The average mortgage balance in America is $208,185. For most people, their mortgage is the biggest financial obligation they have from the largest purchase they will ever make. This can create anxiety and stress. Knowing what to expect from a home buying loan can help ease these feelings.
1. Are You Prequalified?
Getting prequalified for a mortgage means that you get an estimate of how much you can borrow for your home purchase. Getting preapproved means, you will know how much you can borrow and the interest rate. The preapproval typically comes after the prequalification. While preapproval doesn’t guarantee you will get the mortgage, it is highly likely that you will if everything remains the same with your finances. Getting prequalified and preapproved before finding your home gives you stronger offer power once you find your dream home.
2. What Is Your Down Payment?
The minimum recommended down payment is 20% of the purchase price. While there are some home loans that do not require a 20% down payment, experts still recommend getting as close as possible to 20%. For example, FHA loans can require as little as a 3.5% down payment. Then there are VA loans, which could require no down payment at all. The smaller your down payment is, the more you’ll pay in the long run. A smaller down payment means you need to borrow more and pay more in interest.
3. Consider Loan Options
There are many different types of loans available for people looking to buy a home. While you could seek out a conventional loan, this isn’t always the best option for everyone. For example, VA loans help military service members and veterans to buy a home. A USDA loan helps low to moderate-income buyers invest in rural areas. Before you commit to a lender and type of loan, carefully consider your current situation and see if you apply to other types of mortgages.
- Conventional loans
- Fixed-rate mortgage
- Adjustable-rate mortgages
- Hi h-balance loans
- Jumbo mortgages
- FHA loans
- VA loans
- USDA loans
- Second m mortgages: home equity loans and HELOCs
- Reverse mortgages
4. Hidden Fees and Terms
Carefully look at the terms of the loan. It can help to read through the loan agreement with a real estate attorney. This gives you someone looking out for your best interest. They can explain the terms and give you a professional recommendation. You may find that there are hidden terms or fees that you were not initially aware of. These terms/fees may not be a deal breaker for you. However, a mortgage is a big loan, so you should go into it with a full understanding of what you are liable for. These are some of the common fees associated with a mortgage loan.
- Origination fee
- Appraisal fee
- Credit report
- Flood certification
- Lender’s title insurance
- Other title fees
- Real estate transfer taxes
- Recording fees
- Settlement
- Owner’s title insurance
5. What Are the Future Costs?
The most common mistake people make is to overbuy their homes. They spend too much of their savings in an effort to meet the 20% down payment requirement. This depletes their savings, and they cannot afford to maintain the home. The other issue is rising mortgage costs. For example, you need to afford rising property taxes and insurance costs. You need to pay both of these in addition to the mortgage payments.
Secure Your Home Loan
Now that you know what to expect from a home buying loan, you can seek out the best funding for your purchase. Start by knowing what you can afford and the best type of loan for your situation. Before you sign the documents, read them over closely while paying attention to all of the terms. Finally, financially plan for the future to ensure you can afford the loan term ownership and maintenance costs.
Schedule a consultation with one of our knowledgeable attorneys to discuss your plans to purchase a home.
