What Every Home Buyer Wished They Knew About Financing

More than 45% of home buyers buy a house for the first time. This means that many buyers are unfamiliar with the challenges and rigors of buying a home. Financing is an important factor in buying a house. Sources online indicate that 77% of buyers obtain a mortgage to finance their homes. Here are the top 10 things that first-time homebuyers would like to know about financing before committing to a mortgage.

The Myth Of 20% Down Payments

Most buyers will be able to get a mortgage to finance their homes. However, they will still need to pay a lump amount to make a downpayment. Many buyers find this a major obstacle to becoming homeowners.

But, even if you have a small down payment, that doesn't mean you can't buy. Contrary to popular belief, a 20% down payment is not necessary for homeownership. Buyers who don't put down 20% must pay private mortgage insurance (PMI) premium. They might be better off than their monthly rent payments, however.

Online sources indicate that less than 25% (23%%) of buyers have put down 20%. Only 52% of buyers put down less than 20%. Although down payments were once a major obstacle to homeownership in the past, many first-time buyers are finding ways around this Myth and landing their dream homes.

Loans Aren't Just One Standard For Everyone

There are many ways to finance your home. Unfortunately, it can take some time to find the right loan option for you.

For home buyers, the 30-year fixed loan is usually the best option. You get a fixed interest rate that is unaffected by market fluctuations. However, if you don't plan on living in your home for longer than 20 or 30, an adjustable-rate mortgage (ARM) could be an option. This loan type has a lower interest rate than a fixed-rate mortgage, but it is subject to change.

If you have poor credit scores or a low downpayment, a government-backed loan might be an option. Federal Housing Administration (FHA), VA Loans, and USDA Loans offer unique financing options for people with low credit scores who are searching for rural housing or who have lower down payments.

A loan that addresses specific pain points might be more suitable for you, depending on your personal situation. Explore more loans for unique scenarios.

Shopping Around For Lenders Can Save You Thousands

Although buying a home is the biggest investment one person makes in their lives, they don't often shop around for lenders. 54% of homebuyers only choose one lender to finance their home. Buyers may find it beneficial to shop around for a lender. Consumer Financial Protection Bureau recommends speaking to at least three lenders before you apply for a loan.

To find the best deal, compare rates and terms from multiple lenders. If you only take the first quote you get, you may miss out on a better rate from a different lender.

Pre-Approval Can Be Obtained Early

Pre-approval is an essential part of financing a house. It can be a major barrier if you don't have it. Pre-approval is required for most buyers who finance their homes using a mortgage. It is crucial to do it quickly.

Early in your home search, pre-approval (or pre-qualification) can help you shop within your financial budget and avoid disappointment later. To give you an estimate of the amount they can lend, the lender will need to assess your financial situation.

You must do this early to spot credit mistakes and allow yourself the time to rectify them. A lower credit score could lead to a higher rate of interest. This could lead to tens of thousands more dollars in interest over the loan's lifetime.

Agents might be more impressed if you are pre-approved before the deadline. Pre-approval is more common for agents than for buyers who don't work with one. Therefore, agents recommend that pre-approval be obtained to secure an agent.

You don't need to work with the lender who prepared your application. However, it is okay to shop around for rates when you are closer to locking down a rate.

The Summary

It is possible to overcome some of the most challenging hurdles buyers face by anticipating and doing research ahead. This will make the whole process less complicated and more enjoyable. You should compare loan terms and lenders to make sure you get the best deal. There are many ways to save money and buy a house.