Buying a home is exciting and stressful at the same time. A house is the single largest purchase most people will ever make in a lifetime. It’s also the largest sum of money most people will ever borrow at one time. So here’s what you need to know before you sign on the dotted line.
According to David Schwab, a loan consultant for American Home Mortgage in Bellingham, the lending process should always begin with a face-to-face meeting with a mortgage advisor. Together you can:
- Determine how much house you can afford.
- Look at what monthly payments are for different amounts.
- Pre-qualify for a mortgage amount and obtain a pre-approval letter. Many sellers will not consider offers from buyers who have not pre-qualified.
- Go over closing costs and other fees.
“Then you’re ready to go shopping for a home,” says Schwab.
Nancy and Nathan Leavitt recently purchased their first home, a two-story, four-bedroom home built in 1903 and located on a quiet street in Lynden.
“We wanted to build equity in an investment,” explains Leavitt, 22. “My husband is a contractor, so we were looking for something that needed a little help and could be easily renovated and updated.”
As an office representative for State Farm Insurance in Bellingham, Nancy Leavitt had worked with many of the local mortgage companies. She was familiar with brokers, but not so savvy about the options available for home loans.
“Our goal was to keep our monthly payments low and have enough cash available to pay for improvements,” she says. “So we were initially looking at an interest-only mortgage with our 20 percent down payment.”
After meeting with Schwab, the Leavitts discovered that a conventional 30-year fixed-rate loan worked best for them. The low interest rate and a long term worked out to a manageable monthly payment that left room in the budget for remodeling costs.
“We looked at all the options available based on the mortgage broker’s recommendations and found one that fit our goals in the long run,” says Leavitt. “When you think about it, everyone buys a home. You have to have someone you trust advising you though the process.”
Different loans for different folks
“There are literally hundreds of different mortgage options available to buyers,” explains Marty Schroder, manager of the Washington Mutual Home Loan Center in Bellingham. “There are the traditional fixed-rate loans with terms of 30, 20 or 15 years. There are also a variety of adjustable-rate mortgages available to buyers as well. Interest-only loans have also become increasingly popular.”
With a fixed-rate loan, the interest rate charged by the lender doesn’t change over the life of the loan. The payment will always be the same.
Adjustable-rate mortgages (ARMs) have variable interest rates that go up and down with market fluctuations. Many adjustable rate loans are hybrids between the two, meaning the interest rate can be fixed for a certain period — three, five, seven or 10 years, for example — and then adjust periodically after the fixed rate term expires.
An interest-only mortgage is a loan where the scheduled monthly mortgage payment consists of interest only. The option to pay interest only lasts for a specified period, usually 5 to 10 years and borrowers have the right to pay more than interest if they want to. If the borrower exercises the interest-only option every month during the interest-only period, the payment will not include any repayment of principal. The result is that the loan balance will remain unchanged. There are many other mortgage options available. See a lender for more details.So what loan fits what type of buyer?