Loan Requirements For First Time Home Owners
Home ownership is a big step, and just like other life accomplishments, it's important that you educate yourself so you can discover all the big and little surprises before they discover you.
So you're looking to buy your first home and you need to know what goes into it. This article will cover the basics about taking out a mortgage and purchasing a home.
Few can afford to buy a home outright. This reality has led to the practice of borrowing money from a bank to finance buying a home. The loan you borrow from a bank is called a mortgage. A mortgage agreement entails that the bank basically buys the home in your name. The bank will own your home until you have finished paying your mortgage, and can repossess it if you miss your payments.
Before you even decide what home you want to buy you'll want to look into the different programs offered by different banks. Each bank will have its own loan requirements and pay back rates. They may also have various fees, and pay back options. Who you have to deal with when negotiating your loan may also be important to you and you'll want to look into the customer service reputations of each bank. There are also new financing options becoming available. After the recent economic troubles, a good portion of the population has ceased to rely on banks. Loaning communities have become popular. An applicant will make an appeal for a loan. The loan is then financed by a number of private loaners, each paying a small amount, if the loan application is approved by the loaning community.
No matter who you choose to borrow money from, you'll want to put as much money down upfront as possible. This means you'll want to pay for as much of your house all at once as you can possibly manage. This will mean that you will have less money to pay back, your monthly bill will be lower, and it will affect the interest rate on your loan. You'll want to put down 10%-40% of the cost of your home. An average down payment is 20%. This means, if you have $5,000, you should be looking for a home that costs $25,000. Depending on what bank you choose to borrow from, they may have a certain percentage of the cost of your home that you have to put down.
The next consideration is your loan period. There are 15 and 30 year mortgages. Which one you choose will determine your monthly payments. If you get a 30 year mortgage then you will have lower monthly payments, but the bank will own your house longer. You will also end up paying more interest over the long run. A 15 year mortgage will get you out of the bank's shadow quicker, but the monthly payments will be higher and so the risk will be higher. Remember that missing payments will put you in danger of losing your house.
Lastly, you're going to want to try to be as debt-free as possible. The lower your debt, the lower your interest rate will be. You'll want to aim to be under $1000 in debt when you apply for your loan. Many people have student loans on their records and that will be counted against you when the bank calculates your interest rate. If your debt is too large, you may want to consider co-signing or buying a home in your spouse's name.