- Get Pre-Approved
The first step to complete when you have decided to purchase a home
is to should speak with a lender. The lender can
help you determine what type of loans you qualify for and how much
you can afford. The loan type may also determine how much, if any, down payment you will need.
The lender can also check your credit score and credit report. The
lender may suggest you pay down some of your bills or make extra
payments on credit cards to improve your credit score and come back
in six months to re-apply. The better
credit history you have, the better mortgage rate you qualify for.
Most importantly, the lender determine the amount you qualify for.
This amount can be used by the REALTOR to help you find a home in
your price range.
Common loan types are:
- Adjustable Rate Mortgage (ARM)
This type of loan has a changing interest rate - hence the name. The
rate changes based on the the changing market rates. The interest
rate may go up or down. As the rate changes so do you monthly
payments. This type of loan is commonly used when interest rates are
high but rates are expected to drop.
- Convertible ARM
Similar to the ARM, this type of loan offers an option for the
borrower to change the mortgage to a fixed-rate mortgage during an
early interest rate adjustment period.
This type of loan is similar to fixed-rate mortgage loans, however,
the payments are based on a much longer term. This allows your
payments to be much lower than normal. For example, if you have a 15
year balloon mortgage, your payments may be based on a 30 year
mortgage. Your payments may pay only interest and virtually no
principal. At the end of the loan term the balance is due in full.
- Fixed Rate
This is the traditional mortgage loan in which the buyer contracts
for a specified interest rate over a specified period of time - such
as 15 or 30 years. The terms of these loans are generally longer
than with other types of mortgages, which enable a lower monthly
payment. This allows for lower payment-to-income ratios, which means
more people are able to afford to buy a house, particularly buyers
with low-to-moderate income levels.
These loans are government-backed by the Federal Housing
Administration. They are available to buyers with little savings for
down-payments and to those who have been deemed too risky by
- Interest Only
These loans require no principal reductions, making the monthly
payments significantly less than a traditional fixed rate or ARM
program. This type of loan is generally great for anyone planning to
flip a home in a short period of time.
This loan is for qualified veterans and requires only limited
financial resources for down payment. These loans are backed by the
US Department of Affairs.
This loan is for qualified buyers and properties. It allows the purchase of a home
with zero down. Homes must be in a
area and meet other criteria.
- Jumbo Loan
This loan type generally exceeds $333,700. This loan typically
carries slightly higher interest rates. Consumers who are close to a
jumbo loan limit may want to increase their down payment or use a
piggyback loan to reduce their loan amount.
- Piggyback Loan
Piggyback, or combo, loans, combine a standard mortgage loan with a
second mortgage or home equity line of credit. Each loan has its own
note, including repayment term, interest rate and monthly payment.
- Find A REALTOR
Find a REALTOR you trust and are comfortable with. If you don't know
a REALTOR, ask your friends or family for a recommendation. Tell the
REALTOR you have already spoken with a mortgage lender and have been
pre-qualified. Use this REALTOR as your "buyer representative". This
means the REALTOR will assist you in finding a home and assist you
in negotiating a low price. The REALTOR will have many questions for
you, such as...
- the price range you have been
pre-qualified for. This allows the REALTOR to narrow the recommendation
- the home specifics. This includes the number of bedrooms, baths,
garage, color, etc..
- the home location. The neighborhood one lives in is very
important to many people. If you have a preference, let the REALTOR
know the specific community or neighborhood you'd like to live in.
- Go Home Shopping
When viewing homes don't be afraid to ask tough questions. The
purchase of a home is one of the most important purchases you'll
ever make. Your home is an item that will take several years to pay
for and you will live in for many years. Use the REALTOR to help you
in the search process.
- Place an Offer on the Home
Once you have found the home you want, the REALTOR can help you
negotiate a low price. Allow the REALTOR to write an offer for the
home. The REALTOR can write the offer while keeping financing, home
inspections and fixtures in mind. A home inspection may be
recommended to find defects not visible to the average home buyer.
If the seller accepts the offer, it becomes a contract. The REALTOR
will notify you immediately once he/she has been notified of the
acceptance or rejection.
- The Closing
The closing is the result of all your hard work. This is when you
formally take over ownership of the home. The closing will typically
bring together an attorney, the REALTORs involved, the current
homeowner and, of course, you. The attorney will guide you and the
seller through all the paperwork and ensure everyone signs and dates
in the proper locations. Read the paperwork and ensure it reflects
the details of your loan and the home itself. Remember something you
were taught in elementary school - "There are no stupid questions".
* Some content courtesy of Tennessee Homes, April-May