A large number of home buyers currently on the market are going through the process for the first time- and most will be taking out mortgages along the way. How you choose to finance your home is a major decision, as it’ll play a serious role in your finances for years, if not decades.
Many first-home buyers make mistakes along the way, but these can be avoided by taking a look at some of the best practices. Here’s financing 101 for new buyers:
Down payments are often daunting, especially because people assume it a down payment is 20% by default- but that’s not the case. Given rising property values, more and more people are putting down less than 20% on their homes, though this may require paying a premium to accommodate the added risk on behalf of the mortgage agency, so think twice.
There is no universality when it comes to a loan, but a breadth of options. A lot of people like a 30 year fixed rate loan, as they don’t have to worry about a change in interest. However, an adjustable rate might be preferable for you if you don’t think you’ll stay in the home for more than 20 years. If you’re concerned about down payments or a low credit score, try a government-backed loan.
Selecting a lender
Financing a home is a huge choice, so it’s important that you choose the right lender. Unexpectedly, most people think about only a single lender before deciding on a loan. But it’s important to look at a variety of lenders before making your choice.
Getting pre-approved for a loan early is a good idea. It will help you understand your budget as you shop, as well as prove to sellers that you mean business. Another benefit is allowing yourself time to see any potential mistakes on your credit report.
There’s no pressure with pre-approval: you don’t have to borrow from the lender who offered you pre-approval. You still have options.