When you take out a loan from a bank or an online lender, you may face some challenges. You may have a student loan to repay, you have limited monthly income, and you need to compete for jobs with a fat paycheck when applying for a home loan. Property costs have gone up of late due to the shortage of inventory and stiff competition from affluent buyers who want the same features in a new property and neighborhood that millennials want.
Though the real estate market seems a bit overwhelming, there are good sides to it as well. Therefore, if you are looking to finance your first home, it is imperative that you are aware of the property market, documents required, loan costs, interest rates, repayment terms, and loan tenure. It will save much of your problems and confusion later.
According to an article published on https://www.huffpost.com, home financing is a complex process full of unexpected expenses and unfamiliar financial lingo. You need to acquaint yourself with the basics of the home buying process, how the lenders work and approve home loan applications and things like that. There is no shortcut to the process. Take some time out of your busy schedule and research your options. Here are three things you must know when financing your home for the first time:
Before you consult a property counselor or apply for a home loan from an online lender or bank, ensure that you have proofs of your recent employment. You will require documents like W-2 forms, pay stubs, statement of accounts, and papers related to your other debts that you might have currently. Do not forget your tax return papers.
Besides, proper documentation, you should have a healthy credit score. Even if your credit rating is less than average, take the right steps to improve it. No lender will accept anything below 550, a FICO score of course. It is considered poor. For a smooth loan application approval, you should have a FICO score of 720 or more.
The lenders will ask you for your credit report, which is necessary for first-time property buyers like you. The financial experts often recommend people to get prequalified in the initial stages so that the lenders can understand whether you are eligible for a property loan or not. The banks or lending companies can determine how much amount you can afford to borrow so that you do not miss the monthly payments later. Accordingly, you can take the right steps to improve your credit history. It also helps you to realize that you should not borrow an amount that you cannot repay on time. In many cases, traditional banks and even real estate agents may not cooperate if you do not have a pre-approval document or letter. Fret not. There are online lenders that offer home financing options at flexible terms provided you have all your papers in place and a good credit report. Besides, if you wish to explore about home financing and debt, you can visit websites like NationalDebtRelief.com or similar ones.
- Think of the early-down payment system
When you plan to take out a loan from a lending company, it does not start in a day. You think of it days ahead before you actually apply for the loan. Therefore, you should put aside sums of money every month so that you can make an early down payment.
It is a normal practice to put at least 20 percent of the money down when applying for a property loan. Then, there are lenders that allow fewer amounts and first-time buyers are allowed as low as three percent. Then, anything less than 20 percent attracts more risks of non-payment later. It implies higher mortgage expenses and shelling out private mortgage insurance. In such a situation, a small amount of three percent may prove financially taxing for first-time homebuyers like you.
Let us explain this point with the help of a suitable example. For instance, you make a five percent down payment for a home loan of $200,000, which is $10,000. Take a loan calculator to help you fix on an ideal amount that you can pay comfortably. There are a couple of tips for a down payment. These include keeping tax refunds aside and work incentives. You can also set up an auto savings plan and use a mobile app to keep a track on how you are progressing. These little things matter a lot when it comes to financing your first home.
- Focus on budgeting
The best way to finance your home sans any complications is by creating a budget. It is essential for buying your property because you will know how much you can afford as monthly payments. This way, there is no complication and defaulting in the later stages of the loan repayment process. If you are a first-time buyer, consult with a credit counseling company to understand the home financing process. These agencies help you figure out what your budget should be and how much you can shell out as monthly payments. Things will go easy for you if you take the assistance of credit counselors. All you need to look for the right options and then make an informed decision.
Credit counselors will educate you about the different types of property loans such as mortgage companies, realtors, and online lenders offering easy and flexible loan repayment terms. You also have the option to communicate with the sales staff of your builder, offering you suggestions related to mortgage lenders.
The counselors will tell you about traditional mortgage loans from a bank, a Federal Housing Administration or FHA loan, lenders online, builder finance, and the like. You will also come to learn about the different down payment norms of these lenders. For example, traditional mortgage loans from some banks will not allow you to pay more than three percent down payment money if you are financing your home for the first time.
Now that you have these tips ready, use these ideas to finance your first home. Borrow an amount that you can afford to repay easily. Happy home buying!