Home Financing 101
When it comes to buying your first (or next) home, there are a lot of things that you need to know before you even start looking at homes. In this post, we’re going to help give you some of the basic information that you need to know about home financing, so you can be prepared to tackle each step in the home-buying process as it comes.
As custom home builders in Minneapolis and North Dakota, we know how important it is to feel comfortable with all steps of the home buying process.
Home Financing Terms
Here are a few home financing terms that you’ll encounter along the way that are important to know.
Pre-approval – This is something you get through the bank that lets you know exactly how much the bank is willing to lend you for your home, so you can keep that price range in mind while searching.
Principal – This is the amount that the lender gives you for your loan, that you will have to pay down over the course of the loan, usually 30 years.
Interest rates – This is the percentage of the loan that you have to pay to the bank. Your interest rate will depend on your credit score, which bank you go through, and when you apply for the loan. Interest rates will change over the years, so you can sometimes re-finance your home later to get a better rate for the rest of your loan.
Points – These are the fees that you will have to pay to the bank when the loan is closed. They’re based on the total amount of the loan and will vary from lender to lender, so be sure to ask about these before you begin. Some banks will offer a “no point” loan, but these often have higher interest rates.
GSE – Government Sponsored Enterprises. The most common of these private companies that are backed by the US government are Fannie Mae and Freddie Mac. You will likely be using one of these as your lender when buying a home.
Mortgage Bankers and Pre-Approval of Loans
Find a mortgage banker that you’re comfortable with, and then sit down with them and let them know what your budget is and find out what your best options are. They can also help you get pre-qualified for a loan. Getting pre-qualified will help give you an edge when putting in offers on homes because there’s less risk to the seller.
Extra Costs to Be Prepared For
There are quite a few costs involved with owning a home that many first-time homebuyers are not prepared for. These include the principal and interest of the loan, property taxes, home insurance, and sometimes homeowner’s association fees. Be sure to calculate the cost of each of these when planning your homebuying budget to make sure you can afford your new home.
Property taxes are paid to the government every year and based on the value of your property. You can get home insurance through a number of different companies, and the cost will vary greatly depending on where you live, what company you go through, and the type of insurance you have. Homeowner’s association fees only apply to certain people who are part of a homeowner’s association.
Once you understand the basics of home financing, you can begin to look for a mortgage banker to begin the process of buying your first home!
Feel free to contact us here at Tollberg Homes for any questions about any of the common terms or the Minneapolis home building process.
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