Understanding Your Mortgage
To get started, you should familiarize yourself with what a mortgage is. The majority of buyers need a mortgage in order to afford a home. The good news about mortgages is that there are a wide variety of options to choose from. They differ based on each lender and what each buyer brings to the table. It is important to understand what you are looking for in a mortgage. You should also do your research to ensure you are getting the best deal available to you.
Types of Mortgages
There are four basic types of mortgages used by buyers in search of a home.
Conventional Mortgage:
This is the most common loan for buyers with good to excellent credit who can afford to put down around 20% of a home’s purchase price upfront. It is important to note there are other programs that grant different options for a lower down payment based on the individual buyer’s credit and location.
FHA Mortgage:
Next up, we have the FHA mortgage. These loans are usually offered to buyers who don’t have as high of a credit score. With this loan, buyers are often allowed to put down a very low down payment, sometimes as low as 3.5%. They also offer lower interest rates compared to other home loans. However, an FHA mortgage will also require private mortgage insurance. These premiums can result in an overall higher cost for buyers than that of a conventional mortgage.
VA Mortgage:
This type of loan is available to all veterans and active military members looking to buy a home. These mortgages will offer up to 100% financing, a simplified loan approval process, and lower interest rates. At times, they can be much lower than standard conventional loans. This is a wonderful way to thank our service members with a 0% down payment towards the home of their dreams.
USDA Mortgage:
USDA mortgages are available to buyers who purchase in a rural or low-density areas. This type of mortgage offers up to 100% financing and below-market interest rates. Ideally, these loans go to buyers who make an average living, have lower credit scores, and are buying modest homes. The good news is that the government chose a very lenient definition of the term “rural”. This means that for our local buyers, the smaller towns surrounding Raleigh, Rolesville, and Wake Forest will qualify for this loan.
What Does a Mortgage Include?
There are four key elements that go into a mortgage payment. You may see this called the “PITI”. “PITI” stands for principal, interest, taxes, and insurance. These are four very important things to be aware of when purchasing a home.
Principal:
The principal is the repayment of the initial amount that you borrowed from your lender. In layman’s terms, this is the original price of your home.
Interest:
Interest is a payment to the lender for borrowing money. This amount is based on the interest rate you were given when you agreed to the loan. This is why it is important to find a low rate, as interest payments can quickly add up over time.
Taxes:
The annual city and county taxes for your property are divided by the number of mortgage payments you make in a year and added into your loan. Usually, this is just divided by the number of months in a year.
Insurance:
Your monthly homeowner’s insurance that protects your home against various risks is also added to your mortgage payment.
Understanding Your Options When Going Loan Shopping
When shopping for a loan, it is imperative that you do your research before you make a decision. This means meeting with at least two different lenders (or more!) to ensure that you are getting the best rate possible. Before choosing a loan or a lender, make sure that you understand the two separate types of interest rates that are offered by mortgage lenders.
Fixed-rate mortgage:
This type of interest rate is perfect for someone who likes to make consistent payments that will not fluctuate depending on the market. The interest on a fixed-rate mortgage will not change, which will make payments predictable.
Adjustable-rate mortgage:
This type of interest rate is designed to be lower initially, but it could result in higher payments over time. These interest rates will fluctuate depending on the market, which makes them unpredictable and sometimes volatile.
Calculating Your Monthly Budget
After learning about the various loan options, down payments, and what your interest rate could be, it’s time to determine your monthly budget. The previous knowledge gained will allow you to determine what you can afford to pay every month. Establishing a monthly budget will give you a price range to stay within when searching for your dream home!
Don’t forget that your mortgage costs are based on the price of the home and the current interest rates. A home may be affordable one day and then out of your price range a few months later due to interest rates constantly shifting.
Find an Agent You Can Trust
It is immensely helpful to have someone walk you through the process to make sure you understand everything and don’t get taken advantage of, especially if you are a first-time buyer! The person you choose to be your agent should be someone you trust. Ideally, they should be an expert in real estate around the area in which you are searching for a home.
Now It’s Time to Hunt for Homes!
Ready to shop for homes in the Raleigh, Rolesville, or Wake Forest area? Here is where the fun begins! This is the time that you get to decide exactly what you want and need in a house. You choose what type of home or townhouse you would like, what neighborhood you want to reside in, and all of the amenities you must have! We recommend keeping a detailed record of every home you visit, making sure to note the things you don’t like just as much as the things you love about a home. Taking pictures is also a great way to keep your memory fresh!
Tip: Look at comparable prices of homes in your desired neighborhood, as well as recent sold prices. This will give you a clear idea of how affordable a location actually is!
Make an Offer
Once you have found your dream home, it is time to discuss making an offer with your agent. It’s important to work with an agent to help you determine an affordable offering price. Once you have done so, then consult with the agent to ensure that your offer is still competitive enough for the seller to accept and not immediately dismiss.
What Will I Pay Upfront?
Earnest Money:
Earnest money can be thought of like a security deposit. It’s submitted along with your offer to show the seller how serious you are about the home. This is usually around 1% of the home’s sale price. Once the offer is accepted, it is applied to the down payment or closing costs.
Down Payment:
This amount of money is determined by how much you have saved up in the bank, as well as the loan you select. Your down payment could also be determined by any government programs or assistance that you have requested.
Closing Costs:
Closing costs tend to be low for buyers and usually just represent the fee that is associated with paperwork and any lender charges.
Request a Home Inspection
If the seller accepts the offer, then it is time to request a home inspection. Before you sign the closing papers, you will want to have an experienced professional walk through the home to ensure there are no maintenance issues that might not be visible at first glance. You do not want to be responsible for any serious maintenance or structural issues right after you move in. You can request that the seller repair any issues the inspector finds, adjust the final price, or issue a credit for you to make the repairs.
Review Your Contract
Before you sign on the dotted line, it is extremely important that you read over the contract with your agent or lawyer to ensure there are contingencies. In other words, if something were to fall through with your mortgage, then you are not obligated to buy the home.
Finalize Your Mortgage
Once you have chosen the best lender for your needs, you should work with the lender to submit a mortgage application. You will also need to have the home appraised and review what the predicted closing costs will be. Typical closing costs on a property include attorney fees, title insurance, appraisal fees, home inspection fees, courier fees, government recording fees, and taxes.
Pay, Close, and Pick up Your Keys!
Congratulations! This long process is coming to an end. On closing day, you will meet with your agent, lender, and the seller to finalize the paperwork, sign your contracts, and pay your down payment and final closing costs. Once you have your keys, it’s now time to go enjoy your new home!
Still Have Questions About Buying Your First Home in the Triangle?
That’s alright! This is a huge step in the next chapter of your life, and we are here to be of assistance. Don’t hesitate to contact us today with any questions you might have! Want to research more about the home buying process? We have tons of resources to help you out