You're excited to buy your first home, but you might be feeling a bit intimidated by the process of securing a loan. The good news? There are plenty of sensible home finance options, even for first-time buyers. From FHA loans with low down payments to conventional loans with no PMI, you've got choices. Before you start applying for home loans or even looking at homes for sale, though, there are a few things you should understand about the financing process.
Understand Closing Costs and Additional Fees
One of the biggest mistakes first-time buyers make is failing to take closing costs and other expenses into account when budgeting for a home. When you get approved for financing on a home, this amount may or may not include costs to cover an appraisal on the property, document fees, closing costs, and the like. And when you consider that homebuyers in the United States pay an average of $3,700 in closing costs, that's a lot of money you may need to pay out of your own pocket. Be sure to budget accordingly or have a plan with your real estate agent to request that your seller pay these costs.
Consider Getting a Pre-Approval Letter
The process of formally applying for a home loan can be long and requires a great deal of documentation, but you can get pre-approved for a mortgage in a matter of minutes online. While getting a pre-approval is by no means a guarantee that your loan application will be approved, it's a great starting point for first-time buyers. Having a pre-approval letter also shows sellers that you're serious about buying, which can give you a little more power in negotiations.
Be Prepared For the Formal Application
Typically, you submit a formal loan application only once you have an accepted offer on a home. This way, you know exactly how much you need to borrow based on the agreed-upon sale price of the home and other factors. When it does come time to have your loan finalized, be prepared to submit a lot of documentation to your lender. This will include everything from bank account information and tax returns to financial statements and more. By collecting these documents ahead of time, you can save yourself some last-minute headaches. The process of underwriting a loan can take weeks, but once everything is completed, you can close on your home with pride.
For more information on home financing, reach out to a local loan lender.