Buying a home is usually pretty intimidating.
You may have found the home of your dreams or the fixer upper you have had your eye on for a while.
However, you need to know what you can afford, what your options are, and all of the costs associated with a home purchase.
It’s hard to navigate the home buying process, which is why we’ve put together a guide for you to reference as you move forward with your new home.
Tips for Home Buying Success
Know Your Credit Score
Before you apply for a mortgage, know your credit score. There are several free reports you can review — such as Credit Karma — where you can monitor your credit score over time.
Knowing your credit score will help you understand the type of rate you will receive and the type of loan that will be the best fit for you.
To make this process quicker and smoother, be prepared.
Your lender will ask you for recent pay stubs and two years of W-2 forms. They may also ask for more information depending on certain loan situations — such as self-employment income, bankruptcy or divorce — so be prepared with that information.
To verify funds for closing costs, you will need to show the two most recent checking, savings or investment statements.
During the loan process, be prepared to supply updated documents through the process until after the closing.
Additionally, we recommend not to make any new loans — such as auto or personal — during the mortgage process. This may affect your rate as well as your credit score.
What Can You Afford?
When you’re transitioning from renting to owning, you will need to pay property taxes, insurance, and Private Mortgage Insurance (also known as PMI, which HRCCU does not charge).
Depending on the area you live in and the type of home, these costs can change so make sure you take these figures into account.
Additionally, be prepared for the fix up costs associated with the property.
You are your own landlord as a homeowner so you will need to pay if something breaks. Ask questions such as, “How old are the furnace, roof, and water heater?” and “What is the yearly cost for heat?”
This will help you budget and prepare for any unexpected expenses.
Fixed vs. Adjustable Rate Mortgage (ARM)
When deciding on a mortgage, you can choose between a Fixed Rate Mortgage or an Adjustable Rate Mortgage (ARM).
An ARM offers you a low rate for a set period and after that time expires, it offers an adjustable rate, depending on the mortgage rates at that time.
Per the U.S. Census Bureau, Americans live in their homes on average 5.9 years. So, if you are using this home as a starter home or planning on refinancing down the line, an ARM could be a fit for you.
The Fixed Rate Mortgage will remain constant during the life of the mortgage, regardless if rates increase or decrease. The fixed rate is easier to understand since you will pay the same rate throughout the life of the loan.
Ultimately you should choose what is best for you, but it’s important to know your options.
For further research on the homebuying process, check out these blog posts: