5 Things Every Home Buyer Must Know When Financing a Home

If you plan to buy a house and get a mortgage, there are a few things you should definitely know. If you are a first-time home buyer it can be overwhelming, but these five tips will get you on your way.

Know the full cost of owning a home

First thing you should know is there are four payments that will go towards your house – principle, interest, taxes, and insurance.

The principle and interest are your monthly expenses. You pay off the amount of your loan month by month with the principle, and the interest is the fee for borrowing the money. The taxes are an annual property tax determined by the county you live in. Usually it is about 1.2 percent of your home’s value of that year. Homeowner insurance is a requirement when you have a mortgage. You can choose which insurance company you pay to, but this insurance usually costs anywhere from $700 - $1,300 a year.

If you choose to live in a house that is included in a home owner’s association you will have monthly dues. These can also run you $100 - $1,000 a year.

Know your credit history

The best weapon you can have when buying a house is a killer credit score. It’s simple, the better your credit score, the better mortgage deals you receive. Lenders look favorably upon strong credit scores and will give you more money for a lower interest rate.

If you do not have any credit, you should consider getting some. When you open a line of credit, your score will drop 5-15 points immediately, but it takes a few months of on-time payment to boost it up again.

Match mortgage products to your budget and timeline

It’s a good idea to know where every dollar is going. Make a written budget plan and delegate how much you can spend on the house and what is left over to spend on daily life. Ask yourself how long you want to be in this house, so you can find the right loan for your plan.

If you don’t expect your income to rise anytime soon, you might be in this house for the long haul, and will choose a 30-year fixed rate mortgage. Maybe you want to live in it for a few years, and put some money into it; at this point a 5-year ARM is needed.

The incredulous Fannie Mae and Freddie Mac offer as little as 3 percent for a down payment for those who do not have at least 20 percent to offer.

Get pre-approved in advance

If you do all your home financing research without getting approved, you will be heavily disappointed. Home shopping is a competitive business, and most sellers require you to be pre-approved, showing you are financially ready, before any deal can happen.

Know what lenders require

Lenders look closely at your life when you go in for pre-approval. They will ask for your D.O.B., full name, address, children names, and social security number. They will look at your tax returns, credit history, past employments, bank transactions, divorce or legal troubles, tax returns, and employment history.

They will provide you with a checklist, and it must be followed exactly. When they ask for two copies, do not give them three. When they ask for state taxes, do not give them federal.

If you’ve changed your name, you’ll have to explain that in a short letter form, as well as any other inquiry they might have. 

This is one of the bigger steps in the process of buying a house. Now that you know what it takes, go out there and buy that house you want.

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