You may be ready to purchase your first home, but you may not know how to get started. We spoke to our in-house real estate expert, Deb Sarsany of the Deb Sarsany Team at The Real Estate Group, about securing pre-approval for a loan.
One of your first steps is to meet with a mortgage lender to find out exactly how much money you can borrow. Not all mortgages are identical and not everyone can qualify for the same mortgage. There are several basic things you need to know when you’re seeking a mortgage.
First of all, there are several mortgage types that you should discuss with your lender:
1. Conventional: Requires at least 3% down payment – if your down payment is less than 20% you will be required to pay additional private mortgage insurance (PMI) until you meet 20% - this is fixed rate and your payment will not change.
2. ARM (adjustable): The rate on ARM will eventually adjust every year after a period of time that is (fixed) – for example 5/1 ARM will carry a fixed rate for five years and then adjust every one year for the life of the loan.
3. Government Insured: FHA (Federal Housing Administration) loan, VA – veterans – offered to military service members, ISDA/RHS – offered by the USDA (United States Department of Agriculture) for rural borrowers.
As well as fixed rate, which has a static interest rate and your monthly mortgage payment remains the same, there are also adjustable rate mortgages where your interest rate adjusts according to market conditions and your monthly payment goes up with it.
Lenders write most mortgages for 15-to-30 years. A 15-year loan will have lower interest rates than a 30-year loan, but higher monthly payments. It won’t come as a surprise that if you sell your home before the end of the mortgage term you will need to pay off the balance from the sale.
As you may have already guessed, the size of your mortgage is tied to your income. A bank, or mortgage lender, will also want to determine your default risk. One risk, which your mortgage lender will consider is your credit score. Another risk is your existing debt. It’s worth shopping around to find the mortgage lender that works best for you.
Once you are pre-approved you are able to make an offer on a house. Now that you’re ready to search for your new home you need to make sure that you find a Realtor to work with you; one that will stay within your budget, whilst also offering you a range of properties to consider.