If you’re thinking about buying a home, you’re in good company. In 2015, more than five million existing homes were sold in the United States, plus an additional 510,000 new homes. Of those buyers, over 30% were purchasing a home for the first time.
Home buyers have to make a dizzying number of decisions, from location to size, style, and financing. The last choice has many people feeling confused; according to a Chase Survey, only a quarter of potential buyers correctly answered questions about annual percentage rates, down payments, or lenders. But that doesn’t have to be you! Get informed before you apply for that loan by doing your homework; then you’ll be prepared to talk to the bank.
1) Know your situation and future plans
Many home loan decisions will depend on individual circumstances. Be ready to answer questions about:
– How long you plan to live in your home
– Your maximum budget for your home
– What you’re comfortable with for a monthly payment
– Veteran status
– Your credit score
– How much in savings you’re willing to spend on a down payment
– Have all your documents in order
2) Know what type of mortgage you want
Are you more comfortable with a fixed rate mortgage (FRM), or an adjustable rate mortgage (ARM)? The low initial cost of an ARM can be tempting, however ARMs carry a degree of uncertainty. By contrast, FRM rates and payments remain constant. The locked-in interest rates of an FRM help with budget management, and prevent surprises over the life of the loan.
3) Consider both interest rates and closing costs
Interest rates may be more visible, but closing costs are also important. To find the best deal, calculate your overall financial commitment using both. Often, the biggest difference between two banks can be in their closing costs, not their interest rates.
4) Consider trade-offs between loan duration and payments
While payments may be lower for longer mortgages, shorter loans save borrowers interest and can save money in the long run. The bottom line is the property’s overall affordability, regardless of the monthly payment.
5) Know your Loan Estimate
When borrowers apply for a mortgage, lenders must issue a Loan Estimate. A loan estimate is not a guarantee of approval, but rather an important document outlining terms the lender expects to offer you if you decide to move forward. (The next step to pre-approval will require you to provide additional financial information.)
Buying a home is a major commitment of time and resources, no question. However, with proper planning and attention to the five points above, it is within reach and doesn’t have to be intimidating.
Machias Savings Bank has been helping to build dreams since 1869. Whether you’re starting your future or investing in a new home, make your dream a reality. Subject to credit approval. Equal Housing Lender, Member FDIC. NMLS Number: 469539