Financing Your Home: A Breakdown

Sabal Financing Home Pic within BlogWhether you are looking for your first dream home or are interested in purchasing a second one, taking out a loan can be a great way to find the home you want without causing unnecessary stress to your wallet.

So where do you start? If you are new to the financing game, you may not know what your options are or what steps you need to take.

Most real estate experts will tell you that it pays to be prepared. Before you even think about applying for a loan, make sure you have all the necessary documents and facts you need to make an informed decision.

Are your credit reports accurate and up-to-date? Order your national credit files from Equifax, Experian or Trans Union. If there are any errors, make sure to correct them upfront. Gather key documents such as documentation of your income, employment, two-years of IRS filings if you are self-employed, 401(k) funds and other assets. All of these things will help determine what type of terms your lender will be able to offer you.

Next, take a look at what you can afford in terms of monthly mortgage payments. Familiarize yourself with different rates, down payment amounts and loan terms to see how your maximum mortgage amount may vary and how that affects the maximum price you can afford for a new home.

Once you know what you can afford, it’s time to look at your financing options. Below is a brief breakdown of four of the most common loans:

  • FHA Loans – These federal government-backed loans are ideal for people who have minimum cash for a down payment and have a slightly tarnished credit score. With this loan you can pay as low as 3.5 percent for a down payment.
  • VA Loans – This type of loan requires no down payment. While beneficial, you must be a veteran to qualify.
  • Conventional Loans – This is ideal for people who have more than 10 or 20 percent to put down. The only downside is that conventional underwriting rules are stricter and banks may impose add-on fees to loans, which will increase your cost.
  • Bridge Loans – These short-term (6-9 months) financing options are designed to help you get past a timing squeeze, e.g. you’re buying a new home and haven’t sold your old home yet.

To summarize: gather all of your information in advance, know your credit score and know what financing options are available to you. Once you have that, you are ready to start looking for your new home!