There is so much to know when purchasing your first home. I am excited to welcome Kevin Robinson, the owner and mortgage loan officer from Capital Home Loans to discuss the home buying process and mortgage loans.
When Do You First Make Contact with a Mortgage Lender?
Ideally, it is best to connect with a lender before you start looking at homes. The lender will be able to give you a much clearer look at the mortgage you will be approved for when you buy your first home. Along with giving you a pricepoint for homes you should be looking at, the lender will also provide a pre-approval letter that will accompany any offers you make on a property.
How Do You Choose a Lender?
It is important to consider using a local lender that has the ability to shop the market for you. While banks are sometimes the obvious choice due to your checking accounts, their products and offerings can be limited. A broker like Capital Home Loans can shop 5-10 lenders on your behalf with only one credit inquiry.
What is a Pre-approval Letter and Why is it Important?
A pre-approval letter gives you a solid idea of what you can buy. It should accompany any offers on a property to give the sellers confidence that you are financially able to complete the purchase.
What are the Most Common Loan Options?
– FHA (Federal Housing Administration) Loan
This is a great option for first time home buyers but is not a requirement that they use it. You don’t have to be a first time home buyer to use it either. This government loan is great if you don’t have a lot of cash upfront. Homebuyers can put down as little as 3% with this loan. The bank is often more strict with the condition of the home with this type of loan since it does pose a higher risk.
– VA (Veterans Affairs) Loan
This government loan is available for US veterans. It requires as little as no money down when purchasing a home and offers aggressive interest rates for those who qualify. Talk to your lender to learn all of the details around this loan.
– Conventional Loan
This type of mortgage is not guaranteed or insured by any government agency (like FHA, VA, and USDA). You can put as little as 3% down in most instances and the PMI is cancellable once the homeowner hits 20% into the property.
– USDA (United States Department of Agriculture) Loan
This government loan is available for homebuyers in rural areas of the country (USDA must approve the location). This is a great option for citizens living in rural areas that struggle to meet the requirements for a conventional loan. This mortgage offers zero money down and aggressive interest rates. Work with a local lender to determine if you qualify.
How Much to Put Down When Buying a Home?
Many first time home buyers believe that you must make a 20% downpayment to purchase a home and this is a myth! As I highlighted above, there are mortgage options that offer zero money down or as low as 3% down to qualify for a loan.
What is PMI?
PMI stands for private mortgage insurance that is required to be paid when you finance more than 80% of the purchase price (putting less than 20% down). PMI rates have dropped recently and there are multiple options. Every loan has different requirements for PMI so it is important to consult with a knowledgable lender to guide you through this process.
What are Points?
The term “points” is a fancy word for providing more cash upfront during the home purchase. Essentially points allow you to buy down your interest rate by paying for fees like closing costs. Sometimes this option makes sense and is another great example of why you should work with an informed, local lender.
What is the Current Interest Rate? Will it Go Up?
Depending on a buyer’s credit score, rates are in the 3% range at this time. This is the lowest interest rate we have seen in a long time and should stay in this range for the remainder of 2020 because it is an election year. There is a higher chance that rates could go up in 2121 because they are at an all-time low right now, but predicting the interest rate is like predicting the weather, you just don’t know for sure.
What Should I Avoid When Buying a Home?
Once you get a property under contract, it is really important to avoid any major changes to your debt or income. This includes opening up credit cards, buying a new car, shifting large sums of money out of your account. The same goes for new income during that time period. An example of this would be depositing large sums of money from an inheritance.
I want to give a big thank you to Kevin Robinson for sharing all of his valuable knowledge with us! Capital Homes Loans serves Michigan and Ohio – to connect with Kevin and his team, visit Captial Homes Loans site for all contact information. If you are looking for a realtor in the Ohio area, I would love to connect and help you buy or sell a home!
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