Once you’ve made the decision to purchase a home, there’s a lot of research that has to be done. You have to decide what kind of home you want and where you want to live. You have to think about the amenities that you want in a home and how long you plan to live there.
Another important consideration is securing a home loan. The loan that you choose should be affordable for you in the long term. It should allow you to enjoy the benefits of home ownership without having to worry about going too deeply in debt.
Buying a home in Texas can take some time, but it definitely can be done. Here are a few things to consider:
1. Start saving as soon as possible.
The first thing that you should do when you’re ready to buy a home is to start saving for your down payment. Traditional mortgage loans typically require a down payment that’s roughly 20 percent of the total price. This can vary, according to mortgage terms and lender.
You may want to set aside a certain portion of each paycheck specifically for this. Determine what that monthly amount will be so that you can see how long it will take to reach your goal. You may be pleasantly surprised to discover that you’ll have enough saved for the down payment sooner than you may have originally thought.
2. Explore all of your options
You don’t necessarily have to get a mortgage loan from a bank. There are other alternatives.
Veterans Administration loans (or VA loans) are guaranteed by the United States Department of Veterans Affairs. Some of these loans don’t require a down payment.
Federal Housing Administration (FHA) loans have programs that offer down payments for as little as 3.5 percent of the total price.
Conventional mortgages sponsored by companies such as Freddie Mac, Fannie Mae and other government-sponsored entities have home loans that require down payments of around 3 percent or more.
Just keep in mind the fact that having a lower down payment usually means that you’ll end up paying higher monthly mortgage payments.
Banks, credit unions and lending institutions regularly offer mortgage loans that range in length from 10 to 30 years. Make sure that you review the pros and cons of each type of mortgage before making your final decision.
3. Review your expenses.
While you’re saving for your down payment, it’s a good time to review your current expenses. Look at how much you’re paying for rent, utilities, groceries, transportation, entertainment, etc. If there are categories that you can reduce or eliminate from your budget, now is the time to do so.
If you are carrying balances on your credit cards or have other outstanding loan or debt obligations, take some time to evaluate them.
Those balances should be paid off or paid down as much as possible. Not only does this give you more flexibility, but it can result in a better credit score which will look more promising to potential lenders.
4. Compare mortgage rates from different lenders.
Don’t settle for the first rate that you’re offered. You can save yourself hundreds or even thousands of dollars by shopping around. You should get at least three to five quotes or more from lenders that you are considering. Take the time to read their offers carefully.
Some lenders may offer discount points. This allows you to receive a lower interest rate in exchange for prepaying interest on the loan. If you have enough cash for your down payment and plan to stay in the home for a long time, this may be an affordable option. If not, you’re probably better off avoiding this option altogether.
5. Get pre-approved for a mortgage.
Getting pre-approved for a loan is an important first step towards home ownership. You should first talk to a lender to discuss your intentions about buying a home. They will review your credit, active debts and current income. The lender will then issue a pre-approval letter.
A pre-approval letter is a document that states the mortgage amount that you’ve been approved to borrow. Having this letter in hand can make you more appealing to prospective lenders. While this lender won’t guarantee that you’ll be approved for a home loan, it is a distinct advantage over others who haven’t been pre-approved.
6. Set a budget.
It’s a good idea to set a budget for yourself. Besides the down payment, you’ll also need to factor in closing costs, monthly utilities, title searches, homeowners insurance and the home inspection. Your realtor can help you estimate how much you’ll need to have for those expenses.
They will also help you itemize the costs that you will be responsible for as the home buyer and what charges the home seller will be expected to pay.
Closing costs are typically around three to five percent of the total home sale price or more. Other costs will vary. Don’t forget to include any moving expenses, such as buying new or updated furniture or appliances or hiring a mover to help you get settled in. You may also wind up paying to put items in storage until you’re ready to move.
Once you’ve found the right mortgage loan, you can sign a contract with the lender. Read the contract thoroughly before signing it and be sure to ask any questions you may have or ask them to explain any contract wording that may seem ambiguous or unclear. It is your responsibility to ensure that you understand the terms and conditions of the home loan contract.
Getting a home loan is one of the most stressful parts of buying a home. It can take several weeks to get pre-approved, find the ideal home and agree on a mortgage contract. It is also one of the most important steps in the home buying process. Without it, most of us would never be able to start living in a place that we’re glad to call home.