Congratulations on the decision to purchase your new home!
Buying a home is an exciting journey and major step in life, but it can also seem confusing and frustrating at times.
We want to provide you with a guide that outlines what to expect in the home-buying process, along with options available to you.
Selecting the right mortgage
The most important step in buying a home is choosing the best type of mortgage loan. Analyzing your particular financial situation and future goals are important factors to consider when selecting a mortgage. There are many types of mortgages available that will fit your needs.
- Fixed rate
Those who are interested in a longer mortgage will likely get a conventional mortgage loan. These loans have a fixed interest rate for as long as 30 years. Once the loan is active, the rate will not change until the loan has been paid off. If interest rates decline, the homeowner can refinance to a lower rate. However, if interest rates increase, the homeowner has a protected lower interest rate.
For homeowners who can afford a higher payment, want to gain equity faster, and pay less overall interest during the term of the loan, a 15 year fixed mortgage rate is recommended. They are also better for people nearing retirement age. A 15-year loan pays the mortgage off quicker, and the interest rate is typically lower than on a 30-year mortgage.
- Adjustable rate mortgage (ARM)
- There are also adjustable rate mortgage (ARM) loans, where the interest rate is fixed for a certain length of time. After the term expires (say, 3, 5 or 7 years) then the interest rate becomes adjustable in increments each year. These loans give homeowners the chance to have a lower interest rate with time to gain equity before the interest rate adjusts. With ARMs, rate locks can be as long as 7 years, giving buyers stability along with extra cash each month. You’ll have lower monthly mortgage payments because of the low initial rate. ARMs are perfect for buyers who plan to move, relocate, or expand their family in the future, or expect income to rise in less time than the ARM term.
Tips to avoid paying closing costs
Once you believe that you have found the right home and have provided your down payment, you are likely to deal with closing costs. These fees usually include house appraisals, loan processing fees, and title searches. There are some ways that you can avoid paying these closing costs. First off, ask the seller to pay the closing costs. Most sellers will not object to paying these fees, especially if there is an urgency to sell the house. Check local HUDs too, they can help you get assistance in covering closing costs.
Finally, talk to one of the mortgage experts at TDECU. Credit unions, like TDECU, have several creative products that minimize closing costs.
Thinking about buying a short sale or foreclosed home?
Some homebuyers look at homes that are in a short sale or foreclosure. But is it a good idea? And which type is best: a short sale or foreclosure? The answer is that it really depends on the buyer and what the buyer’s priorities are.
Benefits to buying a foreclosed home
The big benefit, of course, is the price you’ll pay. On average, they sell for about 30%-40% less than a non-distressed property. Such deals are possible because homebuyers can negotiate closing costs and price in foreclosure sales. Buying a foreclosure typically is faster than buying a short sale and an investor can buy a home for rock-bottom dollar.
Drawbacks to buying a foreclosed home
The first issue is dealing with a home that’s typically in bad or neglected shape. As a buyer, you could encounter scarred walls, carpets or appliances that were damaged or removed by the former owner and more. Sometimes, it’s because of time and neglect. Turned-off utilities, coupled with the house sitting empty for months, can pose mechanical issues with the home. If you buy a foreclosure at auction, you won’t know if the carpet is damaged or if the living room wall has a big hole in it -- or if there’s a lien against the property. You’ll be responsible for these cosmetic and legal issues; so many investors research the property’s history before the auction.
Benefits to buying a short sale
Looking for a foreclosure-home price but in better condition? Sift through short sales in your local market. A short sale is still owned by the homeowner, who owes more on the mortgage than the home is worth. But short sales often take a long time to close. The federal Home Affordable Foreclosure Alternatives program, or HAFA, helps the buyer and seller by speeding up the short sale process.
Drawbacks to buying a short sale
The name “short sale” can be deceiving -- these deals can drag on for months. And you have to qualify for a short sale. After the seller is approved, the first question a buyer should ask is whether there are two mortgages on the house. Every one that has a financial stake in the house has to agree to the short sale. If the sale price of the home won’t pay off the second mortgage, that lien holder may not get paid, so the lender can block the sale. In the meantime, the buyer is stuck waiting for the answer. Patience is the virtue here.
Foreclosed home or short sale - which is best for you?
Nothing in real estate is a sure thing, but you can bet on getting a good deal if you know what you’re looking for in a home. If your family needs a house within one or two months, a foreclosure may be a good option. If you have more time to work with, short sales could be within your realm of possibility.
The most common mortgage questions, answered.
- What if I have bad credit?
For those who have bad credit, it may become difficult trying to find a lender to approve you, but there are loans specifically for people who do not have good credit. Almost all of these loans have very high interest rates. Mortgage loans sponsored by the Federal Housing Administration are an option for people with poor credit. A credit score in the high 500s will get you approved for this loan. The down payment is only 3.5% of the home’s purchase price. If your credit score is really low, you may still be approved for this loan, but you will have to pay a larger down payment. It may be as high as 10% or 20% of the home’s purchase price.
- What is the total cost of a mortgage?
The cost of a mortgage is determined by calculating the principal, interest rate, and term. The principal is the amount of money borrowed from the lender to buy the house. The interest rate is based on the current state of the housing market. The term is the length of the mortgage.
- What is a mortgage lock?
Mortgage interest rate locks are agreements between the lender and borrower that guarantee the borrower a specific interest rate on a mortgage. This is important because of the frequent changes in interest rates, plus the time consuming nature of the application process. There are different rate locks. Anything over 45 days usually requires a fee. If the loan fails to close before the end of the lock up period, you will be subject to the current interest rate at the new time.
- What happens if I'm turned down for a mortgage?
You may have to reapply at a higher interest rate. Try looking at other options. Talk to your Mortgage Advisor. Credit unions, like TDECU, can often work with you to meet your special needs. Also, TDECU has products that help you reduce the amount of closing costs, eliminate PMI, refinance when homes are underwater and provide custom approaches.
We want to help you get into your new home
TDECU offers you the lowest mortgage rates possible. We have the right option to meet your new home purchase or refinancing needs. Find one lower and we’ll pay you $250*! Call to talk to a Mortgage Advisor today at 877-774-2657.
We look forward to working with you!
*We require the Truth in Lending, Good Faith Estimate and HUD-1 closing statement from the competitor for comparison purposes in order to receive the $250 if we can’t meet or beat your qualified rate. Offer cannot be combined with any other TDECU Mortgage offer.