once you have that information from several lenders, choose the lender that offers you the best interest rate and the highest principal amount.
Get Pre-Approved Before You Start Looking
You don’t need to have a house in mind when you start applying for mortgages. In fact, it’s almost always better to get pre-approved for a mortgage before you start looking.
Once you find a mortgage lender you’re comfortable working with, ask them to give you a pre-approval on the loan. This will give you a firm idea of how much money they’re willing to lend you and how much you can realistically spend on a house.
Getting pre-approved will also make it easier for you to buy the house quickly. As soon as you find a property you love, you’ll be able to make an offer and know that you already have a mortgage lined up.
Don’t Forget About Down Payment Assistance
Almost every homebuyer will need to put a down payment on the house. This helps reduce the total amount of money you have to borrow from the mortgage lender and improves your chances of getting approved for the loan.
For most buyers, the down payment amount will come to about 20 percent of the sale price of the home. That doesn’t mean you have to come up with that money out of your savings.
As a first-time homebuyer, you may qualify for down payment assistance programs through your state. Do a little research and see which programs you can take advantage of.
Stick to Your Budget at All Times
Once you get pre-approved for a mortgage, you’re ready to start looking for homes in your area. Just make sure you stick to your budget the entire time.
If you’re not sure what homes cost in your area, take a look at what homes are selling for in town. These average home prices will change, but they can still give you insight into which parts of town will work best for your budget.
Keep in mind that you don’t have to rush into a home purchase. If the prices aren’t right or you’re not happy with the options on the market, wait.
The right home at the right price will eventually pop up. You just need to be patient.
House Financing Isn’t as Tough as You Think
Finding the right house financing options takes a bit of time and patience. As long as you stick to your budget and choose a loan that works for your personal needs, you’ll be able to get into a home that works for you.
Just make sure that you take your time. Don’t rush and choose the first lender you find. Go through the details of the loan and make sure you’re comfortable with the fees, interest rate, and the total amount you’ll pay over the life of the loan.
Looking for more helpful tips to make buying a house simple? Check out our latest posts.