This past week, I have posted several articles on credit reports. Below are a few things you should know before buying a home:
1) Get Pre-Qualfied – you will need to find out what you can qualify for and obtain a Pre-Approval letter before going out to look at homes.
2) If you have marginal or bad credit, consult your lender –they will be able to advise you on whether your credit history will prevent you from qualifying for a home loan.
3) You will need a down payment – Down payment requirements vary depending on the type of loan. There are a few down payment assistance programs, but gone are the days of lots of ZERO down loans, unless you are a Veteran. Consult with a lender about the programs available in your area.
4) You will need funds for closing costs – In addition to your down payment, you may need to have additional funds for closing costs (i.e. Escrow, title, mortgage insurance, taxes, loan fees and fire insurance).
5) Some loans have “points” and some do not – A point is a loan origination fee equivalent to 1% of the loan amount. Together with the interest rate they constitute the yield on your loan for the lender. Some lenders charge a higher interest rate to compensate for charging no points. It is important to comparison shop lenders to make sure your loan is at a competitive yield.
6) Should you select a mortgage with a fixed rate or an adjustable rate? It depends on whether mortgage rates are at a high or a low point when you purchase, and on how long you plan to live in the home. If rates are low, a fixed rate would be more attractive and if rates are high, an adjustable rate might be attractive since subsequent rate drops could reduce your monthly payments. Also lenders may offer a low rate during the first few years of an adjustable mortgage to make it appealing to you.
7) Be aware of the two main type of loan categories – Conventional Loans and Government Loans (FHA/VA) . Both of these loan types are available with fixed or adjustable interest rates and some require mortgage insurance.
8) If you are a low or moderate income home buyer – there are some local and state housing agencies, like the California Housing Finance Agency(CalHFA) that have special loan programs available.
9) Why might I have to pay mortgage insurance? Generally, conventional loans that require larger down payments do not require mortgage insurance. Mortgage insurance is always required on FHA loans. Mortgage insurance protects the lender from potential loss if you should default on your mortgage loan payment.
10) Many organizations offer home loan counseling to prospective home buyers– These organizations provide classes for home buyers to cover the steps to home ownership. They will cover home selection, realtor services, lenders, loan programs, home ownership responsibilities, saving for a down payment, and other important pieces of information. Many first-time home buyer programs require home buyers to attend this type of class to be eligible for selected programs.