Buying A HouseBuying Your New Home
Author: Kathryn Delaney, Coldwell Banker
Welcome to the ‘American Dream’ of owning your own home! I hope this summary will help you navigate through the journey of finding, financing and buying a new home in a country where the process can be, pardon the pun, ‘foreign’!
There are several steps you need to take before you move into your new home, and our emotions don’t always allow us to take them in the most efficient order. The first step should be consideration of your financing.
THE FINANCING PROCESS – HOW MUCH CAN YOU AFFORD?
Calculate your budget, taking into consideration property taxes, which can be rolled into your mortgage for ease of payment.
The first step is getting pre-approved for a mortgage. (A mortgage is an advance of money from your lender that will cover the finances of your new property. You must pay this back over a period of time plus interest.)
A pre-approval uses basic information as well as electronic credit reporting to determine whether a lender will loan you money, and how much. This is a commitment from the lender to support your new purchase.
A pre-qualification in not a mortgage approval, but simply an estimate of what you can afford. You do not have guarantee of funds.
Buyers that have a pre-approval are more attractive buyers to the seller, and have a better chance of getting a property when they make an offer. This is an essential start to the process!
To apply for a mortgage through your financial establishment, or mortgage broker, (it pays to shop around), you will need the following documents:
- Two most recent pay slips
- W-2’s for past two years
- Federal tax returns for the last two years
- Last two months’ bank statements
- Long-term debt information (credit cards, child support, auto loans, installment debt etc.)
- As Expats, you may be required to supply additional information, depending on what credit rating you have acquired during your time here.
- A Social Security number makes life so much easier!
Mortgage applications usually take 45-60 days; sometimes up to 90 days depending on how long it takes the lender to get all the necessary information.
Deciding on a mortgage is usually based on the interest rate of the loan and how much time you’re given to pay the lender back. You can get a Fixed Rate Mortgage or an Adjustable Rate Mortgage (ARM).
FIXED RATE MORTGAGE
This is a traditional method of financing a home. The interest rate stays the same for the entire term of the loan – usually 15-20 years. This means that the interest and the principal (original sum borrowed) portions of your monthly payment remain fixed. Payments are stable and predictable, but initial rates tend to be higher.
ADJUSTABLE RATE MORTGAGE
The interest on an Adjustable Rate Mortgage is linked to a financial index, so the rate fluctuates with market changes. Thus, payments will vary over the life of the loan. Most have a lifetime cap on rate increases to protect the borrower.
The advantage is that it offers lower initial payments and makes it easier for buyers to qualify. Some are converted to Fixed Rate Mortgages, usually in the first 5 years.
There are many different mortgage products available. To explore further options, such as New Construction Loans, VA Loan(a loan made by a private lender which is partially guaranteed by the Veterans Administration), FHA Loans(a loan insured by the Federal Housing Administration), 5 and 7- year Balloon Loans, consult with your mortgage professional.
When Calculating Your Budget, here are some expenses to consider:
Down Payment - this is the percentage of cash that you will be contributing to the purchase price of the property. The larger this amount, the smaller your mortgage, and the stronger your offer will be. In the current market, 20% is customary, 10% being paid at contract signing, held in escrow (in trust as security by the sellers attorney). If you plan to contribute less than 20% as down payment, you will be required to purchase Private Mortgage Insurance (PMI), which is insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage.
Monthly costs such as mortgage, insurance and taxes
Points - borrowers have the opportunity to reduce the interest rate on their mortgage by paying points at the beginning of the loan. One point is one percent of the new loan.
Additional possible fees as shown in the Buyer’s Cost Worksheet - click here