By Nikitas Tsoukalis, Key Credit Repair
When you buy a home for the first time, it's usually the largest purchase in your life thus far. There can be a lot of complicated concepts that can be difficult to understand. Bone up on your home-buyer's vocabulary to make yourself more knowledgeable about home loans and better able to make good financial decisions. Terms you should know:
If you are prequalified, that means that your banker has decided, based on basic information, that you'll probably qualify for a loan. The next step is getting a preapproval; this involves examining pay stubs and a closer look at your credit.
2. Conventional loans.
If you are told you don't qualify for a conventional loan, it is probably because you have bad credit or a slim credit history. There are other options available for people in your situation, but, the standard 30-year loan with 5% down is probably not one of them.
3. Fixed rate loan.
A fixed rate loan has one interest rate that stays the same for the entire term of the loan. This can be good if interest rates go up, but can cost you if they go down in the future.
4. Adjustable rate loan.
Adjustable rate mortgages, which are also called ARMs, have rates that are periodically adjusted based on prime rates, the prevailing interest rate. Often, these loans have lower interest at first, but they can increase over time.
5. FHA loan.
The Federal Housing Administration provides loans for first time buyers with slim credit histories. Typically, you'll have to come up with a 3 to 5% down payment and have a credit score of at least 650. Key Credit Repair helps buyers improve their credit to qualify for home loans.
The bank will want to have an independent appraiser look at a home to determine what it is worth. If a home's appraisal is different from the asking price, it may affect your ability to get a loan for that home.
Private mortgage insurance is an insurance policy that covers you when your investment in the principle on the house is less than 20%. As you approach that 20 percent number, find out about dropping PMI. This can save you hundreds every month.
8. Closing costs.
These are upfront costs that must be paid when buying the house. These include fees from your lender, the cost of a home inspection and other regular costs. Expect to pay between 3 and 5 percent of the home's value. Sometimes, you can get the seller to split closing costs with you.
Each point is equal to one percent of your mortgage. This is interest that you pay up front when closing on your house. On a mortgage for $150,000, two points is equal to $3,000. If you plan to stay in your home for the entire term of your mortgage, paying points up front can save you money over time.
Escrow is one of the last stages of buying a home. When you are ready to buy, you will typically put down a deposit that is held by a neutral third party in an escrow account. This way, the bank knows the money is there, but you have it in a safe place.
Buying a home can be intimidating. Don't be afraid to ask questions. By doing your research, you can get a better deal and better understand the responsibility that you are taking on.
Discover Greater Boston's top real estate professionals that can assist you with all of your real estate needs. Learn more.
Connect with Nik Tsoukalis and his local team at Key Credit Repair to improve your credit and put you in position to buy a home. Learn more.