It is easy to want to rush headlong into purchasing a new home. After all, this is the moment you have been waiting for. You finally have the financial stability that you’ve been working toward, and you are ready to take the next step toward creating the ideal life for yourself or your family.
But are you ready? A lot of consumers start looking up mortgage rates and contacting realtors without knowing what they are getting themselves into—and wind up paying a lot more than they need to for a home.
Following are 5 facts which you might not know about buying a home—but which you should know if you want to ensure that you are getting the most affordable loan with the most favorable terms.
1. The mortgage rate is not the only thing that matters.
While you are scanning through mortgage rates, you may be missing something that matters even more: the APR. APR stands for “annual percentage rate,” and provides you with a more global picture of mortgage costs.
When you are looking at mortgage rates, you are just looking at interest rates and premiums. But you need to also know how much a mortgage is going to cost you in terms of fees, points, and so on.
These are incorporated into the APR, so the APR is a more accurate reflection of the ultimate cost of the mortgage. Many lenders with low mortgage rates are counting on you to completely ignore the APR. That way they can trap you with fees later down the line. So, make sure you pay attention to the APR and check out all the costs of a home loan.
2. PMI is usually required if you put down a down payment of under 20%.
Excited because you have found a loan which allows you to provide a lower down payment than the traditional 20%? Loans like these can be very helpful if you do not have a lot of money in the bank, but be forewarned that they can come at a cost.
If you do not provide a 20% down payment, you usually will have to take out private mortgage insurance (PMI), and pay a monthly premium. There are however some exceptions, like VA loans. With a VA loan, you have no down payment and no PMI requirement.
3. There are government programs to help you.
As just mentioned, there are some programs like VA loans which can help you to qualify for a mortgage with favorable terms even though you might not otherwise.
VA loans are available to active duty service members, veterans, and even members of the National Guard. With a VA loan, it may be easier to qualify for a loan, and your loan may include a lower interest rate. You also have no down payment or PMI to worry about.
An FHA loan is a similar program available to first-time home buyers, backed by the Federal Housing Administration. You still must pay a down payment, but it is only 3.5%, and other loan terms are competitive as well.
4. You need to be careful with credit while you are applying for a mortgage.
Did you know that if you head to the furniture store and purchase a bunch of items for your new home on credit while your mortgage is pending, there is a chance that you could end up rejected for financing?
This is something a lot of homebuyers are completely unaware of. Try not to lean on credit until the entire approval process is completed and you are all signed off on your home loan.
5. Your mortgage is just one of the costs you need to account for when you evaluate whether you can afford to buy a home.
Finally, many people make the mistake of thinking that their mortgage cost is the same thing as the cost of buying a home. It really is only one piece of the equation however. Along with the mortgage amount, there is also the interest. How high that ends up being depends on the terms of your loan. Then there are opening and closing costs to deal with and any other fees which might apply.
Outside of those costs that are directly related to your mortgage, there are a ton of other costs to deal with as well. Don’t forget about your mortgage insurance, homeowner’s insurance, and the costs you may need to pay to repair and improve your home. You also need to pay to furnish it, and there is the cost for cookware and appliances. Then there are utilities, property taxes, and so on.
Buying a home is a big decision, and it is a complicated one. That’s why you need an experienced Phoenix, AZ mortgage broker on your side to help you evaluate your financial situation and determine the best type of home loan for your needs. Give us a call today at 602-953-6677, and we will assist you in circumnavigating the pitfalls involved with buying a home and make sure you understand the full costs involved!
