Buying a home is quite an important decision that can affect your finances for the foreseeable future based on the steps you take now. Your choices in financing, the home price you pay, and even the type of home you buy can all help or hinder your finances. Here are some tips to help you in your financing options as you search for a home to buy.
Seek Bank Financing
One of your choices to help you buy a house is to look for financing through a bank or other financial institution. Banks and mortgage companies will lend you money to buy a home and use the home as collateral. So, if you want to buy a home that is worth $200,000, for example, they will usually lend you up to $200,000 to finance it.
Based on your credit history, your work history, and your income for the past few months, a lender will decide if you qualify to borrow the total amount of money. They will also approve you for the loan based on the current interest rate for a 30- or 40-year loan. You might get approved for a fixed interest rate loan or an adjustable rate that may increase incrementally over the next few years. You can also look at a short-term mortgage that has a balloon payment due in a few years, which provides you the opportunity to pay off the mortgage with a new loan or other financing in a few years.
Look at Other Financing Options
In addition to traditional bank financing, there are other less-traditional lenders who can loan you money for your purchase. For example, one method is through a seller who provides you their own financing, referred to as seller financing, and this is when the loan is carried by the seller of the home.
In this arrangement, you will make your mortgage payment to the seller, which would include the principal and interest for the loan. This payment is based on the interest rate the seller is providing the loan to you for.
Make sure you get the mortgage agreement in writing, which protects you both in the contract agreement. You may also choose to hire an escrow company to handle receipt of the payment and to make sure the property tax and home owner's insurance are paid on time. This arrangement benefits you and the seller both: the seller receives interest on their home equity and you buy the home without having to rely on a bank to do so.
As you shop for homes, look for a seller who would consider this option. They may advertise it on their home's for sale sign or include it with the home's public listing details. Talk to your real estate agent about searching for homes that are offered as seller financed.