As we start to think about warmer weather, those of us in the market for a new home are starting to get serious about house hunting. It’s exciting, but can also be a little nerve wracking. And that’s where we can help you! We have an in-house mortgage team who would love to give you some tips personalized to your own journey. Here are some things to think about:
LEARN THE VOCABULARY
You already know that a mortgage is a home loan. But there’s a lot of terminology that can be confusing. For example, mortgages can be fixed or adjustable. This simply refers to the interest rate. If you have a fixed mortgage, then the interest rate will always be the same throughout the lifetime of the loan (or "term"). At R.I.A. Federal Credit Union, our fixed rate loans are 10, 15, 20, or 30 year loans. Usually, the shorter the term, the lower the interest rate on your mortgage.
If you have an adjustable rate mortgage (ARM), then the interest can vary during the loan. We have loans that are 3/1, 5/1, or 10/1 ARMs. Don’t let the lingo scare you—it’s actually pretty simple. In a 3/1 ARM, the interest rate is locked in and fixed for three years, then will vary for 27 years. In a 5/1 ARM, it’s fixed for 5 years, then can vary for 25 years. Usually there is a cap on how much the interest rate can change. That’s important for you to find out when you’re considering an ARM.
GET A PRE-APPROVAL
A house is a huge expense, so it’s important to have a clear understanding of how much you can actually afford. Getting a mortgage pre-approval will show how much you can afford to spend, and keep you looking at houses in the correct price range. Also, it shows the realtor, and the seller, that you’ve passed the credit checks already.
Here’s a word of advice with pre-approvals, though—There’s more to think about than just the monthly house payment (which will include principal, interest, insurance, and taxes). You also need to consider things like the down payment, closing costs, moving costs, maintenance, upgrades, utilities, and possible Homeowners Association dues, as well as other miscellaneous costs. It’s a lot to consider. But if you give it careful thought at the beginning of the process, you’ll be spared some stress later on.
AVOID BUYER’S REMORSE
Before you head out with your realtor, make a list of things in the house hunt that are really important to you, and which things are absolute show stoppers. This varies from person to person, but if you are very clear on what you want, and don’t want, it will help you avoid making emotional decisions that you regret later. It’s OK to have buyer’s remorse over a pair of shoes or a new TV, but it’s not OK to have buyer’s remorse over a house! So take time and carefully make out a list of must haves, and must-not haves. Make sure to include things like school districts, neighbors, even sidewalks, in that list. The more thorough, the better.
GET DOCUMENTS IN ORDER EARLY
As soon as you start looking for a house, you should also start getting your documents together. There are a lot and you don’t want to be scrambling last minute to find them all.
Lenders typically request the last two years’ W-2s; two of your most recent, consecutive pay stubs; the last two months’ bank statements for all financial accounts (all pages included, even the blank ones); signed personal and business tax returns (all pages included, even the blank ones); and a copy of the signed Purchase and Sales agreement. If you are self-employed, you may need to provide a copy of your most recently quarterly or year-to-date profit/loss statement.
Lenders also may want you to provide documents of your total monthly debt payments, any credit issues in the past few years, and the source of any big deposits (e.g., your parents gave you money for a down payment).
REMEMBER THAT WE CAN HELP
Hopefully these tips will help you breathe a little easier. But if you find yourself getting overwhelmed, remember to call us and talk to a member of our mortgage team. We want to help get you into a new house and we have years of experience. You can visit riafcu.com/homes or call 1-800-742-2848 for information on ways R.I.A. Federal Credit Union is here to help!