Home Finance Basics
Home Finance Basics
Your dream is about to come true. You’ve been saving your down payment. You carefully guarded your credit score. You’ve spent months looking at home listings online. Now you’re ready to actively search for and buy a home. You know one of the first steps is to get pre-qualified for a home.
If you’re a first-time homebuyer there’s a mind-boggling amount of information you have to process before taking that big step. Here’s some of the information you’ll need to finance the home you’ve been dreaming of.
Terms You Need to Know
- Principal – This is the amount you borrow to buy the home. It includes the purchase price and anything else you finance.
- Interest – The percentage the bank charges you to borrow.
- Term – This is how long you take to pay the money back. On a home loan that’s usually between 15 and 30 years.
- Amortization – Your payments and interest are divided into monthly amounts over the life of the loan. You’ll pay mostly interest up front and, as the interest gets paid off, more of your payment goes toward the principal.
What You Need to Apply
Save money to use for a down payment and closing costs. The amount you have saved will affect several factors, including the amount you have to borrow and whether or not you pay private mortgage insurance. When you visit your lender take financial documents like your W-2s for the last two years, copies of pay stubs and current bank statements.
Types of Loans
FHA – Loans from the Federal Housing Administration (FHA) are popular with first time home buyers because they make it easier to get approved. Buyers can have a down payment as low as 3.5% of the purchase price. Borrowers with scores as low as 580 can usually be approved.
Traditional financing – If your credit is good you may qualify for financing through traditional lenders. Some lenders will let you put just 1% down, if your credit is excellent.
VA loans – If you’re a veteran, or currently serving in the military, you could qualify for a VA loan. Benefits include no down payment and no private mortgage insurance.
Down payment assistance – Lenders offer down payment loans to borrowers who can’t come up with a down payment on their own. Many states offer these loans to low-income individuals.
Graduated payment loans – If your income is low, but you expect it to go up in the next few years, you can apply for graduated payments. If, for example, you are just finishing college and about to begin making a professional level salary, it might benefit you to make low payments now while you’re paying off student loans, then pay more on your house once those are taken care of.
The experts at Hire Realty can walk you through every step of the process. Contact us to get started finding your dream home today.