If you are looking into buying a home, you will need a way to finance it. Fortunately, there are lots of options to choose from when it comes to home loans, so the chances are good that one will work perfectly for you. But before you commit to a loan, you should take these steps to ensure you are getting the best loan for your situation.
Keep Track of Your Credit Score
Even if you are not considering buying a house for several months or years in the future, you should find out what your credit score is. Otherwise, you risk finding out that your score is not what you thought it was, right after you find your dream home. Or worse, you might discover that your identity has been stolen and your credit ruined – and “you” might already have a house, at least according to your credit report.
To avoid this issue, set up a credit monitoring service so you can be alerted of any changes in your score. Take note that though a score of about 720 or higher is best for the lowest interest rates, it is possible to get financing for a house even if your score is as low as 580. You will just either pay more interest or need to put more money down.
Know the Loans Available to You
Many buyers are interested in a conventional home loan with a fixed rate. This is often the most straightforward financing option. You can choose either a 30-year loan or a 15-year loan, and in most cases, you need a 20-percent down payment with this option.
If having the same payment every month is not important to you, an adjustable-rate mortgage might suit you better than a fixed rate. With this type of loan, the interest rate is often lower the first few years – making the payments lower for you – and then it gets raised after a few years.
You can also look into government-backed loan programs. For example, an FHA loan is of interest to many people because it only requires a credit score of 580 and a 3.5-percent down payment. If you don’t have the money for a down payment at all and are a veteran, you can get a VA loan, which allows you to finance the entire mortgage.
These are just a few of your home loan options. You can talk to your bank to find out more and to get advice on which one would be right for you.
Get Preapproved for a Loan
Once you are aware of all the ways in which you can finance a house, you should get preapproved. This will give you an idea of how much you can spend on a house so that you only consider properties within your budget when you start looking at homes. Your current bank can offer you preapproval for a house, or you might choose to go with a credit union if you want a particularly low interest rate.
Once you get any finance questions answered, be sure to contact a real estate agent before you start looking at either new construction homes or existing properties for sale. He or she will not only show you some homes for sale, but can also give you information about other expenses you’ll have as a homeowner, such as insurance, HOA fees, and more.