Congrats! You’ve just found your dream home. Now, you’ve got to figure out how to finance it.
While house hunting is exciting, shopping for a Waco home loan can often feel a little intimidating. And with so many financing options and lenders to choose from, you might feel analysis paralysis creeping in.
As Central Texas’ hometown bank for over 130 years, we’ve helped lots of first-time homeowners like you navigate the often confusing home-financing process. In this article, we’ll explain how to position yourself as a strong borrowing candidate, find a home loan that meets your budget, and help you make a solid financial decision.
Tip #1: Start Preparing Your Finances
Long before you start applying for home loans, review your credit score and personal finances, and try to spruce them up, if needed.
Remember, lenders are looking to minimize risk wherever possible, and a solid credit score tells lenders that they can trust you to repay your loan. A higher credit score also means you’ll receive a lower interest rate, which will save you money over the term of your mortgage.
Once every 12 months, you’re entitled to a free credit report from each of the three main reporting bureaus—Experian, Equifax, and TransUnion—by visiting annualcreditreport.com. If you have a less-than-ideal credit score (anything below 620), look through your credit reports for errors, late payments, delinquent accounts in collections, and high balances.
Tip # 2 Decide How Much Loan You Can Afford. Don't Let the Lender Decide For You
It’s no secret: some big box lenders out there view you as a number, not a person. Because of this, they may want to give you the biggest loan they think you’ll be able to afford, as this maximizes their profit. While it’s tempting to take the extra money and buy a flashier property, it’s important to make your own decision about how you can realistically afford to pay back.
The fact is a large mortgage payment could leave you house broke and interfere with other long-term financial goals you have, such as saving for retirement. If you take the time to decide what loan fits your budget, you’re less likely to get talked into borrowing a larger amount that leaves you “house poor”.
Tip #3: Figure Out Which Type of Home Loan You Want
When deciding which type of loan you want, you’ll need to consider factors such as interest rates, how long you plan on staying in the home, and what works best for your budget.
Here’s a brief overview of the most common types of home loans:
Fixed Rate Mortgage
Fixed-rate mortgage loans lock you into a long-term interest rate for the entire length of the loan and typically come in two varieties: 30-year and 15-year loans.
The 30-year fixed-rate mortgage is the most popular home loan and is best for buyers who want the lower monthly payment that comes from stretching out repayment over a long time. A 15-year mortgage, in contrast, has higher monthly payments because of its shorter loan term. This is ideal for homebuyers who want to build equity and pay off their house in half the time.
Because of their long-term interest rates, these loans might be appealing for homebuyers looking to put down roots.
In an adjustable-rate mortgage, payments are set for the first few years (typically, three to five years). Then, the rate and monthly payment can change according to the market conditions. With this option, make sure that you are prepared. If the market rates rise, so could your payments.
This option could work well if you plan on relocating within five years or you’re willing to gamble on market rates in the future.
Federal Housing Authority (FHA) loans are backed by the government and are designed to help borrowers of modest means buy a home. An FHA loan allows buyers with low credit scores and limited down payment funds to pay as little as 3% down payment.
Though these loans have an easier qualification process and offer more flexibility, they also require you to pay for mortgage insurance each month. If you don’t qualify for conventional loans, either because of a poor credit score, limited income, or because you can’t afford to meet the standard down payment of 20%, an FHA loan might be your best option.
In addition, there are many federal, state, and local programs available to help potential new homeowners purchase a home. The friendly and knowledgeable mortgage officers at TFNB can help you discover which Waco home loan best meets your needs.
Tip #4: Shop Around With Different Lenders
After you’ve found your dream home, your impulse may be to move quickly to secure financing—especially in a competitive housing market. But, you don’t don’t want to settle for the first loan you’re offered only to be stuck with a bad deal down the road.
Instead, get quotes from different lenders—ideally, three or more—to ensure you’re getting the best deal on rates, fees and terms.
Not all home loan offers are created equal. A lender might advertise a low interest rate to draw you in, but they charge higher fees compared to other lenders. Alternatively, a lender might offer a low fee, with higher rates.
The lesson here is that you should always take time to read the fine print and explore which offer works best for you.
Tip #5: A Good Lender Is a Good Communicator
How do you know if you’ve found the right lender? Besides offering competitive rates and fees, they should also be knowledgeable and great communicators. After all, a house is a big purchase, and the nuances of financing can be confusing, so you should find someone who helps you understand your loan options. The best loan officers can convert complex terms into easy-to-understand language for their clients and are always available to provide clarification or status updates.
For this reason, it might be better to work with a local Waco home loan provider, rather than a big box bank. The friendly mortgage officers at TFNB know the area, will help figure out which option best fits your needs, and can be easily reached if you need an update on the progress of your loan or simply have a question.
Choose TFNB for Waco Home Loans Without the Stress
Finding the right home loan is just as important as finding your dream home. And no one can help you do that better than an experienced Waco home loan banker, like TFNB. If you’re ready to close on a home or want to learn more about your financing options, stop by one of our locations to talk to a friendly TFNB banker.