How to Pay for Your Home

Houston Mortgage Company

The biggest determining factor in your ability to buy a home, of course, is your ability to pay for it. While some people can liquidate assets and pay for a house in cash, most opt for mortgage programs through a bank, credit union or other type of lender to leverage the total cost of the property.

The first steps to buying a house always revolve around the financial side of the deal – how much you can afford and how you plan to pay for it.

Getting a mortgage.

Financing through a mortgage is the most common, and often the most attainable, way to buy a house or condo. In fact, 88 percent of all buyers financed their homes in 2017, according to the National Association of Realtors.

To avoid being shocked if a bank turns you down for a loan or approves a far lower maximum price than expected, it’s important to know how your credit history and current financial status measure up. Joe Zeibert, senior director products, pricing and credit for Ally Financial Inc., explains that the interest rate or amount you pay upfront to the lender (points) is all connected to how attractive a borrower you appear on paper: “How much you can afford also ties into what your future cash flow looks like, and that then ties into rates and points.”

It’s free to receive your credit report once a year through annualcreditreport.com, where you can access reports from the three major credit bureaus, which will provide you with all the information a lender will see about your financial history.

Also take a look at your current financial situation, including the amount of money you have in savings, gross income, recurring expenses and how much you’re able to put toward savings on a regular basis. From this, you should be able to determine how much you can comfortably spend on monthly mortgage payments.

Next, it’s time to shop around for lender and mortgage program options. The most common type of mortgage is a 30-year, fixed-rate mortgage, which typically comes with a slightly higher interest rate in exchange for the guarantee that the payment amount won’t change for the life of the loan.

The interest rate is typically the most-discussed aspect of a mortgage, as it can differ from lender to lender and program to program. But Brian Simmons, founder and CEO of Ask a Lender, an online platform to help consumers shop lenders and loans and get financial advice, stresses that the interest rate offered to you based on your financial situation can be completely different from what’s in a mortgage rate table.

“That’s why the interest rates advertised online are worthless,” he says. “If the lender doesn’t know essential information such as your credit score, your debt-to-income ratio or the size of your down payment, it’s impossible to provide you with an accurate rate quote.”

Buying a home with no money down.

If you’re lacking the savings needed for a down payment, you may not be out of the running to buy a home just yet. Active members of the military and veterans can apply for a VA loan through the U.S. Department of Veterans Affairs, which requires a small additional monthly cost in lieu of a down payment, but otherwise requires zero percent down.

There are plenty of other low down payment options – as low as 2 or 3 percent – available to first-time homebuyers, buyers with nontraditional credit histories or those who have recovered their credit over time, among other situations, with additional regular fees. Keep in mind, however, that the less you put down, the more you’ll be required to pay each month.

Buying a house with bad credit.

A blemish or two on your credit report can be a problem when it comes to getting approved for some mortgage programs. But fortunately there are options aimed at homebuyers who don’t have a perfect credit history. For example, if you're a borrower with a credit score of at least 580, you may be considered for an FHA loan through the Federal Housing Administration.

Bad credit doesn’t have to keep you from homeownership. Lenders are more likely to look past a low credit score if you’re planning to make a high down payment or have solid proof of a high income that will be consistent for a long time, for example.

Buying a house with cash.

If you’ve got the funds to skip financing altogether and pay for your house with cash, you should have a faster transaction, as you won’t have to wait for a loan to be underwritten, the property to be appraised and the lender to formally approval the mortgage.

But that doesn’t mean you don’t have to get your financials in order ahead of time. “The way a cash buyer can be prepared is to be willing and able to show proof of funds, whether it’s stock they’re going to liquidate or cash that’s already in the bank,” says Gannon Forrester, an associate broker with Warburg Realty in New York City.

Additional costs of buying a home. The costs don’t stop at the agreed-upon purchase price and interest to the lender when applicable. Homebuyers should prepared for other costs leading up to and at closing, plus they should have some cash remaining in savings afterward for unexpected repairs to the house.

Costs include:

• Inspection
• Property appraisal
• Attorney’s fees, points paid to lender and other fees required at closing
• Property taxes
• Rainy day fund for repairs

Source: usnews

Financial Capital Group, LLC is a lender that provides home and commercial finance solutions for business, professionals, individuals and families since 1999. Our love and care for others is directed as much within our walls as it is outside of them. Our desire is to work together to meet the needs of our customers.

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