June 3rd, 2019 9:57 AM by Jackie A. Graves, President
over 4 in 10 buyers purchasing a home for the first time, a big chunk of home
buyers are newly experiencing the fierce complexities and challenges of buying
a home. And financing is, without a doubt, an important factor for those
looking to own. Most buyers (76 percent) obtain a mortgage to finance their
home, according to the Zillow Group Consumer Housing Trends
Report 2017. Before you take on the responsibility of a mortgage,
take a look at what many first-time home buyers wish they knew about financing.
most buyers have get a mortgage to finance their home, they usually will also
need a lump sum of cash to put towards a down payment—a hurdle that prevents
many would-be buyers from making the leap to homeownership.
because you don’t have a huge down payment doesn’t mean you can’t buy. Despite
common misconceptions about home financing, a 20 percent down payment is not a
requirement for homeownership. Although buyers who don’t put down a full 20
percent typically have to pay a premium for the extra risk lenders take—private
mortgage insurance (PMI)—they may still be in a situation that’s more
financially advantageous than paying monthly rent payments.
recent report found less than a quarter (24 percent) put 20 percent down, and
an additional 21 percent put more than 20 percent down. When it comes to
first-time home buyers, only 37 percent put down 20 percent or more and instead
are more likely to put down between 3 and 9 percent. So while down payments
have once been seen as the biggest hurdle to homeownership, most first-time
home buyers are finding ways around the 20 percent myth and landing their homes
Just as homes
come in various styles and at different price points, so do the ways you can
finance them. There are a number of loan options to choose from, but deciding
which kind is best for you requires a little bit of time and research.
shoppers assume the best choice is the ever-popular 30-year fixed loan, which
offers the advantage of a set interest rate, regardless of how the market rises
or falls. But if you don’t plan on living in your home for 20 or 30 years, an
adjustable rate mortgage could potentially be a better choice. This loan type
allows you to get a lower initial interest rate compared to a fixed-rate
mortgage, but it isn’t guaranteed to remain at that rate, so be sure you
understand how much the interest rate could change before selecting that loan
If a low down
payment or low credit score is your primary hurdle, a government-backed loan
might be a good option. Federal Housing Administration (FHA) loans, VA loans or
USDA loans offer unique financing options for people with lower credit scores,
low down payments or people looking to live in rural areas.
your unique situation, a loan type that caters towards specific pain points
might be more fitting for you than a traditional loan type. Explore more loans for unique
buying a home is often the biggest investment a person makes in their lifetime,
surprisingly many buyers usually don’t shop around for a lender. Over half (52
percent) only ever consider a single lender to finance their home. But shopping
around for a lender can prove to be beneficial to the buyer. That’s why the
Consumer Financial Protection Bureau recommends talking to at least three
lenders when shopping for a home loan.
multiple lenders, you can compare rates and terms to get the best option for
your situation. If you only ever choose the first quote you get, you may be missing
out on a better rate from a different lender. You can use Zillow to find local lenders in
your area to help you through the process or compare rates anonymously.
See more ways
to potentially save thousands on your mortgage.
plays a big role in financing a home and can be a major barrier without it. The
vast majority (92 percent) of buyers who finance their home with a mortgage get pre-approved first.
And getting it done early can prove to be beneficial.
pre-qualified or pre-approved early on in your home search can help you shop in
your budget, which can avoid potential disappointment down the road. Your
lender will review your financial information and give you an estimate of what
they will allow you to borrow.
reason for doing it early is to catch any errors on your credit report, and to
give you time to fix them. A lower credit score could mean a higher interest
rate, which could mean tens of thousands of dollars in extra interest paid over
the life of you loan.
pre-approved or pre-qualified early may also prove to agents that you are a
serious shopper who’s done their homework. Buyers who use an agent are more
likely to obtain pre-approval than those who don’t work with an agent,
indicating that pre-approval is either a prerequisite to securing an agent or
highly recommended by their agent.
you are not obligated to work with the lender who pre-approved you, so it’s ok
to shop around when you’re closer to getting ready to lock in a rate.
If you put in
some upfront work and anticipate the challenges that may be ahead of you,
you’ll be able to overcome some of the biggest hurdles buyers face and have a
smoother, less stressful process. It’s valuable to shop around for lenders and
research different loan types so you can guarantee you’re getting the best
possible option for your unique situation. And if you’re worried about saving
up enough money for a down payment, there are plenty of options out there that
can help lessen that burden and get you into a home.
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