It's springtime, which is an exciting time to think about buying a new home in beautiful Indianapolis. But are you ready to purchase a home? Before you search for a mortgage and sign on a new home, there are number of important questions you should ask yourself. The decision you are about to make will impact the rest of your life, so you need to make sure that you are choosing the right home and the right loan for your needs.
Questions to Ask Before Applying for a Home Loan
- What can you afford? The first thing to do before you even shop for home is go over your budget carefully and ask yourself how much home you can afford. Remember, you must not only think about your current financial situation, but also your expectations for the future in terms of your income, investments, and other expenses. This can be a challenge since you will need to make predictions about your professional future, and in some cases, you might also need to ask yourself questions about family planning. Do you have kids? Are you planning on having kids? If so, how many? Will you be sending them to college? If your home is going to be a long-term investment, you need to take all these long-term factors into account.
- Are you able to handle the down payment? The next thing you should think about specifically is the down payment on your home. In some cases, you might be able to qualify for a low-down payment or even no down payment (for example with a VA loan & USDA loan). But in a lot of situations, it is to your advantage to put down a full 20% at the time you purchase your home. This might get you out of paying for private mortgage insurance (PMI). Do the math and figure out whether it is worth it for you to put down a higher down payment if it means that you will not need to purchase PMI. If that means waiting a little bit longer to buy your home, that investment in time may pay off.
- How long do you plan to stay in the home? The next big question you should ask yourself is whether this home is a short-term or long-term purchase. Do you plan to stay here for just a couple of years, or will you be building a life in Indianapolis and putting roots down in the house you are purchasing them? The answer to this question can help guide your decision regarding whether to go with a fixed or adjustable interest rate on your mortgage. If you will only be staying in the house for the next couple of years, you can save money if you go with an adjustable-rate mortgage. If you'll be staying in the house for longer however, ballooning interest rates could make your loan unaffordable over the long run. That is why for a long-term housing situation, a fixed-rate mortgage is usually a wiser, more economical choice.
- What fees can I expect? With any mortgage, there are number of fees which are going to be tacked on, and which are important to be aware of before you finalize your decision. Many of these fees will end up being bundled together into the closing costs. Some examples are appraisal fees and fees for loan origination. You can find out an estimate of what these fees are going to add up to in advance by requesting a form from your lender. With a mortgage broker you can structure the loan for the lender to pay some or all of the closing costs.
- Do I qualify for any special cost-saving programs? A lot of homebuyers in Indianapolis assume going into the process that they are shopping for conventional loan. While that is the suitable product for many purchasers, it is worth checking first to see whether you might qualify for cost savings through a government program. Consider looking into FHA loans, for example, which are backed by the Federal Housing Administration. You might think that these are only available to first-time homebuyers, but, many returning homebuyers also qualify for FHA loans. An FHA loan can help you qualify for a loan with poor credit and may also reduce your interest and down payment. There are also conventional programs called Home Ready. These programs are perfect for people who have limited savings for a down payment and make less than $58,000 per year. There are many areas of Indianapolis that do not have income restrictions.
If you are in the military or are a retired service member or eligible spouse, you should also investigate VA loans. These loans are insured through the Department of Veterans Affairs. A VA loan gives you the opportunity to skip out of the down payment entirely with no PMI requirement.
Something else Indianapolis homebuyers should investigate is the USDA Rural Housing Loans program offered through the Department of Agriculture. You might be surprised at the housing districts in our area which the USDA defines as "rural." Like VA loans, USDA loans free you from the need to provide a down payment. They also can reduce interest rates.
Contact Mortgage Lender Specialist in Indiana
You now know some important questions that you should ask yourself if you are shopping for a home and looking to sign on a mortgage. If you need help answering these questions and figuring out what type of loan is most suitable for your needs, contact Grandview Lending at (317) 255-0062, and we will walk you through the process.