Are you thinking about becoming a homeowner? Before you begin, there may be a few steps that will help the process go smoothly.
First, visit Wisconsin River Bank to pre-qualify for your loan. This will allow you to get an estimate of how much you are able to borrow. Having a pre-approved loan can give you the advantage when making an offer on your prospective home. Once you have been pre-approved, by the bank, look for a real estate agent that you trust will be honest with you. They can give you insight on the asking price, whether it is reasonable or not.
Next, shop for the type of home mortgage that best suits your needs. There are numerous options. Loans can have a fixed interest rate for the term, such as 15, 20 or 30 years, or a variable interest rate. A fixed-rate mortgage charges the same percentage rate of interest over the life of the loan, with varying durations. A 30-year fixed rate loan is the most common loan type requested, as it keeps your payments reasonable, with most mortgage holders allowing you to pre-pay. A 15-year fixed rate loan is common with buyers who are older or can afford a higher payment, and want to build equity quicker. Just remember, the longer the term of the loan, the more interest you will pay in the end.
A variable interest rate mortgage, sometimes called an ARM (adjustable rate mortgage) is one where your interest rate will change from time to time to bring the loan rate in line with the changing market rates. ARM’s are utilized by first time buyers who like the initial low rate and lower monthly payments. ARM’s are also popular when homeowners plan to sell their home within a short period of time.
When you decide which loan type is best for you, and you have reached an accepted offer with the seller, your final step is to obtain final approval on your loan. Before approving a loan, a bank, such as our bank, will look at your debt-load. Follow the “20-10 Rule” to avoid carrying too much debt. Your home loan payment should not be more than 20 percent of your monthly take-home pay, and your other monthly debts should not be more than 10 percent of your monthly take-home pay. The final approval will come after the property has been appraised, all documentation needed is in the hands of the lender and all contingencies have been met. Within three days of application, your lender will give you a written estimate of all closing costs. Closing costs can range from 2 to 4 percent of the loan amount, and will be paid at the time of closing.
At the closing be sure to examine your paperwork carefully before signing and ask questions if you have any. After all the papers are signed and documents have been recorded in the Register of Deeds Office, congratulations are in order. Consider yourself the proud owner of a “new home”. Feel free to call Wisconsin River Bank at 608.643.6300 (Sauk) or 608.592.7788 (Lodi) to speak with a lender to start your home mortgage loan process.
When you think of June, several images spring to mind, such as weddings and the end of the school year. Yet – did you know June is also National Homeownership Month? To help consumers traveling the path to owning a home, the American Bankers Association, along with Wisconsin River Bank, offer these tips:
Know what you can afford to buy.
It may seem like everyone is buying a home so you should too; yet first you must determine if you can afford to buy. Wisconsin River Bank offers mortgage calculators to help you determine if you can afford to borrow and if so, how much. Click here for our online calculator.
- Do your homework. When considering what type of loan (fixed, ARM or other), it is important to look at both your current and future income and expenses.
- Consider all the costs. One of our lenders will be happy to review loan costs with you, such as recording fees, closing costs, points, home insurance, etc. Home buyers should also consider repairs and maintenance of a new home in their costs. As a new homeowner, you are responsible for those additional costs — there is no longer a landlord to call.
- Organize your finances before you go to a bank. While each bank may require different documentation, at a minimum you will need: current pay stubs; current tax returns (some require two years); financial statements (one that is less than 60 days old); copies of additional monthly payments such as a vehicle loan, credit cards, student loans, etc., and any additional information (such as proof of additional income) that you think will help a banker to positively evaluate your credit request.
- Pay off or pay down other loans. Credit cards, auto loans or other small loans should be paid off or paid down before you look for a home mortgage. This will help increase your credit score and could qualify you for a larger mortgage or a more favorable interest rate. Click here for Credit Report Links
- Plan for the future. A home is a long-term investment, so if you plan on being in an area only a short period of time, renting may be a better option. The rule of thumb is, if you plan on staying in an area less than five years, buying a home may not be the investment you should make. Instead, focus on paying down existing debt and building your savings.
This information is provided by Wisconsin River Bank, in conjunction with the American Bankers Association, and we sincerely hope you have found it helpful.