Buying your first home is a life-changing event. Though the process can be confusing, the first time around, and fairly time-consuming, the rewards are great. A home is an investment, which provides not only a place to live, but also many tax benefits and equity which can increase, making you passive money over time.
Using a Realtor
Using a Realtor is an excellent idea, especially when buying your first home. A Realtor will hold your hand through the entire process of looking at homes, applying for loans and closing escrow on the house of your choice. They are also knowledgeable about school districts, traffic, new housing being built and the different types of loans you can get. You can find a Realtor through the National Association of Realtors or though local Realtor associations in your area. The Home Buying Institute recommends asking friends and family to refer you to a good Realtor so you know the Realtor has a positive reputation.
Types of Loans
There are many different types of loans available to first time home buyers. Conventional loans, FHA loans and VA loans are the three most popular types. According to the Department of Housing and Urban Development, conventional loans generally require 20 percent down payment. FHA loans are backed by the Federal Housing Administration. They require as little as 3.5 to 5 percent down payment but include a monthly private insurance payment that the borrower is required to pay. VA loans are only available to qualified veterans. VA loans do not require a down payment, but require a funding fee to be paid by the veteran.
Down Payment
When you are about to get your first home loan, the last thing you want to think about is a large down payment. Yet, a down payment is a very important aspect to consider, as how much money you put down affects what type of loan you can get and the amount of money you will owe on the loan. Think about how much money you have in your savings accounts and any other assets you may have, such as a Roth IRA, which can be used to purchase your first home as well. Determine how much money you are able to put down on a house, so that you can see which types of loans would work for you.
Fixed or Adjustable Interest Rate
Understanding the difference between fixed and adjustable rate mortgages is essential before applying for a home loan. The Department of Housing and Urban Development explains that fixed rate mortgages involve an interest rate that stays the same during the entire life of the loan, whether it is 15, 20 or the most common, 30 years. Fixed interest rates provide security for the borrower because he knows exactly what mortgage payment to expect every month. Adjustable rate mortgages, also called ARMs, usually start out with low interest rates but then adjust to higher interest rates later on.
Loan Application Process
When applying for a specific type of loan, there are several things that you will need to show the lender, in addition to filling out the loan application. The Department of Housing and Urban Development states that lenders generally need to see a potential borrower's checking and savings account statements from the past six months. They will also check Social Security number any assets that the borrower has, such as an IRA account, bonds or stocks. The lender needs to verify your income by checking pay stubs and will also probably want to see credit card statements, loan statements and income tax returns.
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