Today, there are more banking options for financing a home than ever, and you have to shop around for the best rates and services before selecting a financial institution to do business with.
You should know that banks have different loan products, provide different services, and offer different incentives for home buyers. No two lenders are alike. Take the time, do the research, and find out which lender will give you the best deal.
Here’s the best part: lenders know you’re shopping around — it’s not a secret! They want to be competitive and they want to earn your business. Don’t be afraid to ask questions and make sure you absolutely, positively understand everything you sign.
Are you a 1st-time home buyer? A veteran? What about a teacher, a police officer or firefighter? There are programs available to help some buyers pay for down payment or closing costs. Be sure the lender you choose is knowledgeable about these programs and can advise you on programs that match your circumstances.
5 Tips For Home Buyers Financing A Home
Financing a home and completing your purchase can be a complicated process. As an agent, I strive to not only assist my clients but also to make sure you understand the home buying process.
Here are some more helpful tips to help you get started:
- Understand your personal finances and how lenders evaluate credit worthiness
- Research and understand the language of lending
- Determine how long you expect to keep your loan and how much risk you are able to accept
- Shop not only based on low cost financing but also on a high level of service
- Compare lenders
Find Out How Much Home You Can Afford — Get Pre-approved
When you are financing a home, getting a pre-approval letter from a lender is your ticket to begin the home search in earnest. In short, it tells you how much home you can afford, and it lets the world know that you have the green light to begin the process. Without it, you won’t know how much you’re able to borrow from a bank and sellers won’t take your interest in their home seriously. What’s more, you could spend time searching for one million dollar homes — and falling in deep, deep love with one million dollar homes — only to find out the bank will approve you for a lot less. Talk about a major let down and a major waste of time. For these reasons and more, most Realtors will not show buyers homes without a pre-approval letter in hand.
Be prepared to provide the loan officer or mortgage consultant with all documents that verify your employment history, income, credit history, assets, and debts. Remember, a pre-approval should be complementary, i.e., free of charge. Don’t waste time with a lender who charges a fee for this service.
How Do I Solve The PITI Puzzle?
PITI is shorthand for principal, interest, taxes, and insurance — the four fundamental components of a mortgage payment. Of course there are other costs as well: home owner’s association fees and/or condo fees, utility costs, and ongoing maintenance and upkeep of the interior and exterior of your home just to name a few. However, PITI is the core equation you should embrace when you’re ready to begin the process of financing a home.
The Principal — this is the amount of money your borrow from a bank to purchase a house. If the house you buy costs $200,000 and your downpayment is 10% ($20,000), the principal balance is $180,000.
The Interest — or the interest rate, this percentage is the amount of money the lender charges you for the money you borrowed.
The Tax — or property tax, this is the tax homeowners pay to their state and county as long as they own the home, and it’s based on a percentage of the value of your house.
The Insurance — this is insurance you are required to have in order to buy a house. Homeowner’s insurance covers your house and your personal property against losses from fire and theft, for example.
Develop a good relationship with your lender and don’t be afraid to ask questions. You don’t need to be a math wizard, but you should have a clear understanding of what the upfront costs are to buy a house and how much it will cost you to stay in your home for many years to come.