If you are in the process of purchasing your first home, it is important for you to understand the truths of buying a home. Here are a few truths that you need to understand as you go through the first time home buying process.
#1 20% Down Isn't Always Necessary
The first thing that you need to understand is that 20% down is not always necessary anymore for purchasing a home. Many lenders will allow you to put down a smaller percentage for the loan, making it easier for you to secure a loan that is large enough for you to purchase the type of home that you want.
However, it is important to realize that there are consequences for putting down less on a home loan. When you put down less on a home loan, you are more than likely going to face higher interest rates as well higher long-term costs for your loan.
#2 New Credit Activity Can Be Harmful
Second, when you know that you are interested in purchasing a home, you need to make sure that you are not adding new credit activity to your credit report. That means that you should not apply for a new credit card in the months leading up to applying for a home loan. You should also not apply for an auto loan. Taking out and adding to your credit activity right before applying for a mortgage can make it look like you are taking on more debt than you should. It can also have a negative impact on your credit score as well.
#3 Plan For Closing Costs
It is important to realize that your down payment is not the only costs that you are going to be responsible for. You also need to make sure that you budget for closing costs as well. Closing costs are not as large a down payment, but could cost you up to about 5% of the loan. You are going to want to make sure that you have the cash to pay for the closing costs.
However, you can also try to negotiate with the sellers as well. This can allow you to get around the cost of paying closing costs, which can really save you a lot of money.
#4 Lower Your Interest Rate With Short Loan
Finally, you should consider the length of your loan. Although it is typical to apply for a thirty year mortgage, you don't have to apply for a thirty year mortgage. If you want to decrease your interest rates, you can do that by decreasing the length of your loan. Taking out a twenty or fifteen year loan, you are going to face larger monthly payments, but you will also face lower interest rates and you will pay less for your home in the long-run.