Getting Ready for Your Home Loan in Three Steps

May 13, 2020

There are three steps you can take in the planning stages of your home loan to get closer to being ready for the application. What are the biggest concerns for a potential mortgage applicant? And how do those concerns affect your planning choices?

Research Your Down Payment

If you don’t know how much your down payment will be, it’s difficult to plan and save for it. You’ll need to know how much down payment you will be required to make (3.5%, 10%, 20%?) which means determining how much home you can afford to buy.

FHA loan rules state that your down payment and your other closing costs are entirely separate. In other words, if your hypothetical down payment is the percentage of the sale price of the home, you will need the percentage from a participating lender, and an estimate of the price of the home you want.

Some borrowers want to pay more than the minimum required down--they want to pay less in interest charges over the lifetime of the mortgage and reducing the principal balance is the way to do that. So that’s another aspect of the down payment you want to know--how much are you willing to overpay based on your financial needs and goals?

Some borrowers don’t want to pay more, some borrower’s can’t. But determining what camp you fall into is a very important part of getting ready for the loan.

Setting Financial Goals for the Mortgage

Decide in advance about issues such as whether you are thinking you may own the house you are buying now indefinitely, or do you have plans to sell it and move on after a number of years? Not knowing for sure is definitely an issue some face; in such cases it may be wise to play it safe. But what do we mean by this?

Some borrowers don’t apply for a fixed-rate mortgage, preferring to take advantage of lower interest rates offered in the introductory period of an Adjustable Rate Mortgage.

These borrowers often have a strategy to deal with the end of the introductory rate and the beginning of the interest rate adjustments on the loan. But if you don’t have a specific strategy to deal with such a loan, a fixed-rate mortgage may be a much safer bet.

Decide What Kind Of Home You Want To Finance

Why? There are different FHA mortgages for different property types. Some take more time than others to process, and some may require special consideration by the lender depending on circumstances. A condo loan has different requirements than the home loan you need to buy and repair a home.

The down payment terms and interest rate rules under the FHA program don’t change just because you choose a condo loan over a typical suburban home. But if you have a house built on your own lot with an FHA One-Time Close construction loan, you will have different needs and requirements for the loan (including hiring approved contractors and regulations on how loan funds are disbursed to pay for them).

Decide early in your home loan preparations and you will be more financially prepared as well as better informed.

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