Buying a home can seem like a tedious endeavor, especially for first-time buyers. While it might feel like a complex and difficult process, it can be made simpler once you gather the right information and work with a dependable real estate professional who knows the local market.
In this page, we’ll take a closer look at some of the important steps and offer a few helpful tips so you can navigate the home buying process smoothly.
Set a budget
As a home buyer, one of the worst situations to experience is to find a home that perfectly fits your requirements and preferences, only to realize you can’t actually afford it. Thus, figuring out how much you can afford should be one of the things you should do at the start of the process. Once you’ve set a budget, you’re essentially narrowing down the set of homes you can choose from, which is a great way to save time.
Consider your current situation
Once you’ve determined your budget, take a closer look at your current situation as well as your needs. This will help you later on when you need to select a loan that meets your specific circumstances. Here are a few key factors to consider:
Home cost– Your future home’s cost will determine your mortgage payments.
Financial situation– The amount of money you have for your down payment and your credit history will have an impact on your loan options. Those with high credit scores typically get mortgages that have low interest rates. Similarly, those who are able to pay a large down payment will be able to pay less interest.
Future plans– Depending on your situation, it’s possible that you might relocate again in a few years or stay in the same place for decades. This could affect the mortgage option you decide on.
Take a look at your loan options
After you’ve taken into account the various factors in your current situation, it’s time to consider the different loan options. When comparing available loan options, there are three primary factors to carefully consider: loan term, interest rate type, and type of loan.
Loan term– Buyers are typically offered a 15 or 30-year mortgage, although other terms may also be available. The duration of your term is the length of time in which you will need to pay off the loan. A 30-year mortgage generally offers lower monthly payments compared to a 15-year mortgage, although you’ll have to deal with increased interest throughout the loan term.
Interest rate– The basic types of interest rates are fixed and adjustable. Overall, adjustable rates have a higher risk, as they’re initially low, but could change over the loan term, which means you may encounter fluctuating mortgage payments. Fixed rates on the other hand will remain consistent, with mortgage payments that will not change throughout the loan term. Around 75% of home buyers opt for fixed-rate mortgages.
Type of loan– There are three main types of loan available: FHA, conventional, and special program loans. FHA loans are loans backed by the Federal Housing Administration, and are available to buyers with low credit scores. Conventional loans are typically offered by banks or credit unions, and are separate from government programs. There are also special programs run by various groups of the government, such as agricultural loans for rural areas, and VA loans, which are available to US veterans.
Lenders and estimates
After assessing your mortgage needs and considering the type of loan that fits your requirements, it’s time to shop for lenders. A good way to start is to ask friends or relatives for recommendations, and then visiting online resources that will allow you to compare lenders and interest rates.
One of the best ways to approach this step is to focus on identifying and researching on only the top lenders and placing them on your short list. Depending on your situation, you’ll need to factor in key considerations such as reliability, expertise, and available options that make sense for your situation.
Understanding the costs and fees of loans
Once you’re comparing loans, keep in mind that the monthly payments depend on the points and the interest rate.
These “points” are fees you pay upfront in order to decrease the interest payments throughout the course of the loan. If you plan on staying in your home for a long time, it’s a good idea to consider purchasing points upfront in order for you to deal with lower payments during the course of your loan.
It’s important for you to figure out whether buying points makes sense for your goals. You can use online resources like this one from USAA to help you determine an accurate interest rate and point mix.