Start Right: Getting a Loan and Buying a Home

Couple meeting the agent

As buying a home is mostly a financial undertaking, getting a mortgage is necessary to close a sale. The process of obtaining one, however, can be both confusing and overwhelming, especially with the vast amount of information that homebuyers need to review or sift through to secure a loan.

If this is the same for you, it is advisable to start with the typical home loan concerns. Mortgage lenders in Portland share some of the basic things you need to know when getting a loan and buying a home:

What is the most popular loan choice? Is it right for me?

The 30-year fixed-rate mortgage is the country’s most popular loan choice.  This offers a competitive rate and a lower monthly payment that will remain the same throughout the life of the mortgage. This stability will allow you to manage your budget, as you know that your loan payments will be the same every month.

There is, however, a downside, which is paying more interest over the life of the loan. Many first-time borrowers are willing to take this risk, but you should know that there are also other options like the 15-year fixed-rate loan. This usually has a lower rate than a 30-year loan and a higher monthly payment. The good part is, you’ll build equity faster and pay less interest.

What is the right down payment amount?

While the ideal amount is 20% of the property’s purchase price, not everyone can afford it. Fortunately, there are now loan options that allow a low down payment as little as 3 to 5%. One good option is the Federal Housing Administration (FHA) loan, which requires a down payment of 3.5%. You can also qualify for this mortgage even with a credit score as low as 500.

There also conventional loans that require little down payment, but do take note that this comes with private mortgage insurance (PMI). This protects the lender in case you default on the loan. PMI and insurance premiums (on FHA loans) may increase your monthly payment, but they enable you to buy a home sooner instead of waiting for months to save a bigger down payment.

Quick tip: You may be allowed to pay a down payment lower than 5%, but do take note that hitting the bare minimum amount is not always a good financial move. This is because it could also mean that you’ll have to pay more money than what the house is worth. Building equity will also take longer. This is why if possible, aim for at least 10 or 15%.

What should be my first move when buying a home?

Couple looking at the house

A mortgage preapproval should come first before house hunting. This lets you know the amount of loan you can borrow, as well as the associated monthly payment and interest rate. This then prevents you from looking at homes that are beyond more than what you can afford. A preapproval letter, moreover, indicates that you are a serious homebuyer.

Keep in mind, however, that the loan value indicated in the letter is the maximum amount you can borrow. It is best to shop below that limit and determine the monthly loan payment that suits your income and current situation. Do take note that in many cases, qualifying for a larger loan does not always mean that you can afford the monthly bill that goes along with it.

Be an informed buyer by doing some research and talking to a reliable lender. You should put in an extra effort in making yourself an attractive mortgage candidate.

About Eleanor Sharp
Eleanor Sharp is the author of AGSE Law. As a paralegal, she has worked with attorneys in many fields to ensure their clients get the best advice and representation. She is passionate about helping people understand the complexities of the legal system so they can make better decisions for themselves. Eleanor loves reading, travel, and spending time with her family. She hopes her articles will help others navigate life’s legal intricacies with confidence.