Buying a home can be an exciting time; sometimes a little scary and confusing, too. It is definitely more involved than finding a home on the internet and making a call or a contact with a real estate agent. You’ve got to prepare yourself by learning some of the terminology involved with buying a home and learn a bit about the process. Right now, homes are selling quickly and you have to move fast in order to get the home you want. The whole process can take months, too, so read up and be ready!
Pre-qualification & Pre-approval
Pre-qualification is a good thing, but not the same as a pre-approval. Pre-qualification gives you a good idea of what you can afford to buy. Pre-approval basically means the bank has told you they will lend you a certain amount of money, based on information you have provided such as tax returns, pay stubs and bank statements. Pre-approvals can add a lot of weight to your offer. It is important to remember that pre-approval is just that. It is not a done-deal, so don’t make any big financial changes or expenditures that would significantly alter your financial picture
Fixed-rate loans
As the name suggests, the interest rate obtained with this loan will not change over the course of 30 or 15 years – or whatever the term of you loan is. Your housing payment will not vary by much over even the course of 30 years – unlike your rent. (Imagine 30 years of rent increases…) Sure, taxes or insurance costs included in the housing payment might fluctuate a little bit, but that’s manageable. With rates very low right now, these loans are very popular.
Adjustable rate loans or ARMs
With this type of loan, you receive a fixed interest rate for a short period of time, maybe 5-10 years. This rate might be lower than one of a fixed rate loan in the beginning. After that initial rate period, your interest rate can fluctuate and be adjusted to current market interest rates. There is no way of knowing what those what those rates will be until it is time for adjustment, so there is some risk involved.
FHA loans (Federal Housing Administration)
FHA loans are often given to those with less than perfect credit. These loans often include low downpayment loans which can make it possible for to purchase a home on lower income/lesser credit. Here is information on one of the current programs.
Private Mortgage Insurance
If you do not put down 20% for a downpayment, you will have to pay a monthly fee – but not for forever. The PMI payments are usually discontinued when you have repaid 20% of the value of the home.
Much more to know:
There are many other terms to know: points, closing costs and earnest money, for example. The way these are handled can vary greatly, so it is best to talk these over with a local real estate agent. You can find a First Weber agent here. Find a First Weber agent
For more information for homebuyers, please see our homebuyer category on our blog.