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First Steps to Financing a Home

By Tammy Emineth | April 30, 2019

Practical tips for home buyers

Buying a home can be exciting and a little scary all at the same time. There are many factors that go into buying a new home like finding the right buyer’s agent, the right neighborhood, the right house in that neighborhood. And this house, of course, will have to be in your price range, and but how do you know what that price range will be without first getting the right financing?  For many, the finance part of home buying can become the most stressful. Here are some tips to hopefully ease the burden.

The first step is to meet with a lender and bring all of the necessary paperwork.  Your lender can help you to get pre-approved. This is a process in which the lender looks at your financial health and determines how much money they would be willing to lend toward the purchase of your home. When this amount is determined, the lender will give you a letter of pre-approval to show homeowners you have begun the loan application process and have the ability to complete a purchase.  Be careful with this number though as the lender could approve you for a number that could stretch your budget pretty thin.  Do some math on your own to decide how much you are really comfortable paying on your monthly mortgage bill. Start by calculating your monthly budget and add in other home-related expenses such as homeowner association dues, property taxes, insurance, utilities, and maintenance.

Read More: Costly Mistakes Many Home Buyers Make

There are many different loan options out there. Before you make that final loan commitment and sign papers compile a list of questions regarding the type of loan you are acquiring and all of the loan programs available to you. Your lender can help you find the best fit for your situation. Such as would it be better to have a fixed rate mortgage or adjustable rate?  Don’t be afraid to ask questions. The more questions you ask the more comfortable you will be with the huge decision you are about to make.

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Another thing to consider is mortgage points. A point is a fee equal to one percent of the loan amount. These fees can be in the form of discount points which are pre-paid interest and origination points which are set by the lender to cover the cost of making the loan. Points can be very beneficial to a buyer planning on staying in their home for a long time, however, if you are looking to pay as little as possible in closing fees a zero point option is probably the best route.

It is a good idea to make a sizable down payment; many down payments are around 20%. The benefit of a good down payment is it will give you a better interest rate and you will not have to pay for monthly private mortgage insurance.  If making a significant down payment is going to empty out your savings account then it is actually a better idea to keep the money in savings for emergencies and pay a little extra for the insurance.

Related: How Much Does it Really Cost to Buy a Home?

Once you have approval and you are in the final stages of your financing process hold off on making big purchases for that new home. Many times lenders will check the credit status of the buyer right before closing to further insure the buyer is in good shape to assume the loan payments.

Buying a home is indeed an exciting but huge decision and with more knowledge comes more power, which helps to put nerves at ease. Do your homework and ask a lot of questions to ensure you are on the right track to securing the money to purchase your next home.  Buying agents and lenders are a great tool to help you get answers to your questions.

Tammy Emineth is a writer, blogger, and real estate marketing expert for over 15 years. As a former real estate agent, Tammy possesses the knowledge and expertise to produce content and relevant information about the real estate market and how to market real estate websites and brokerages.
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