Financing a new home can be an overwhelming process. Many first-time home buyers are making the biggest financial commitment of their life while struggling to learn new terminology and concepts along the way.
In the wake of the housing bubble collapse, it is more important than ever to understand exactly how the home financing process works. This involves everything from credit scores, loan pre-approval to variable interest rates and budget management.
For this reason, we have assembled a list of financial resources for interested home buyers to get their feet wet. Check out our Real Estate Glossary for a comprehensive list of terms or get quick answers to important questions by checking out our list of home financing tips below!
To qualify for a home loan at all, you will need to have an average credit score of 620. A score above 750 is preferable if you want to qualify for favorable mortgage rates. If you are new to the idea, credit scores are basically a collection of information on how reliably consumers pay back debt.
Think of it like a grade for how consistently you pay your bills. Banks use them to determine whether you are worthy of a large home loan. The credit scores used by banks are compiled by three national credit reporting bureaus:
By federal law, you are allowed a free copy of your credit scores once a year. Make sure you get the most recent credit report before you apply for a home loan. Download a copy of your free credit reports here.
Banks/lenders want to see a long history of loans and repayments (especially through credit cards) before they will give you a decent score. Here are several good resources explaining how to improve your credit score:
When you take out a home loan, the bank will usually retain the right to repossess the house if you fail to pay back the loan. This conditional right is called a mortgage. The interest that they charge you on each monthly payment represents the mortgage rate.
Mortgage rates differ between lenders and over time. It is important to shop around for the best mortgage rate when you are buying a home. The lower the mortgage rate, the less you will have to pay in the long run!
However, lenders may try to trick you with hidden conditions that allows them to change the mortgage rate over time. Here are some great articles that will help you understand how a mortgage works:
After you figure out which mortgage plan is right for you (fixed vs. adjustable) you will need to calculate how much that mortgage will cost you. Is it really within your reach?
Fortunately, there are many free mortgage calculators that allow you to input all the variables and get an accurate summary of the final cost. This is important for month-to-month financing and getting the best overall cost. Here are 3 flexible mortgage calculators to look into:
With this information in hand, you will be well on the road to buying your own home. The home buying process can still be tedious, but becoming self-educated is the key to controlling your own destiny. If you are interested in learning more about home financing or have specific questions about the Bay Area real estate market, Contact Us at (888) 315-6320 today.