As stated in the part 1 of the home buying process we feel that it is something anyone who is serious about purchasing a home should know. We gave you the first 3 steps in our 9 Crucial Steps of the Home Buying Process now we're going to give you the next three.
Crucial Step 4 – Learn About Mortgage Loans
When talking about the Home Buying Process we feel we must discuss the mortgage loan process. After all, this is where most home buyers get the funds for a home in the first place. There are several things you need to research. First, you need to understand the different types of mortgage loans and how they work. You also need to know the pros and cons associated with each loan so you can choose what loan that will work best for you.
Let's go over some of the different types of loans available.
Fixed-Rate Mortgage loan
A fixed-rate mortgage loan is just that. Fixed rate keeps the same interest rate over the entire life or "term" of the loan. A positive about having a fixed rate loan is there are no surprises down the road. The rate you start with is the rate you end with, even if it's decades later. Of course, you'll pay a premium for this type of loan. The average interest rate for a fix rate mortgage is generally higher than the average rate on and adjustable loan. But in our opinion, the benefits of a fixed mortgage far outweigh the drawbacks.
Adjustable-Rate Mortgage loan (ARM)
An adjustable-Rate mortgage loan is a mortgage loan where the interest rate on the note is periodically adjusted. Many home buyers choose an ARM in order to save money during the first few years of homeownership. But later, these same homeowners run into trouble when the adjustable rate mortgage adjusts to higher interest rates. In many cases these adjustments can greatly increase the size of the overall mortgage payment, which catches a lot of homeowners off guard. This is something to keep in mind when choosing an Adjustable-Rate Mortgage Loan.
Balloon Loan
A balloon loan is a loan that allows borrowers to make interest only payments, or payments of some combination of interest and principal, until the loan term expires. Then the balance must either be paid off or refinanced at the end of the term. A balloon loan provides a low fixed interest rate for a set period of years, but those years are not in abundance. Instead of a 15 or 30 year repayment term, a balloon loan typically has a term of 7 to 10 years, depending on what the lender was willing to give you. At the end of the term, you must repay the balloon in full or refinance.
Government Backed Loans
A government backed loan is a loan subsidized by the government, which protects lenders against defaults on payments, thus making it a lot easier for lenders to offer potential borrowers lower interest rates. One of the primary advantages of these loans is that it allows you to buy a home with a low down payment.
Learning about the different types of loans is VERY important. You really need to have a talk with a lender and discuss what type of loan will work best for you.
Crucial Step 5 – Create Your Housing Profile
Your housing profiles consist of things you need and want with your new home. You should ask yourself questions like, how many bedrooms do I need? Which neighborhoods do I prefer to stay in? How many square feet, at minimum? And the most important question is what things can you live without, and what do I truly need? Knowing the answers to these questions and keeping an open mind will help you limit your search to the properties that best meet your needs. You can save yourself and your Realtor a lot of time by putting these items on paper.
If you can give your Realtor the answers to these questions it will make it much easier to find you the home you want.
Crucial Step 6 – Get Pre-approved for a Mortgage Loan
Pre-approval is a very important step. Pre-approval is when a mortgage lender reviews your financial situation and tells you how much they are willing to lend you. They will take a look at things like your credit score, your debt to income ratio, and other factors.
Being pre-approved helps you in several ways. When pre-approved sellers tend to take you more seriously. Being pre-approved vs. not being pre-approved can be the difference in you getting the dream home you put an offer in for and not getting that dream home. We feel you should be pre-approved before you make any offers on any homes your interested in.
For more of the Home Buying Process please go to the next section, the Home Buying Process part 3.
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