Being able to pay cash for a substantial purchase like a house is rare. Applying for a home mortgage loan is part of the buying process, but it can be intimidating for first time home buyers. We’re happy to offer you a few points to consider before you visit your lender to apply for a loan.
Sit down and take a good look at your credit report before you begin searching for that perfect house. Take care of any negative items you find without delay. Look for errors and report those to the credit reporting agencies. You want your credit score and the items on your report to prove you are a good candidate for a mortgage loan. In some instances, a co-signer is an option when your credit score isn’t high enough to secure a loan. The co-signer agrees to take responsibility for the repayment of the loan if you are unable to do so.
Major Changes & Purchases
In the time before and during your application for a mortgage loan avoid the purchase of large ticket items like a new car or new furnishings that require a loan or monthly payments. The lender is going to look at your ability to repay the loan and check your debt to income ratio. Purchasing something large at this time impacts that ratio and could cause your loan application to be denied. It’s a good idea to avoid other major changes like moving or switching jobs.
Expenses & Fees
Though your mortgage loan will cover most of the purchase price of the property, you’ll need money for a down payment. You can estimate the down payment to be around twenty percent of the selling price of the home. There may be special loans available for first time home buyers. Check with your real estate agent and the lender you choose. Keep in mind that a low down payment option now may mean paying a higher interest rate or larger payments each month to repay the mortgage loan. Be prepared to pay closing costs out-of-pocket, as well. These are not included in the mortgage loan. These fees are around 2-5 percent of the price of the home.
Types of Mortgages
You may have the option to choose a fixed-rate loan or a variable-rate loan for your mortgage. Fixed rate mortgages remain the same for the life of the loan. This means that your payments will remain the same, and you’ll know what to expect each month. These do tend to have higher interest rates and higher monthly payments. A variable mortgage fluctuates as the market changes. You could have low interest when you begin, but the rate could increase over time. These changes will impact your monthly mortgage payment.
Considering the type of mortgage isn’t the only thing to think about as you apply for your loan. You may have the option to choose ten years, fifteen years, or thirty years for the span of time for the repayment of the loan. Choosing a ten-year repayment option will make your monthly payment higher, buy you’ll repay the loan in less time. More years could mean less when it comes to the monthly payment amount, but you are locked in to a longer repayment commitment.
While you may want to check with the bank you do business with on a regular basis, it’s a good idea to shop around if your bank’s terms seem unreasonable. Rates and other details differ from bank to bank. Doing your research ahead of time can save you stress and money as you move forward with the mortgage loan process.
The best source for information about the local area and real estate topics is your real estate agent. Give the Sweeter Real Estate Group a call at 714-514-5004 to ask questions, discuss selling your Orange County or Inland Empire house, or to tour available homes for sale.