Buying a House - What You Need to Know Before
Buying a home is probably one of the most important decisions you will have to make in your life, as well as one of the most expensive. For a lot of people, buying a home is still more desirable than simply renting a house because homeownership builds equity and is thus a very good investment. For most individuals, it can also be the biggest tax break they can ever get because it allows tax deductions for mortgage interest paid. Owning your own home also has a lot of intangible benefits such as the feeling of fulfillment and security for your family or for posterity. It can also be one of the most rewarding achievements you can make. Owning a house is also a big asset that you can use as collateral for taking out huge loans. Most people who buy a house take out a mortgage loan and have to meet monthly mortgage payments until the house is paid in full with interest as well as additional required payments such as property taxes and home or buildings and contents insurance. Before purchasing a home, you need to make some preparations so that you can set your credit straight and keep your transactions running smoothly.
Preparing your credit report
Before you can buy a home with mortgage, you need to prepare your credit report so that lenders will be more willing to lend you money. If you have a bad credit history, it may be harder for you to get a loan. Make sure that all your financial documents are in place. You should get a copy of your credit report and clean it up; as much as possible, you need to clear up all your existing debt. If you have existing credit cards that you never use, it is better to close them out. Check for any discrepancies or mistakes in your credit report and have them corrected immediately. If your credit card rate is two times greater than the prime rate, you should try looking for another lender that offers a better rate and in which you can transfer your credit card debts.
Looking for a lender
Once your credit history is in order, you can start shopping for a lender. You can start with online mortgage specialists that provide various mortgage policies and mortgage payment protection quotes from various lenders so that you can compare the best lender that suits your needs. Choose the best three or four lenders you can find and let them compete with each other to get your business. Get a preliminary copy of the HUD-1 form or "good faith estimate" from every lender and analyze every charge detailed. Do not let any of the lenders have access to your credit report at the start. You should only allow the lender to check your credit once you’ve chosen the lender you want to borrow from. Lenders are very flexible and ingenious when it comes to the fees that they want to charge you with. These include processing fees, loan origination, and underwriting fees. You can usually negotiate these fees and bring them down to at least 50% of the original. Some lenders even waive these fees to entice you to do business with them. Look out for such things as "points" where you pay the points with interest upfront in a lump sum to get a lower rate on your fixed-rate mortgage. All this does is increase the amount of your down payment.
In some cases, the fee of hiring a real estate attorney is worth it so that you can clean up bogus fees and costs from your mortgage loan and mortgage payments insurance to drive your monthly fees down. If you can’t afford an attorney, you can get a knowledgeable real estate agent who can tell you which costs are necessary and which are flexible and can possibly be eliminated. For example, in some jurisdictions, title costs are supposed to be shouldered by the buyer unless the seller agrees to pay for it. The title cost should appear in the good faith estimate so that it does not show up as a surprise cost later on.
Looking at insurance
When it comes to first-time homebuyers, lenders are very aggressive in pushing for mortgage loans. Even for those who cannot afford the standard 20% down payment, lenders still loan money but require a private mortgage insurance, which is paid monthly as a part of the monthly mortgage payments. In this type of insurance, the lender is protected in case that the borrower defaults on the loan, but it does not protect the borrower from losing his or her home. However, there are other insurance options that protect the borrower as well as the lender, such as mortgage payment protection insurance. In this type of insurance, the insurance company will pay for the monthly mortgage payments in case that the borrower is unable to meet payments due to valid reasons, particularly unemployment, accident, or sickness.
Closing the loan
Before you close the date on your new home, make sure that you review every detail and fine print in your HUD-1 settlement statement. The figures reflected on the HUD-1 should match the good faith estimate that was provided to you beforehand. If you see new charges and the figures are inflated, you should contact your lender and let them explain and correct the discrepancies or mistakes. Remember that once you take a mortgage loan, you’ll be paying for it for a very long time and once you sign the fine print, then it would be hard to back out on your mortgage obligations. Before you sign, make sure that you understand every detail of the terms and conditions of your loan. Especially look at hidden charges and additional policies or insurance such as life insurance and mortgages that you may have to pay for later on.
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