How to Finance a House
So, you’ve decided that it is time to buy a new home? Congratulations. Investing in a new house is one of the most important and exciting decisions you will ever make. If you have ever bought a house before, or if you have already done you’re research, you know that your first step to purchasing a new home is to obtain financing. For first time home buyers, the process of shopping for financing can be scary so let’s make things simple. Here are the 4 steps you must take when searching for a home loan:
Step 1: Educate yourself
When it comes to financing your home, the first thing that you will learn is that there are dozens of loan types, hundreds of loan programs, and thousands of loan lenders. Banks, credit unions, mortgage brokers, personal lenders, and financing companies are all potential lenders that you should look into. Educate yourself about each of the different lenders, the different loan types, and the different loan programs. The more knowledgeable you are, the quicker the process will be, and the better deal you will find.
Step 2: Determine your budget
Once you determine that you can afford to purchase a home, you must decide how much you can afford. While your lender can help you determine this, it is suggested that you approach the lender with a general ideal of your budget. When determining this budget, it is important to consider what you can afford now, as well as what you will be able to afford 20 years from now. If you overshoot your budget and get a mortgage that is too high, you may end up damaging your credit and losing your home. Another thing to consider when determining your budget is additional finances. Remember, when you purchase a home a mortgage is not the only payment involved. You will also need to consider insurance, taxes, utilities, and other home related fees.
Step 3: Shop around
As said previously, when it comes to loans, there are various places that you can go. Banks, mortgage brokers, personal lenders, credit unions, and financing companies are all willing to provide loans to those in need. When looking for a lender, it is generally suggested that you take your time and shop around. Accepting a loan from the first lender you find could result in you missing out on a better deal. When shopping around, be sure to ask each lender about their interest rates, their broker fees, their loan terms, their points, their credit report fees, their appraisal fees, and their prepayment penalties. Knowing your different options is key in getting the best deal.
Step 4: Apply for your loan
Once you have found your lender, the application process is simple. Your lender will inform you as to which documents you must provide usually including information about your employment stability, your income, and any other loans you may have. The lender is also likely to request a credit check, along with paystubs, bank statements, tax returns, insurance proof, and other personal documents. Once your information has been verified, your loan application will either be accepted or rejected and you will (hopefully) be able to officially purchase that new home you have been waiting for!