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The ABCs of Buying Your First Home
Buying your first home is one of the most exciting, and often overwhelming, experiences of your life. If properly educated about the process and prepared for each step you will need to take, this can be not only manageable but also enjoyable. No matter your age or stage in life, becoming a homeowner is a huge milestone. Below are tips to help guide anyone looking for their first home.
Know How Much You Can Afford
Don’t set yourself up for disappointment by looking at homes above your budget. Unless you plan to pay for your house in cash, which isn’t the norm, look at how much you have for a down payment as well as what you can spend on your monthly mortgage. Consider the costs for monthly non-house related expenses so you can live a similar lifestyle after the home purchase. While a lender will tell you the maximum financing you’re approved for, this can often be an amount that would make you uncomfortable on a monthly basis. It’s good to also know your credit score as this heavily impacts your loan.
Do Your Research and Be Realistic
You will have to make compromises, and that’s alright. Make a list of the must-haves for your house—include things like neighborhood, schools, commute and nearby entertainment—so you know what the true deal breakers are. Now begin looking at available houses in the desired areas to understand the costs. It’s helpful to discuss if you’re willing to do work, as these houses will cost less, or if you want a home you can move into tomorrow.
Shop Around for Mortgage Options
Banks and lenders may all offer different mortgage offerings and interest rates. Do your homework to understand your options by talking with various financial institutions. Your local community bank is an ideal resource for this type of education and guidance. Alternately, if you have a lender you know you want to use, have this person walk you through your options. This is also an ideal time to organize your financing documents—pay stubs, past years’ W-2s, bank statements, list of assets and debts, etc.—as you’ll need these for the loan approval and don’t want to find yourself in a pinch if you’re missing necessary paperwork.
Get Loan Pre-Approval
This is important for several reasons. First, desirable homes in hot areas will sell quickly, and many realtors won’t take clients to view homes without a loan pre-approval. When you find a house you love, this pre-approval allows you to act quickly and makes you more desirable than someone without pre-approval. Also, this number will set your maximum budget but remember, this may be more than you’re comfortable spending.
Find the Right Real Estate Agent
There are often real estate agents who specialize in certain areas or know about houses before they officially hit the market. Ask friends or your lender for recommendations, and go with the person who feels right. A lot of factors involved with home purchases, especially your first one, are based on emotion.
Understand the Offer Process
You’ve found the perfect first house, now what? Your realtor will help you put together the strongest offer and hopefully, it will be accepted. If you know there will be numerous offers, you will rely on your agent’s expertise to help set your offer above the rest. Your realtor is going to teach you about neighborhood comps, the option period, the home inspection, and much more.
Get a Home Inspection
A home that looks perfect might not be in such great condition behind the walls and under the floors, so a home inspection is a must for your protection. It will make you aware of what might be hiding before you finalize the sale. If the home inspector finds a major problem and you still want the house, this enables you to negotiate the cost of the repair with the seller. Overall, you’ll be much more confident in your purchase after the inspection.
Know What You’re Signing
You’re almost there but it seems like you’re signing your life away at the closing. Your realtor, lender and title agency representative will be happy to walk you through the details of each form you sign so don’t be afraid to ask. Congratulations—you’re now a homeowner!
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Conventional
A conventional mortgage is a home loan that is not backed by the federal government and conforms to the loan limits set forth by Freddie Mac and Fannie Mae. You can get a conventional loan at a fixed or adjustable rate with fewer hurdles than a government guaranteed loan. Conventional loans are an excellent option for borrowers with strong credit who can contribute a down payment of at least 3%-5% towards their new home.
USDA
Great for home buyers especially in rural areas, USDA loans are mortgages for people who are ready to step into home ownership, and are backed by the United States Department of Agriculture. For eligible buyers, they feature great benefits such as 100% financing with a low payment and below-market mortgage rates. Interest on the portion of the loan that exceeds the value of the dwelling is not tax deductible. Contact your tax advisor.
FHA
Branson Bank believes everyone deserves the best opportunity to purchase a home. An FHA loan is a mortgage loan that is insured by the Federal Housing Administration. FHA loans are very popular, especially with first-time home buyers because they offer low down payments and have fewer requirements to become approved. Borrowers who prefer not to put down a large down payment, have a lower credit score, or cannot get approved for private mortgage insurance should look into whether an FHA loan is the best option for their personal scenario.
VA Mortgages
The VA loan is a mortgage loan issued by approved lenders, such as Branson Bank, and guaranteed by the Department of Veteran Affairs. Most members of the Military, Veterans, Reservists, and National Guard members and their spouses are eligible to apply for a VA loan and no down payment is required. Additional benefits include no mortgage insurance and flexible terms. This program is recognized as a small thank you to the men and women who serve our great country.
Construction Loans
Want to build your dream home instead of buying it? Branson Bank makes construction loans build to last for the length of time it takes to construct your home (about 12 months on average) and you will have access to a predetermined amount of funds that will be approved on dispersal for the various stages of the process. After construction is complete, Branson Bank can also roll the remaining balance into a conventional mortgage while you settle into your dream home.
ARM loans
An adjustable-rate mortgage differs from a fixed-rate mortgage in many ways. Most importantly, with a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an ARM, the interest rate changes periodically, based on the adjustment period, and payments may go up or down accordingly. Lenders generally charge lower initial interest rates for ARMs than for fixed-rate mortgages. At first, this makes the ARM easier on your pocketbook than a fixed-rate mortgage for the same loan amount. Moreover, your ARM could be less expensive over a long period than a fixed-rate mortgage if interest rates remain steady or move lower. Let one of our dedicated mortgage associates help you decide if an ARM is the right choice for you.
Home Equity Loans
HELOC – Home Equity Lines of Credit – A home equity line of credit is an open-end line, allowing you to access the equity in your home whether it be for personal use, home improvements or even college tuition.