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Whether you’re a veteran homebuyer or you’re ready to purchase your first house, the finances are always complicated. Here are a few tips to get you on the right path:
Prepare Well In Advance
When you’re ready to look at financing a new home, you need to prepare appropriately. Buying a new home is a big step, and the more prepared you are, the smoother the process will go.
- Check credit: Order your credit files and make sure there are no inaccuracies you need to sort out before you approach a bank.
- Gather documents: Lenders will want to see bank account information, 401K funds, assets, IRS filings (if you’re self-employed), and documentation of your employment and income.
- Talk about possibilities: If you’re buying a home with someone else (a spouse or partner), discuss what you feel you can afford. Many lenders provide calculators on their websites to help you determine how much you’ll be spending. Determining how much lenders will be willing to give you can be a complicated process, but one to sort out before you start looking for a home.
Research Loan Options
Before you talk to a loan agency, do research on your own. Figure out what loan you think would be best for you and your situation, and then approach a bank or loan office with your idea. The three most common types of mortgage loans are:
FHA Loans: If your cash is limited and you have a good credit history, this might be your best option. These loans are federally-backed, and allow down payments as low as 3.5%.
VA Loans: These are the most coveted loans as far as benefits go, but you have to be a veteran to qualify. Down payments are low or nonexistent.
Conventional: Also called a fixed-rate loan, these are traditionally 30 year loans. They offer long-term security, and if you plan on sticking in one place for a long time, this is a good option.
Save for Your Down Payment
If you qualify for an FHA loan, you may not need to have as much cash saved up for a down payment. However, if the home you want does not qualify for an FHA Loan, you’ll need to have more cash on hand.
So when you start talking about purchasing a house, realize that unless you already have a good-sized nest egg tucked away, it might be a while before you can afford a reasonable down payment. Cut your everyday spending as much as you can and do your best to get out of any personal debt. Avoid taking out any other loans, even if they’ll help you finance your home. It’s not a good idea to get into more debt than necessary when you’re trying to purchase a house.
Be Prepared for Closing Costs
Once you’ve settled the loan, don’t be surprised when your first month in your new home comes with some extra fees. When you finance a home, there are always closing costs. Sometimes a builder or seller will pay some of the fees, but you should expect to pay at least part of them. Your lender should explain any anticipated closing costs to you, some of which might be:
- Loan origination fee
- Credit report fee
- Survey fee
- Appraisal fee
- Attorney fee
- Government transfer fees
You can negotiate any of these when you’re discussing finances with your lender or the seller—just make sure that you know what you’ll still be responsible for.
Finances are never simple, but if you make sure that you’re well prepared for any eventuality, purchasing your home should go smoothly. Whether you’re buying a brand new home or plan to remodel an older one, buying a new house is always exciting—don’t let financial stress get in the way.