Navigating Your Home Loan: What You Need to Know
Purchasing a home is an exciting and often intimidating process. Doing your research and understanding the basics of home loans can help ensure that your dream home is within reach. Here’s an overview of what you need to know when it comes to navigating your home loan.
Determine your budget and what you can afford
The first step in applying for a home loan is determining what you can afford. Look at your current financial situation to determine how much money you have available for a mortgage payment as well as other expenses associated with homeownership. Make sure to also factor in Property Taxes, Homeowners Insurance, Home Maintenance and other costs. Most financial advisors recommend that you factor in costs totaling no more than 28% of your gross monthly income.
Consider what type of loan you need
Once you’ve determined what you can afford, you’ll want to consider the type of loan that best fits your financial situation and needs. There are many options available, each with their own advantages and disadvantages. Be sure to do your research and talk to qualified lending professionals to compare interest rates, fees, repayment terms and more. Some of the most common home loan types available are:
- Fixed-rate mortgages – offer the borrower a fixed interest rate over the life of the loan.
- Adjustable-rate mortgages – offer the borrower a variable interest rate that can change over time depending on market conditions.
- FHA loans – are insured by the Federal Housing Administration and provide borrowers with relatively low down payments.
- VA loans – are available to those that have served or are currently serving in the military.
- USDA loans – provide 100% financing for those who live within designated rural or “underserved” areas.
Gather the necessary documents and paperwork
After you’ve selected the type of loan that’s right for you, it’s time to apply. You’ll need to submit a variety of documents to your lender including:
- Recent pay stubs
- Tax returns
- Bank statements
- Proof of any other income, such as disability, pensions, or rental income
- Proof of identity or citizenship
- Debt statements
- Property deed (for refinancing)
Having all of the required paperwork and documentation ready to submit can speed up the approval process.
Shop around for the best lender and rate
Once you have finalized what type of loan you need, you can begin to shop around and compare lenders. Compare annual percentage rates, closing costs, and fees on each home loan to make sure you get the best deal.
Navigating a home loan can be intimidating, but with the right preparation and research, you can find the right loan that fits your needs and your budget.
