The common way to finance a home purchase is through a mortgage loan from a bank or other lending institution. Mortgages come in a variety of terms and interest rates.
- A fixed-rate mortgage has the same interest rate throughout the loan term, typically 15 or 30 years. The monthly payment amount stays the same for the loan life.
- Mortgage rates for adjustable-rate mortgages (ARMs) vary periodically according to market conditions. ARMs often start with a lower rate than fixed mortgages, but the rate and payment amount can increase over time.
- An FHA loan is a type of mortgage-backed backed by the Federal Housing Administration. They require a lower down payment, often around 3.5%. These loans are easier to qualify for based on credit score requirements.
- VA loans are mortgages guaranteed by the Department of Veterans Affairs for eligible veterans, active duty personnel, and surviving spouses. The VA does not require a down payment or mortgage insurance.
Down payments
Traditional down payments are around 10-20% of the purchase price. First-time home buyers can sometimes qualify for 3-5% down payment programs through government loans. Having at least a 20% down payment may allow you to avoid paying private mortgage insurance. Saving up enough for a proper down payment takes years, so start setting aside funds as early as possible.
Cash and personal loans
Some buyers have enough cash on hand or in savings to purchase Oklahoma Real Estate MLS outright without needing a mortgage. This option provides maximum flexibility and control without monthly mortgage payments. Personal loans from banks or credit unions are another financing option that provides one lump sum to purchase the property. These tend to have higher interest rates and shorter repayment terms than mortgages.
Getting pre-approved
Pre-approval from a lender should be the first step when starting your home search. Pre-approval provides a credit check and pre-qualification estimate letting you know the mortgage amount you could potentially qualify for. Being pre-approved makes your offers on homes stronger and more attractive to sellers. It also gives you a budget range to focus your home search on. Be sure to shop interest rates from multiple lenders and get pre-approved with several. Comparing mortgage offers helps you find the best rates and overall financing package. Online lenders sometimes offer lower rates than major banks. Local banks and credit unions catering to your area may provide better customer service.
Pay down debts and improve your credit score
To get the best mortgage terms, work on paying down existing debts and improving your credit score in the 6-12 months before applying for pre-approval. Lenders favor applicants with lower debt-to-income ratios and excellent credit. On-time payment histories on all current debts significantly help your case. Limit new credit applications in the months just before you apply. Think about whether you plan to live in the home for the long term or may sell within 5-7 years. Opt for shorter mortgage terms if not staying beyond that timeframe. Longer terms with lower payments might work better if holding the property long term. Also, factor in plans like renovations that could impact the financing amount needed.
