What You Need to Know to Make Your First Home Purchase Easier
For many of us, home ownership is an important part of the American dream and one of our most important life moments. It means community, independence and success. However, the process of buying a home can appear overwhelming. But, with some careful planning, it can be both achievable and rewarding. We’ve provided below a few considerations to help in your journey to home ownership.
Are you ready to buy? It’s a simple but important decision you need to consider before becoming a home owner. Housing is more affordable and accessible than ever with incentives and attractive interest rates luring more to ownership. However, buying a home significantly impacts your finances so understanding what you’re getting into is important. Upfront costs, closing costs and your down payment combined with the expenses of furnishings and moving can add up. A comprehensive budget will help in determining an estimated monthly mortgage payment and home ownership costs. There are various online mortgage calculators and tools designed to help you plan. Here are a few we recommend:
Check Your Credit Score
Securing a good mortgage requires a good credit score. Before you begin shopping, check your credit report and ensure it doesn’t contain any errors. Correcting your credit report can take time so it’s important you act quick. If you need to improve your score, start by paying down debts, make payments on time and avoid taking on any addition new credit.
Saving for Your Down Payment
upfront partial cash payment typically depends on your mortgage loan type. When preparing for your home purchase, it’s important you consider your down payment and establish a savings plan to accommodate a targeted loan amount. Here are a few steps you should take when saving:
- Plan your savings budget
- Increase your income
- Cut unnecessary spending
- Pay off your debt
- Research first-time home buyer programs
Knowing Your Mortgage Options
Once you consider all the above, it’s time to determine the type of mortgage that aligns with your goals, needs and financial situation. Before you begin shopping for a loan, it’s important you understand the most common types of mortgages.
Before you start shopping for a mortgage, it is helpful to understand some of the basic terminology, the options and the process.
- Fixed-rate mortgages - A fixed-rate mortgage means your mortgage interest rate – and your total monthly payment of principal and interest – will stay the same for the entire term of the loan. This offers you consistency that can help make it easier for you to set a budget.
- Adjustable-rate Mortgage (ARM) – An adjustable-rate mortgage (ARM), or variable-rate mortgage, is a loan type with an interest rate that varies throughout the loan’s life. Adjustable-rate mortgages feature a fixed rate initially and then a variable interest rate that resets in predetermined periods, such as monthly or annually. Your monthly payment will increase or decrease if the index rate goes up or down.
- Alternative mortgage options – You may qualify for an FHA (Federal Housing Administration) or a VA (Department of Veterans Affairs) loan. The alternative mortgage options typically allow for a lower down payment and credit score as compared to other loan types.
The KIG team is here to help make your first home purchase a memorable experience. We’ll provide you with customized guidance on the mortgage option that best suits your needs and expectations.