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4 Options You Need To Know When Financing a New Home
So you’ve picked your dream home, now it’s time to find your dream loan. The first step in the financing process is getting pre-approved for a loan. Before you even look at houses, you should talk to your bank, credit union, or mortgage lender. They’ll need basic financial information such as your credit history and income. Based on this information, your lender will give you a figure on how much they would be willing to lend you for your home. This number will help you decide the price range of homes we’ll be looking for.
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Bank and Credit Union Home Loans: Let’s get the obvious stuff out of the way… Bank and credit union loans are convenient because they offer so many different mortgage options. Many of these lenders offer adjustable and fixed rate mortgages. Adjustable mortgages are home loans in which the rate is susceptible to changes over time. This is often the best option for young home buyers because the rates start low, meaning that you pay less in the beginning, and gradually the rates increase over the life of the loan. Young home buyers typically aren’t the richest people in the market, but will likely experience increase as they grow in their career, making it easier to make bigger payments over time. ARMs can be perfect in the early stages of life, but lenders may charge steep rates as the loan matures to make up for the low rates at the beginning of the loan, which may make an ARM more costly overall. Fixed rate mortgages are home loans that have the same rate throughout the whole life of the loan. The benefit to a fixed rate mortgage is that you can be sure that your rate won’t ever increase unexpectedly and you can count on making the same payment every month, no matter what. This keeps you in control, not the lending institution.
Because home loans provided by banks and credit unions are not insured by the government, these lenders must protect themselves from risky borrowers. If your down payment on the home is less than 20%, many banks and credit unions will require you to purchase Private Mortgage Insurance. This insurance is an extra expense you’ll be paying out of pocket that is of no benefit to you, so be cautious of this should you choose to make a smaller down payment.
Veterans Association Loans: If you or your spouse have served in the military, you may qualify for a Veterans Association loan. These loans were created to help veterans buy homes without bending over backwards for credit unions and banks. In addition, VA loans offer 100% financing options, meaning that veterans are not required to make any down payment on their home. Isn’t that a relief? I’m proud to partner with Homes for Heroes to provide local heroes with a big “Thank you!” for their service. This not only supports veterans but also major characters in our community such as Firefighters, EMS, Law Enforcement, Military (Active, Reserve & Veterans), Healthcare Professionals and Teachers. If you are in one of these occupations speak with me today about getting your hero’s reward.
Federal Housing Association Loans (FHA Loans): These loans are a popular choice, especially with first-time home buyers. The FHA encourages people to buy homes by making it easier for them to qualify for a loan, particularly for young people and those who might not be ‘qualified’ by some banks and credit unions. Loans given out by the FHA are government backed, meaning that they are insured by the USA government. This makes it far less risky to the lender than a traditional bank or credit union loan. As a result the FHA has lower eligibility requirements and rates. In addition, the FHA often only requires a down payment of as low as 3% (compared to the 20% we mentioned above… heck yeah!) and the FHA does not require you to purchase private mortgage insurance.
Homebuilder Financing: Who doesn’t want to dream up their own perfect home? If you’re looking to build your own – or even buy a new home – then homebuilder financing may be the option for you. To make buying new homes more attractive to buyers, many builders offer their own in-house mortgages. This can make finding a loan incredibly easy and the rates are usually lower than those offered by banks and credit unions. Be warned, if you are considering financing your home this way, take the time to make sure that their in-house rates are competitive since sometimes they can be higher than the rates offered by external financial institutions.