You don’t have to be a millionaire to buy your first home. Many government programs and tax credits can help you make the dream of homeownership a reality. To help you get started, here are the basics of buying a home, from understanding the different types of mortgages available to learning about the closing process.
- Understand the different types of loans available
When most people think of buying a home, the first thing that comes to mind is the substantial down payment required. However, this isn’t always the case. Many types of home loans are available that require little to no down payment. The most common types are fixed-rate and adjustable-rate mortgages.
A fixed-rate mortgage offers the stability of a consistent interest rate throughout the life of the loan. This is a good choice for buyers who want to know exactly what their monthly mortgage payment will be for the loan duration. However, it may be higher than an adjustable-rate mortgage because the interest rate is locked in.
Adjustable-rate Mortgage (ARM)
As the name suggests, an adjustable-rate mortgage offers a rate that can change over time. This type of mortgage is a good choice for buyers who anticipate that their income will increase in the future. It’s important to note that ARMs typically have a higher interest rate than fixed-rate mortgages, so be sure to compare the two before deciding.
- Compare interest rates, points, and down payments
When shopping for a loan, it’s essential to understand the different variables that affect the overall cost. Here’s how they break down:
The interest rate is the percentage of your loan that you will pay annually, in addition to the principal. This rate is set when you take out the loan and doesn’t change unless you refinance, which means you’ll always know what your payments will be.
The points are fees you pay to the lender to get a lower interest rate. You’ll usually pay 1-3 points, and the more points you pay, the lower your interest rate will be. This means your monthly payments will be lower, but you’ll have to pay more upfront.
The amount of money you put down upfront to purchase the home is called a down payment. Usually, the more you put down, the better your interest rate and terms. However, many loan programs allow you to put down as little as 3.5% of the purchase price, while others will require 20%.
- Learn about the closing process
Closing is the term used for the final step in buying a home. This is when the home buyer signs all the necessary documents and pays the remaining balance on the house. The closing process can be confusing, so it’s vital to be well-informed and have a good understanding of what’s involved.
Here are the typical steps in the closing process:
- Review and sign the loan documents
- Pay the remaining balance on the home
- Transfer ownership of the property
- Get your keys!
- Get pre-approved for a mortgage
One of the most important things you can do as a homebuyer is getting pre-approved for a mortgage. The lender has already checked your credit and determined how much you’re eligible to borrow. This will give you a good idea of what you can afford and help speed up the buying process.
- Find an agent to help you find your dream home
Once you’re pre-approved, it’s time to start house-hunting! The best way to do this is by working with a real estate agent. They will have access to all the latest listings and can help you find the perfect home for your needs and budget. Plus, they can help you through the entire buying process, from negotiating a price to getting the keys at closing.
- Know what to expect during the inspection process
After finding the perfect home, it’s time for the inspection. This is a process where a licensed inspector comes to your home and checks for any potential problems. If there are any issues, you can negotiate with the seller to have them fixed or reduced in price since you’re now aware of them.
- Get ready to move!
Once all the paperwork is signed and the closing is complete, it’s finally time to move in. Be sure to pack everything up and label your boxes so you can easily find them later. It will also help if you have a plan for where everything will go in your new home. This way, you can avoid any stressful surprises on move-in day.
There are many steps involved in buying a home, and it can be challenging to know what you need to do. But hopefully, this companion for the process of homeownership will help make things clearer for you. So good luck and happy house-hunting!