Many people can still remember their first home. They can remember how the back yard was the perfect size for their pet or how they loved the color of the hardwood floors.
Buying your first home is a wonderful experience, but it can be intimidating. You hear terms you may not even think are words, such as amortization, escrow, and underwriting. (More on that below.) You’re bombarded with information and asked to provide piles of documents. It may even lead you to question if you’re ready to be a homeowner – or if you can afford one.
Become an informed homebuyer
It’s easy to get overwhelmed, which is why it’s important to become an informed homebuyer.
“When you buy a house, you’re making a long-term commitment. You should do your research and know as much as you can so you can make a smart decision,” said James Costello, a loan officer with Umpqua Bank. “There’s a lot fewer hiccups in the process.”
There are plenty of ways you can learn about mortgages and buying a home. You can talk with your parents or friends who already have bought a home or you can do your own research over the Internet. The best way to set yourself up for success, experts say, is to take a homebuyer education course.
“A class will help first-time homebuyers gain the knowledge they need to navigate this competitive housing market,” said Heather Bowman, the homebuyer education program manager at Idaho Housing and Finance Association.
Finally Home! covers everything from loan types to closing costs to budgeting. It will help you realize if you’re ready to buy a home. If you’re not ready, the class will provide you with tips on how to prepare.
“The class gives the average homebuyer a step up in learning not only terms and applications, but gives them insight into how the homebuying process actually works — no smoke or mirrors but real facts that they can understand and use in working with their REALTOR© to make an intelligent decision in the homebuying process,” said Michael Gable, principal with the Gable Group in Nampa.
Here are some of the things you’ll learn.
How to choose a home loan:
When it comes to your home loan, there are many types of lenders – from banks to credit unions to mortgage brokers. Comparing the different types of loans offered by different lenders can help you save money.
When you’ve decided on a lender, you don’t need to accept the first loan product offered. Ask the lender if there are any other loan programs that they offer that may work for you.
“It’s OK to ask questions and you should ask questions,” Costello said.
In addition, the amount of the loan you’re pre-approved for may create a monthly payment that is more than you’re comfortable with. Make sure to talk to your lender about what you’re comfortable paying on a monthly basis so that you can find the right house that fits your budget
There’s a common misconception that to buy a house, you have put down 20%. Typical home loans require anywhere from 3% to 5% of the purchase price for a down payment, which means if you’re looking at a house that costs $150,000 and need to put down 5%, you’ll need to save $7,500.
There is help out there. For instance, there are special government insured loans, such as FHA loans, that may help you purchase a home with a lower down payment. However, the borrower will have to pay mortgage insurance that will protect the lender if the borrower defaults.
If you’re looking in a rural area, you might be able to take advantage of a USDA loan, which can help you buy a home with no money down.
If you’re a former or current member of the military you can get a VA loan, which may allow you to get a mortgage without any money down.
Some organizations offer down payment or closing cost assistance. Idaho Housing’s second mortgage allows a borrower to put down .5% of the sales price, while Idaho Housing will contribute up to 3.5%.
The best thing you can do is talk with a lender to see what your options are.
How to avoid predatory lenders:
Most lenders are trustworthy. Unfortunately, there are lenders that will prey on those who don’t know enough about the lending process. Many times they target those who may have trouble getting loan, such as those with low incomes or bad credit.
The best way to protect yourself is to become educated with the lending process and to know what you can and cannot afford.
(By the way, amortization is when you pay off a debt gradually and within a certain amount of time. Escrow is an account held by a lender or loan servicer to which a homeowner pays money for taxes and insurance. Underwriting is the process of analyzing a loan application to see whether to approve the loan.)