When looking into purchasing your very first home, there are a lot of things to think about. While the whole process can seem a bit overwhelming, with a bit of research and patience, you are bound to locate something that will fit nicely into your family’s budget. Today we are going to discuss a few of the basics every future homeowner should know and prepare for before taking the leap into the mortgage world.
Fixed versus Adjustable Rate
If you are looking for predictability and consistency and plan to stay in the residence for a long time, then a fixed-rate loan may be your best bet. This type of loan consists of a monthly payment and interest rate that do not change throughout the life of the loan. However, adjustable rate loans may be more in your favor if interest rates in the market are high or you do not plan to live in the residence for very long. The interest and monthly payments on adjustable rate loans will remain the same for a specified amount of time (such as five years) and after that will change depending on the market.
Choosing a Lender and Customizing Your Loan to Fit Your Needs
Fixed and adjustable rate mortgages are two of the most commonly discussed solutions, but there are many more to choose from, such as interest-only and balloon mortgages. When locating the right lender, it is important that you select someone who specializes in the type of mortgage you are interested in taking part in. As you are shopping around, be sure to check out the current rates offered by various lenders before making your final decision. Rates can literally change on a daily basis, so it’s important that when you find something you like, you jump on it. Be aware that before you officially ‘lock in’, the numbers can continue changing so do so quickly when the time is right.
Now that you have the type of loan and lender in mind, it’s time to think a little deeper. The more money you can put down up front, the lower your monthly payments are going to be. For this part of the process, it is extremely important that you do not overextend your budget. Put an amount down that your family can live comfortably with. Many lenders will offer you a lower interest rate if you are able to put down at least 20% of the total price of your new home. There are also lenders that will allow you extremely low down payments (as low as a few percent) if you aren’t able to pay a large sum up front. The best thing to do is ask. Make sure to look at the APR of your loan (or ‘annual percentage rate’) because this will help you plan your future accordingly. If you have an adjustable rate, this APR can change after a specified period of time so do not forget to keep that in mind when looking to the future and planning out your bills.