The Basics of Home Mortgage Loans

When purchasing a home, your payment options include either paying the purchase price with cash or by using a home mortgage loan. Using a home mortgage loan means a lender will loan you the money to pay for the home. You are responsible for then paying back that loan, with interest, via monthly payments to the lender. Check out these key parts to a home mortgage loan before you visit a bank.

Check Your Credit

Since buying a home is considered a major financial purchase, your home mortgage lender will run your credit report to see if you are an eligible candidate. If you haven’t already been monitoring your credit report for errors, you’ll want to get your report and check it over before contacting a potential lender. The Fair Credit Reporting Law allows you to receive one free copy of your credit report a year from TransUnion, Equifax, and Experian. Use this free report to clarify issues and find any delinquent accounts you need to bring current. Making sure your credit report is in the best shape possible before approaching a lender will save you the hassle of being denied and further delaying your home purchase.

Making Major Changes

To be an eligible candidate for a home mortgage loan, you will need to prove to your lender that you can repay the loan. Try not to make any major purchases before, or during, your home buying process as it can negatively impact your income to debt ratio. Your mortgage lender will be looking closely at your finances to make sure that receiving a home loan won’t fall beyond your means. Avoid changing jobs now. The more stability and reliability you show will increase your chances of securing a home loan without any delay.

Add Money to Savings

There are several loan options out there, some of which offer low or no down payment options as opposed to the typical down payment of 20-percent of the purchase price. Qualifying for the low or no down payment plans could end up costing you more money in the long run due to higher interest rates, so weigh the pros and cons of each type of loan carefully before you choose one. It is a good idea to have 20-percent of your expected home purchase price, plus additional cash for closing costs, in your savings account before you contact a home mortgage loan lender. Closing costs are fees that may include home inspections, attorney fees, and appraisals. Some sellers will agree to pay all, or a portion, of the closing costs, but you’ll want to be prepared to pay it all out of your pocket just in case.

Check Mortgage Rates

Your home mortgage loan’s interest rate will vary based on the type of loan you select from your lender. Your interest rate remains constant during the life of the loan if you choose a fixed rate loan. You may have higher payments with this option, but your payment amount will not fluctuate from month to month. That can be a crucial factor for those who like to keep tabs on budgeting for their mortgage payment. Your interest rate will rise and fall per the real estate market if you choose a variable rate loan. Your payment would not be consistent each month as it would adjust depending on which way your interest rate moves. Your real estate agent will be able to go over the pros and cons of each type of loan to help you decide which one is right for you.

Choose Repayment Options

Down payment options and interest rate types are not the only things to consider when choosing between different kinds of mortgage loans. You will also need to consider how long you will be repaying your loan. Typical repayment periods are either ten, fifteen, or thirty-year spans. Monthly payment amounts, early-pay off options, and early payoff penalties are all factors that will differ between each of the repayment periods and affect your final decision on which one to choose.

Pick a Lender Wisely

Typically, the bank that you use for everyday checking and savings accounts will come to mind as your first option for a home mortgage lender. You aren’t stuck with choosing your bank if you find a better loan option from another lender. Look around and compare rates, terms, and programs from a few different lenders before settling on which one you wish to use.

Your real estate agent is the best source of information about the local community and real estate topics. Give Erica Stietenroth a call today at 979-574-4909 to learn more about local areas, discuss selling a house, or tour available homes for sale.