When purchasing a new home, there are two available options for payment: cash or a home mortgage loan. A lot of buyers choose to secure a home mortgage loan to avoid the substantial up-front expense that comes with paying cash for the entire purchase price. A home mortgage loan gives you the flexibility to spread out your payments over the course of time. Before you decide if a home mortgage loan is right for you, check out these mortgage loan basics:
Your Credit Score Matters
When determining your qualifications as a buyer, a mortgage lender will turn to your credit report for answers. Making sure that your credit report is free of errors and delinquent accounts before contacting a lender will ensure that your report is in the best shape possible. You can retrieve a free copy of your credit report once per year thanks to federal law. Take advantage of this free report and check over your credit as soon as you can.
Don’t Make Major Changes
The lender uses your income to debt ratio as one factor in determining your eligibility for a mortgage loan. You want your monthly income to be higher than your outgoing expenses. Financing large purchases in the months leading up to, and during, the home buying process negatively affect your income to debt ratio. Make sure your lender sees that you will have no issue being able to afford a home by not tying up your extra income into unnecessary large purchases.
Save Some Money
Owning a home means that you will be responsible for covering home repairs, furnishings, and moving expenses out of pocket. In addition to the normal costs of home ownership, you should be prepared to cover a down payment and closing costs with your cash. A down payment is usually around 20-percent of a home’s selling price. Closing costs fall between 2 to 8 percent of the price. There are some cases where you will not be required to pay a down payment or the closing costs, but it is best to be prepared rather than surprised and scrambling to come up with the cash last minute.
Research Mortgage Rates
Mortgage rates vary based on your circumstances as a buyer. Some mortgage loans offer a fixed rate, which means your monthly payments will remain consistent throughout the life of the loan. Other mortgage loans will provide a variable rate. Having a variable rate means that your monthly payments will adjust based on the rise and fall of the market. Each type of loan has pros and cons. Your agent can provide you with more details and advice regarding which loan may be the best choice for your situation.
Decide on Length of Time
When choosing a type of home mortgage loan, you also need to consider how long you want to make monthly payments. Typical life spans for mortgage loans are ten, fifteen, or thirty years. Choosing a loan with a longer lifespan could mean you’ll be making payments for a longer period. If paying off your home as quickly as possible is your priority, the higher monthly payment that typically comes along with a shorter lifespan may be the right choice for you. Compare pay-off penalties and all the fine print before signing a contract.
Shop Around for a Loan
There are several options available when it comes to choosing a lender for your home mortgage loan. Don’t feel obligated to choose your personal bank just because you already do business with them. Shop around and compare the offers and terms of various lenders before making your final decision.
Your real estate agent is the best source of information about the local community and real estate topics. Give The Scott Loper Team a call today at 267-446-3084 to learn more about local areas, discuss selling a house, or tour available homes for sale.