The Home Buying Process De-Mystified
Knowledge is power when searching for a home. Owning a home is a dream, a commitment and, frankly, a part of life that can become confusing at times. But it doesn’t have to be that way. PrimeWay Federal Credit Union starts you off with some information about the searching, buying and financing processes so you’re clear-headed and not overwhelmed by what you see and hear.
What is a Mortgage?
It has taken some time, but you’ve found the house that fits your needs. Now that you’re ready to close, you’re hearing all kinds of mortgage terms thrown at you… ARMs and FRMs, zero-down options and jumbos. What does it all mean?
PrimeWay Federal Credit Union can help you figure it out. Let’s review the most common mortgages available.
This is the classic mortgage in the United States and considered the easiest for borrowers to comprehend. With the fixed-rate mortgage, the interest rate you pay remains the same over the life of the loan, typically 15 or 30 years. This option provides the most predictability in terms of what you’ll pay month to month on your principal and interest, but your interest rates will be higher than another popular option, at least at the beginning.
Commonly referred to as ARMs, the adjustable-rate mortgage usually offers a low “teaser” interest rate that will remain in effect for a finite period of time, say, between one month and one year. Then the interest rate floats, meaning it could rise or fall based on any number of indices the lender may employ. The benefit is that borrowers have a lower initial payment, but they must be willing to absorb the impact of interest rate changes that could push their mortgage payments higher in any given month.
Simply put, these are mortgages that exceed $510,400, as of 2020, for most of the U.S., including Texas. The threshold is set by Fannie Mae and Freddie Mac, two government agencies that purchase the bulk of U.S. residential mortgages from lenders so that money is freed up to offer more mortgages to the public. A mortgage becomes “jumbo” when it exceeds the conventional conforming loan limit.These loans are considered higher risk for the lender because the homes often are more difficult to sell quickly at full price to recoup losses when a loan defaults. Jumbo mortgages also often come with a higher interest rate and may require a larger down payment than other mortgages.
Zero-Down Payment Mortgages
These mortgages mean the borrower will finance 100 percent of the cost of the home and bring no down payment to the closing. An alternative to this is a low down payment mortgage where the buyer provides a 3 percent or 4 percent down payment, for example. These are popular options for first-time home buyers who simply haven’t saved up enough money for the traditional 20 percent down payment, or who want to use their money to furnish their home after purchase.
What to Expect as a First-Time Home Buyer
Excitement. Anxiety. Stress. You’ll feel it all as you go through the process of buying your first home. But at PrimeWay Federal Credit Union, we’re here to help you along the way by answering questions about our mortgage options and providing any guidance we can. You’ll want to do business with a lender who is interested in thoroughly explaining your options and what goes into your monthly payment, rather than a lender who’s solely interested in making money off of you.
Three Important Steps
- Find the right lender
- Figure out how much house you can afford and get pre-qualified for a loan
- Talk with family members and prioritize the house’s most important features
Should You Hire An Agent?
Since it’s your first time buying a home, it’s probably a good idea to connect with a reliable real estate agent who can appraise the newest homes on the market and act in your interest during negotiations. In some cases, sellers won’t show their homes to potential buyers who aren’t using a real estate agent. And if you’re concerned about the agent’s cost, consider that in nearly all cases, the seller covers the buyer’s real estate agent fee.
When you find the right house, prepare to negotiate on selling price. You may go back and forth several times with the seller until both sides agree on the final price. Once you’ve reached that point, hire a quality inspector by getting references from friends, family and your real estate agent. Based on the inspector’s report, you may go back to the seller and request a drop in price or request that the seller make repairs before the closing.
But the seller is in control, too, and may stop negotiations with you if a better offer comes along. That’s why it’s best not to get too emotionally attached to a house. And it may be prudent to find a second option in case the deal fizzles.
Home Buying Tips
Know The Situation
Searching for and purchasing a home can be a daunting task, especially if you’ve never done it before. While you should be alert during the process to avoid poor financial decisions, there’s no reason to feel undue stress. After all, buying a home is one of life’s great accomplishments for many people, so remember to enjoy the moment!
Loan Pre-Approval From PrimeWay
One of your first steps should be to get your financial documents in order and seek pre-approval for a loan from PrimeWay Federal Credit Union. This process will determine exactly how much money you can borrow based on your employment and credit history. PrimeWay Federal Credit Union’s loan officers will help you determine which of our multiple mortgage products best suits you.
Price Range And Priorities
While you’re going through the pre-approval process, you should also have an idea of your price range for purchasing a home. A house on the low end of your scale will mean smaller monthly payments, but could also mean getting into a fixer-upper. A house on the higher end comes with the commensurate price tag. It’s important to work with a reliable real estate agent who places priority on your interests, not his or her pocketbook.
Then you should rank your own priorities. What’s most important? Size of the house? Location? The amenities in the home and surrounding neighborhood?
Determining The Real Cost Of Owning A Home
When you’ve found the right house, keep in mind that the selling price is not the true cost of the property. When you take out a mortgage, you’ll be paying the loan’s principal along with interest. Plus, there are local property taxes and insurance costs to consider. Talk to your PrimeWay Federal Credit Union loan officer and real estate agent to get a handle on the exact monthly costs of owning that home.
You may also need to involve an attorney, who can verify whether there are any tax liens against the property. Also consider that your monthly costs will increase if you need private mortgage insurance (PMI), which is required for all conventional mortgage loans with less than a 20 percent down payment.
PrimeWay Federal Credit Union provides multiple financial calculators to help you figure out the costs of buying a home. You can compare a fixed-rate mortgage with adjustable-rate mortgages, determine the annual percentage rate on your mortgage and compare the costs of a 15-year mortgage with a 30-year mortgage.
Finding and financing a home is one of life’s major decisions. It’s important to go into the process with a solid plan.