Real Estate Weekly - Home » Financing Information
Financing a home can be confusing. A lot of options are available, and you have to make the best choice. A REALTOR can help you determine which choice is right for you; however, we have provided some basic financing information for your consideration.
Your first step in financing a home is to determine your purchasing power. You can start this process by using our mortgage calculator. This calculator considers your income, your current debts, and your credit in order to compute the maximum amount you should borrow. This amount may be less than what a bank or a REALTOR will state that you can borrow, but keep in mind that this number is a general estimate. No matter how much you decide to borrow, though, you must be able to repay that money.
Once you have a general idea of how much you can borrow, you are now ready to visit with a lender. You should take all of the documentation you will need. Required documentation can include, but not be limited to, your social security number, proof of income, records of assets, and recent paycheck stubs. You should call your lender and ask what documentation will be required for the financing process.
Now that you are ready to meet with your lender, you may be wondering about the different mortgages that are available. You have probably heard of adjustable and fixed-rate mortgages. These are only two kinds of mortgages for which you can apply; others are available.
- Adjustable-rate Mortgage: a mortgage in which the interest fluctuates according according to changes in the market. This type of mortgage has more risk associated with it since its dependent on the market and your income. If you are certain that your income will steadily increase and are not concerned about the market, you may want to consider an adjustable-rate mortgage.
- Balloon Mortgage: this mortgage offers a lower interest rate for a shorter period of time - usually five, seven, or ten years. At the end of this time period, you will either have to refinance your mortgage or pay off your outstanding balance with a lump-sum payment. Like ARMs, these loans have a higher risk.
- Fixed-rate Mortgage: a mortgage in which the interest rate is "fixed," that is, it cannot be changed for the duration of the mortgage. These mortgages typically have a repayment term. The most common terms are fifteen years, twenty years, and thirty years.
- Government Loans: these loans typically have restrictions related to them. For example, you often have to be a first-time homeowner, or you have to be below a certain income level.
- Reverse Mortgage: a mortgage that involves selling the equity in a home while retaining the right to live in the home until death. A reverse mortgage turns a home's equity into regular cash payments. Reverse mortgages often have an age restriction and some of the disadvantages associated with them outweigh the benefits.
The next step in the financing process is to be pre-approved for a loan. This can take several weeks, so be patient. If you are not approved the first time, do not worry. Reevaluate your purchasing power and try again in a couple of months. If you are approved, you have successfully completed an essential step in owning your own home. If you are not ready to purchase a home, remember that you do not have to accept the loan for which you have been approved. Merely being approved for a loan is beneficial; it makes you and your offer much more attractive to sellers.
When you take the next step in the financing process - making an offer - you have moved into the final aspects of purchasing a home. You are now ready to negotiate the price of a property and other factors, such as terms and date of possession. After negotiating these items, you will proceed to the final step, closing your transaction.
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