If you are shopping for new homes in Bucks County, consider working with professionals who understand every step of the buying process. Hallmark Homes Group is one such company– offering helpful guidance for buyers who are interested in purchasing a new residential property.
Embarking on ownership is an exciting time for a homebuyer, and knowing how mortgages work can help you progress with a clear picture of the steps required, the financial factors involved and exactly where to begin. Securing a home loan in a step-by-step manner is a great way to experience a process that requires preparation, planning and a bit of negotiation.
Know What ‘Mortgage’ Means
Mortgages are loans used to buy real estate. The terms of these loans typically state that the physical property (the house and the land it is built on) will function as collateral. In other words, a financial institution loans out money for buying a home, under the condition that they (the bank) may assume ownership of the house if the borrower defaults on the loan. The bank’s reason for lending (incentive) is to earn money (interest) as the borrower pays back the loan over an extended period of time.
Create a schedule based on when you want to buy and when you will be prepared to move into a house. The ideal span of time to begin the mortgage process is two or three months. The timeline may fluctuate depending on your mortgage company, so be sure to check with your builder, real estate professional or mortgage company.
This is the planning stage where important details will need to be addressed such as evaluating your finances, finding the right lender, securing a mortgage and locating the right property. The details may take you time to gather and your mortgage company to process, so ample time is key to ensuring your mortgage is ready for settlement on your new home.
Tighten up your Credit
A good credit score is essential to qualifying for a loan. The higher your credit score, the larger the loan a lender is likely to grant you and the better the rates. A smart approach to home buying is to check your credit report for any errors and make sure it is as clean as possible before you apply for a mortgage. Aiming for a credit score of 760 or greater is ideal, with the highest possible being 850.
Prequalify Before Your Shop
It is important to know how much a lending company will be willing to give you before you search for a home and especially before your sign an agreement to build your home. You have the option to get prequalified by your lender. This is an assessment based on more basic information than the mortgage approval. Although not guaranteed, it can give you a guideline for the amount you can qualify for. Once you know have an idea of the amount, you can then shop for a new home in Bucks County that matches your budget.
Work with A Reputable Lender
Mortgage companies and banks are two types of lending companies that you may be familiar with. Talking to a few institutions can give you a sense of the right fit for your specific situation. Another resource may be your builder who can refer you to a financial institution with a good reputation.
Understand Interest Rates
As a borrower, your mortgage payments will be affected by the interest rate you are able to “lock in.” This rate is set by economic trends and can vary from one year to the next. The interest rate affixed to your mortgage is determined, in part, by your credit score — lower interest rates are awarded to those with higher credit ratings.
Also, the size of the down payment you are able to make affects your interest rate. For example, a down payment of 20% or more can typically make you exempt from having to pay private mortgage insurance while giving you access to the lower current interest rates.
Choose Your Mortgage Type
There are two major types of conventional mortgages. A fixed rate mortgage (FRM) has an interest rate that stays the same throughout the duration of the loan. While this offers stability in the form of payments that are always predictable, it also means you would have to refinance your mortgage in order to take advantage of lower interest rates.
Meanwhile, an adjusted rate mortgage (ARM) begins with lower interest rates over the first few years, which can then increase or decrease depending on real estate trends. This type of mortgage can work to your benefit — as you can take advantage of lower interest rates without having to refinance your mortgage. Yet, your loan payment can also be affected in the opposite way by rising interest rates.
Your mortgage type can also be based on the dollar amount of the loan. Large loans are typically arranged in 30-year loan agreements, while smaller amounts can be arranged over 15-year terms. Either way, the shorter the duration of the loan, the larger your monthly payments are and vice versa.
Prepare for Other Costs
The mortgage process involves charges known as closing costs. These should be planned for along with other important factors such as property taxes, homeowner insurance, utilities (electricity, gas, water, cable, internet, etc.) and homeowner’s association dues (depending on your neighborhood). Accounting for the comprehensive array of expenditures can help you close on the property smoothly and start enjoying your new home. Mortgage professionals provide a valuable service which includes financial, legal and clerical expertise to help you keep track while you navigate the process.
Consider Going with Escrow
Your lender may offer the option to open an escrow account, which manages the recurring costs of homeowner’s insurance and property taxes. These expenses are added to your monthly mortgage payment and the funds are held interest-free. This measure assures the lender that the comprehensive expenses associated with your mortgage payments are made regularly while saving you the extra step of making the payments yourself.
Once you understand the basics of mortgages and interest rates, you can look forward to moving into the house of your dreams. Contact us to learn more about how we will work with you every step of the way.