Buying a home can be an intimidating process. You may have found the home of your dreams or the fixer upper you have had your eye on for a while. However, you need to know what you can afford, what your options are and all the costs associated with a home purchase. HRCCU has created a home buyer’s guide for you to reference as you move forward with your new home.
Home Buyers Guide
- Know your credit score. Before you apply for a mortgage, know your credit score. There are several free reports you can review — such as Credit Karma — where you can monitor your credit score over time. Knowing your credit score will help you understand the type of rate you will receive and the type of loan that will be the best fit for you.
- Gather Financials. Your mortgage lender should walk you through this, but it is good to be prepared so you can move quickly through the process. Your lender will ask you for recent pay stubs and two years of W-2 forms. They may also ask for more information depending on certain loan situations — such as self-employment income, bankruptcy or divorce — so be prepared with that information. To verify funds for closing costs, you will need to show two most recent checking, savings or investment statements. During the loan process, be prepared to supply updated documents through the process until after the closing. Additionally, we recommend not to make any new loans — such as auto or personal — during the mortgage process. This may affect your rate as well as your credit score.
- What can you afford? When you are transitioning from renting to owning, you will need to pay property taxes, insurance, and Private Mortgage Insurance (also known as PMI, which HRCCU does not charge). Depending on the area you live in and the type of home, these costs can change so make sure you take these figures into account. Additionally, be prepared for the fix-up costs associated with the property. You are the landlord when you own a home so you will need to pay up if something breaks. Ask questions such as How old are the furnace, roof, and water heater, etc? and What is the yearly cost for heat? This will help you budget and prepare for any unexpected expenses.
- Fixed Vs. ARM. When deciding on a mortgage, you can choose from a Fixed Rate Mortgage or an Adjustable Rate Mortgage (ARM). An ARM offers you a low rate for a set period and after that time expires, it offers an adjustable rate depending on the mortgage rates at that time. The ARM has advantages. Per the U.S. Census Bureau, Americans live in their homes on average 5.9 years. So if you are using this home as a starter home or planning on refinancing down the line, an ARM could be a fit for you. The Fixed Rate Mortgage rate will remain constant throughout the life of the mortgage regardless weather rates increase or decrease. The fixed rate is easier to understand since you will pay the same rate throughout the life of the loan.
Ultimately, you should choose what is best for you, but it is essential to know your options. When working with your mortgage lender, ask them for all your options. If they do not walk you through those, they may not be the mortgage lender for you.