Home Buying Tips
Buying Your First Home
Don't be daunted by the leap into unknown waters! Buying a home for the first time may seem like an overwhelming process, especially when you have no idea where to start, but that's why we're here for you. Learn more about the process of obtaining a mortgage, finding the perfect home, and making an offer, and you'll be on your way to owning your very own home in Western North Carolina!
First and foremost, let's talk about mortgages. Most buyers need one, and there are a lot of options that vary greatly from lender to lender and from buyer to buyer. This means it's important to understand what you're looking for and talk to a lot of different lenders to ensure you're getting the best deal possible.
When it comes to choosing a mortgage that's right for you, the choices can be overwhelming. But don't worry — you don't have to choose from hundreds of different options to find your ideal option. There actually only about six or seven basic types of home mortgages, each of which offers different benefits depending on your situation. You'll want to base your decision on several key factors, including your current monthly income, your future expected income, current assets, and your liabilities or debts.
Before you solidify your mortgage choice, you'll also want to weight the pros and cons of an adjustable-rate mortgage (one that changes) or a fixed-rate mortgage (one that stays the same). Once you decide on that, then you can move on to the basic mortgages that are offered:
- Oldest and most popular
- Rate is constant over the life of the loan
- Can be taken out in 10, 15, 20, or 30-year lengths
- The interest on an FRM will not change, so your monthly payments won't change, making them very predictable.
Adjustable-Rate Mortgage (ARM)
- Interest rate fluctuates
- Are tied to one-year Treasury bills or another specific index
- Initial rate is low, but grows each year
- Usually a cap of two points; lifetime ceiling caps of around six points
- Rate can drop
- The interest rate on an ARM will often be lower initially, but as interest rates do fluctuate with the market, they can be somewhat unpredictable or even result in higher payments.
Types of Mortgages You Can Get
There are four basic types of mortgages used by the majority of home buyers.
This is the standard loan used by buyers with good to excellent credit who make down payments of at least 10%. However, there are programs that offer options for lower down payments based on buyer credit and location.
These loans often apply to buyers with lower credit scores, as they offer a down payment as low as 3.5% and lower interest rates. However, FHA mortgages do also require mortgage insurance premiums, which can result in higher overall costs.
All veterans and active military members qualify for VA loans. These offer up to 100% financing, simplified loan approvals, and lower interest rates. They can be much lower than conventional loans.
What Do Mortgages Include?
There are four main components to a mortgage payment, often abbreviated as "PITI."
This is the repayment of the initial amount you borrowed from your lender (in other words, the price of your home).
This is a payment to the lender for the money borrowed (and is then added on to the initial price of your home).
Your annual city and county taxes assessed on your property are divided by the number of mortgage payments you make in a year and added into your mortgage.
Your monthly homeowner's insurance payment covers you against various hazards and is added to your mortgage payment.
Applying for a Loan
The following information is usually required during the loan process and should be brought to your meeting with a loan officer when you apply for a home mortgage:
- Your Social Security number
- Federal tax returns for the most recent two years
- Current pay stubs for the past two months
- Bank statements for the past two months - all pages
- Investment account statements for the past two months - all pages
- Retirement account statements for the past two months - all pages
- Credit card account information
- Auto loan account information
- Personal loan account information
- For purchase loans - copy of purchase contract with amendments
If you currently own Real Estate you should also bring the following documents:
- Mortgage account information for all properties owned
- Home insurance policy information for all properties owned
- Tax Bill for all properties owned
- Home equity account information (if applicable)
Going Loan Shopping and Understanding Your Options
Before you decide on any particular loan or lender, it's important to do your research. That means meeting with AT LEAST two different lenders to ensure that you're getting the best rate possible. It's also important to understand two different types of interest rates offered by mortgage lenders.
Calculating Your Monthly Budget
Now that you know what loan options are available to you, what you can expect to pay as a down payment, and what your likely interest rates will be, it's time to determine how much you can afford to pay every month, which will then be used to calculate the price range of your home.
Keep in mind that your mortgage costs will be based both on the price of the home and the CURRENT interest rates. A home's affordability can vary from one day to the next based on the current rates.
Getting pre-approved for a mortgage is important to empowering your next home purchase. To learn more about this necessary step in your home buying process, click the link below!
Still Have Questions?
Still have some questions or looking for recommendations on local mortgage specialists? We've got you covered! Contact us today and one of our expert team members will email you a list of the best local options that can share some knowledge on real estate mortgages. As always, if there's anything you need help with during your real estate journey, our team has got you covered. Don't hesitate to give us a call today!
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