Buying a home can be pretty daunting, especially if you're doing it for the first time. However, we've compiled a list of 5 Home Purchase Hacks that will hopefully help you save time and money.
Ok, so this home purchase hack isn’t really a “secret” per se, however most future home buyers don’t know that they can put as little as 3.5% down on a property using an FHA Loan.
The great thing about this is that the acceptable Debt to Income ratios are higher and the credit requirements are more lenient.
If you’re looking to buy but don’t have a ton of capital, then this loan is potentially a great option.
When applying for a home loan, banks will almost always run your credit. However, a credit report run by a mortgage lender is often more in-depth than a consumer credit report.
This means that even though your credit might appear as one score on CreditKarma it might be very different from the report the bank runs.
With that said, the lower your credit score is the higher your mortgage interest will be.
And vice versa, a higher credit score allows for a potentially lower interest rate on your home loan.
Ideally when you’re applying for a home loan, your credit needs to be at the highest possible.
When using low downpayment loans, an additional fee is often included in the mortgage payment called mortgage insurance.
This insures the lender against any loss if you were to foreclose on your property.
Typically, the less you put towards a down payment, the higher your monthly mortgage insurance will be. However, it is possible to avoid this payment altogether if you have a 10% downpayment available.
In order to do this you would need to put 80% of the home value on a fixed rate loan. While another 10% of the home value would be put on a HELOC (Home Equity Line of Credit).
The HELOC would have an adjustable rate and potentially a period of interest-only payments to start out.
By using this method, also known as the 80/10/10 loan, you wouldn’t have to pay mortgage insurance in your mortgage payment and you could potentially save hundreds a month.
With all that said, this loan still has some inherent risk in that the aforementioned HELOC has an adjustable rate.
This means that if the rate goes up, your monthly payment could also go up.
When viewing properties on the market, you might notice that some have an “As Is” description.
This means that the seller is required to disclose any known defects on the property but isn’t required to pay for any needed repairs.
If you are in Escrow on an “As Is” property and you find home damage during a home inspection, the seller wouldn’t need to cover the cost of repairs, you would as the buyer.
Like the other home purchase hacks we've mentioned, this one isn't necessarily a "secret." However, one of the biggest misconceptions in real estate and finance is that the lowest interest rate is always best.
This isn’t always true.
Though having a lower interest rate will always guarantee you a lower monthly payment, you need consider how long you plan on living in the home you’re going to buy.
Most home owners will keep their initial home loan for around 4-7 years before they either sell or refinance.
With this in mind, it might make more sense for you take a higher interest rate to minimize your closing costs, particularly when purchasing for the first time.
To clarify, with interest rates your usually either getting money back for that rate or you paying the rate down.
If you plan on living in the same home for a long period of time without refinancing, then it might make more sense to buy down the interest rate and have higher closing costs.
If you’re not sure how long you plan on living in your home, it might be better to take a slightly higher interest to lower your closing costs on the transaction.
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