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Valuable Tips for a Home Purchase

For people interested in making a home purchase, the time is right. While the current financial and real estate market has proven difficult for some people, it has also opened many doors for homeownership. Because this is currently a buyer’s market, many people are deciding to take advantage of the situation. Therefore, the number of first-time buyers, prior renters choosing to buy, and other people wanting to purchase a home has skyrocketed.

The first step is for the individual to consider the type of loan they want but also qualify for regarding a home purchase. No matter the loan type, one recommendation that mortgage and financial lenders make is for the person first to go through a preapproval process. With this, the potential buyer actually completes and submits an application and goes through the entire loan process to be approved.

The primary benefit of a preapproval loan is that when looking at the home purchase of choice, the seller would see that the buyer is serious and actually has the money available. For motivated sellers, perhaps someone that needs to sell quickly to avoid foreclosure, this is a huge deal. Obviously, the buyer now has more negotiating power, which also means securing a lower sales price. Another benefit of a person being preapproved for a home loan is that it saves time. Instead of looking for homes and then going through the loan process, it works the other way around, resulting in a much quicker closing date.

Anyone interested in a home purchase should take time to become educated about the various loan types. The following are the more common choices describing what they are and how they work.

  • Fixed Rate Mortgage (FRM) A loan such as this provides the buyer with a locked in interest rate, one that would never change throughout the entire life of the loan. The benefit is locking into a low interest rate in that even if rates were to rise, that homeowner would pay the same low rate for the 20 or 30 years of the loan. With this, the monthly payment never changes, which makes budgeting easier to manage. In addition, a Fixed Rate Mortgage is available is different schedules such as:
    • 20-Year Fixed A home purchase with a 20-year FMR means the individual still locks into the interest rate but instead of paying the loan off in the traditional 30 years, it is paid off in 20. The positive side to this is that a tremendous amount of money is saved on interest but the one consideration is that the amount of monthly mortgage payment would be higher than that of a 30-year loan.
    • 15-Year Fixed This is another option for the Fixed Rate Mortgage, which is similar to the 20-year schedule but in this case, the loan is paid off in just 15 years.
  • Adjustable Rate Mortgage (ARM) The next type of mortgage loan that people consider for a home purchase is an Adjustable Rate Mortgage. This mortgage has the same interest rate throughout the course of the loan based on current market. In most cases, the buyer ends up paying a few points less than with a Fixed Rate Mortgage but the amount of monthly payment would vary throughout the life of the loan. Just as with an FRM, the Adjustable Rate Mortgage also comes in a number of options one example being:
    • 10/1 A home purchase with this schedule involves the buyer locking into a low interest rate for the first 10 years of the loan but then each year for the remaining 20 years, the homeowner pays the current interest rate. Typically, people planning to live in the home for 10 years or less would benefit from a loan such as this.
    • Balloon Loan With this type of mortgage, an initial interest rate is offered, lower than the buyer would get with a Fixed Rate Mortgage. For five to seven years, the interest rate would remain unchanged but after that point, it would start to increase or “balloon”. A balloon loan for a home purchase means the final payment on the mortgage loan is made in one lump sum, meaning at maturity, the remaining balance on the loan has to be paid off as one payment. During the first five to seven years on this type of loan, monthly payments are low due to them being amortized at a lower interest rate calculated for the entire life of the loan.
    • Government Loans A home purchase for someone that is a first-time buyer might involve some type of government loan, unique loans specially designed to make the cost of the home more affordable.
    • VA Loans Finally, a person that has served in the military for a specific amount of time and had an honorable discharge would qualify for a VA loan. A home purchase with a loan such as this is very affordable in that requirements for down payment, closing, etc are more flexible.
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