How to Get a House Loan?
Buying a house gets very expensive very quickly and very heavy on Real Estate jargon. Homebuyers need to understand the concept of all of the topics related to getting a house loan, as well as know them in-depth. It will and can only help them long term.
Thankfully there are options for a home loan called a mortgage, which is when monthly mortgage payments will be paid – rather than rent.
This is an excellent method of increasing net worth.
Paying rent can be considered a waste of money and is not increasing the renter’s net worth.
Paying a mortgage actually assists the buyer’s equity within the property, in turn increasing their net worth.
It may seem daunting or intimidating, but there are appropriate and logical steps to follow to accordingly get approved for the personalized house loan.
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The Pre-Approval to get a house loan
A heavy portion of this process will be held within this section, which could be considered the most important.
The lender (loan officer) is attempting to estimate the maximum home price that the home buyer can actually afford.
Credit reports are examined and analyzed accordingly to evaluate the buyer’s credit history.
They require multiple documents in order to fulfill this calculation.
These documents may include:
- 30 days of Pay Stubs
- Bank Statements for the last two months and/or Retirement Statements
- Previous two years’ W2s or 1099s (if purchasing a home with a spouse and they are working – these need to be provided as well)
- Previous two years signed tax returns (both Personal and Business)
- Some require the Real Estate Agent’s Contact Info
After sending this information over to them, they will perform an analysis of how much (if any) home can be purchased.
They will also provide the potential interest rate that will come with the home loan.
This process of sending all of these documents can be sent to multiple lenders, this is the method of shopping around that is discussed later on in the article.
Now that there is hopefully a pre-approval letter, we must understand in detail what type of loan options there are.
Types of Loans to buy a home
The loan officer should assist the home buyer in the process of utilizing the best type of mortgage loan for the home buyer.
Here are a few different options to choose from:
- Federal Housing Administration Mortgage (FHA loans) – Very appropriate for first-time buyers with low credit scores to get an FHA mortgage.
- Conventional loan – Will get a smaller interest rate but may be required to put more money down at the beginning.
- VA loan – Good options for veterans, military service, and potential military spouses.
There are some experts who say that a home buyer must have a 20% down payment ready when they want to purchase the home, but some experts say that is not the case.
Purchasing a home is not considered a “one size fits all” type situation. It varies drastically among buyers across the board.
Always keep in mind that at the end of the home buying process, there are closing costs that are required to be paid.
A home that is worth about $300,000 will roughly have closing costs around $5,000.
To touch on the 20% down payment section above, the reason why it can be advised to pay that amount is due to private mortgage insurance (PMI).
This is required to pay until the buyer owns 20% of the equity.
This time, homebuyers will have an increased payment because of PMI.
It is highly advised to be careful to NOT apply for other credit while in the process of buying a home.
It could potentially alter the pre-approval.
DO NOT apply for any new credit cards, buy a new car or even participate in a finance option at a furniture store.
Getting a house loan with a better credit score certainly helps the long term.
Fixed loan vs Adjustable loan
Most loans are 30-year fixed-rate loans, which is the exact same rate for all 30 years.
It might also be called a fixed-rate mortgage.
This just means that there are also adjustable-rate mortgages.
Depending on what is agreed upon in the beginning, the interest rate could potentially “adjust”.
Listen to the news or any finance discussion on the radio.
Real Estate is a thriving industry within the economy.
Everyone working within the section is ready to provide the best service possible to anyone.
Most people want to have the best interest rate, and with good reason.
The lower the interest rate, the less the borrower will pay over a 30-year mortgage.
Make sure to have many conversations with multiple lenders.
They will all provide an interest rate (which determines the risk that the borrower will default).
A difference of .25% can alter a monthly payment of around $25, which over 30 years equate to $9,000 in savings.
Again we repeat, a good credit score certainly helps long term financial decisions.
How to Negotiate When Buying a Home
There is a rather profound quote that can be used in this situation, “if you don’t ask, the answer is always no.”
When purchasing a home, there are some instances that the seller might be able to pay for closing costs, to assist the buyer.
It has happened before, and it continues to happen.
This is not considered to be a foreign practice.
This is just a simple example of what can be negotiated.
The price of the home can potentially be negotiated lower to make it more affordable for the buyer.
Maybe the seller is in need to sell the home immediately and will take the first offer on the table.
It cannot hurt to offer a lower purchase price.
One piece of negotiating that can be very important is potentially paying down the interest rate, if it makes financial sense, of course.
The lender will often be able to lower the interest rate for a certain dollar amount.
There can be a lot of different factors to look at.
One question to ask is, how long will the buyer actually be living there?
If they are only going to reside there for just a few years and then sell, does it really make sense to pay more now, and then not even see the benefit over a few years?
Mortgage Evaluation Process
There is a lot of information to evaluate and analyze.
It is essential to have the best loan officer that will work with you appropriately, but also one that creates a healthy relationship.
The friendship will potentially last a lot longer than anyone would imagine.
They might help with the next home that is purchased.
As mentioned earlier, this can be a very confusing and stressful time.
Make sure to find the best loan officer that is here to help you out and make sure that you understand every little detail.
This type of deal should not be taken lightly, it should be well planned out with a budget in place.
The budget should NOT be exceeded.
When payments are not made on time, the buyer could potentially lose the home.