For most people, buying a house means taking out a loan. Very, very few of us would be able to buy a house or condo with one swipe of our debit card.
Loans are kind of a tricky process. However, people who have been through the process before know what steps to take.
If you’re a first-timer navigating these waters, don’t worry. The system isn’t rigged. The system wants you to get a home loan. There are a few things that may present themselves as obstacles, but you just need to think of them as stepping stones.
Here are the top three obstacles:
1. Higher Interest Rates
If you haven’t had as much opportunity to build up your credit as other buyers have, an additional risk is attached to you. Because of that, your loan might have higher interest rates on it, which means more money out of your pocket each month. The first time through a mortgage application, you’ll want to focus more on the payments than on the house itself.
Getting pre-approved by a direct lender will help. They’ll work with you to get the best rates and the best loan for your monthly budget, and you’ll be able to get that first home and start building equity and credit. Down the line, you can refinance for better rates.
Refinancing home loans is a popular decision for a reason. Months or years after you become a homeowner, you can refinance your home loan and ease those payments. Or, you can sell the old home and upgrade to a better home in a better loan with better rates.
2. The Down Payment
The more money that you can put down on a house, the lower your monthly mortgage payments are. A larger down payment may also increase the number of options that you have for housing.
If you have been living with your parents for years or residing in a less expensive dwelling, then you likely have had the ability to save up more money.
If you haven’t done any saving…start saving! Put a certain percentage of your paycheck, as big as you can, into an account and never touch it. Keep it totally separate from your debit account. Spend only what remains of your paycheck after you’ve set aside your savings.
It may be a bit of a lifestyle switch, but think about it — saving 10% of your paycheck will yield 100% of your paycheck in just ten paychecks. If you get paid twice monthly, you’ll have saved a complete paycheck’s worth in five months. That’s two paychecks’ worth in ten months. That’s 240% of your normal paycheck in just two years.
Can you save 10% each paycheck? Can you save 20%? Chances are, you can save more than you think you can.
3. Difficulty in Planning
Before purchasing a new home, setting a budget is important. Doing so allows you to clearly see how much you can spend on the property. When you have never owned a house before, or never even lived on your own, knowing how much money to allocate to certain bills is difficult. Calling local utility and service companies, such as the cable provider and the electric service provider, can help you gain reasonable estimates.
Financial planning takes real education. It’s definitely worth working with a professional financial planner if you’re not sure about your money ins and outs. And for savvy do-it-yourselfers, there is a sophisticated, user-friendly, FREE smartphone app called Mint that helps you easily track your spending.
Special Programs and Rebates
Applying for a home loan when it’s your first time might open you to some special programs. Again, your best bet is always to work with a direct lender, who will know what options exist for you and will get you the best possible rates.
For example, you may qualify to put a smaller down payment on the house. Even though you may have extra interest or mortgage insurance on the loan, you may also receive a tax rebate at the end of the year. Some areas offer rebates for people who have bought their first homes in the past year.
While taking out a mortgage for the first time does come with some challenges, professional assistance is available. Speak with a representative at Capstone Direct Mortgage Financing in Thousand Oaks to learn more about the right options for you.