Buying a home has always been the biggest and most consequential financial move most people make in their lives, but today's environment can make it especially challenging, leaving little room for mistakes. The biggest mistake prospective home buyers can make is to embark on a pursuit of their dream home without having a well-conceived plan in place to minimize their obstacles and increase their chances of obtaining the most favorable loan terms.
Your Essential Home Buying Plan
Select your Lender
While you could wait until you're ready to get pre-approved to choose your lender, the right lender can be invaluable in facilitating each step of the plan from the very beginning. First Interstate Bank has the resources and the experience to help you navigate the entire home buying process. We can help you plan for what's ahead so you can make informed decisions each step of the way.
Determine How Much House to Buy
It's important to remember that the loan interest rate is just a part of the expense homeowners must be able to cover each month. The total cost of a mortgage, which is represented by the annual percentage rate (APR), also encompasses loan origination and closing costs. The total mortgage payment, however, will also include the principal payment, taxes, and insurance, all of which will vary depending on a number of factors, such as your property location, type of loan, and loan amount. You may also incur additional monthly expenses such as homeowner's association fees and other insurance coverage.
Use the financial calculators available at www.firstinterstatebank.com/personal/calculators to estimate your financing costs.
Now is the time to establish a realistic budget that includes all of the costs associated with homeownership, including maintenance and repairs. Generally, your total monthly housing expense should not exceed 36 percent of your total debt expense to be considered "affordable."
First Interstate Bank's free pre-qualification service can set you in motion with an estimate of how much you can borrow, based on basic financial data you provide.
Check your Credit
Before you go house-hunting, it's strongly recommended that you get pre-qualified by a lender. That being said, it's a good idea to check your credit report and score to see where you stand prior to meeting with your lender. Your credit score and history will be a determinant in how big of a loan you can qualify for as well as your interest rate. Taking measures beforehand to improve your credit score can lower your long-term costs and accelerate the loan approval process. You can request and receive credit reports at annualcreditreport.com or 1-877-322-8228.
Decide Which Mortgage is Right for You
For the new homebuyer, mortgages generally come in two type - fixed and adjustable. Determining which is right for your situation should be based on a number of factors: your budget, your income/debt ratio, the length of time you plan to stay in your home, and your outlook on interest rates.
First Interstate Bank Fixed Rate Mortgage
The most common terms for fixed mortgages are 15-year and 30-year with the interest rate fixed for the term of the loan. In either case, your principal and interest payments are amortized over the loan period so that, in the early years of the loan, interest expense comprises the biggest portion of your payment, and as the loan matures, more of your payment is comprised of principal. The primary difference between the two loan periods is that your monthly payments will be higher in the 15-year term because you will be paying down your principal more quickly. Generally, a fixed rate mortgage may be right for you if you plan on staying in your home for a longer period of time and you want a stable monthly payment.
Features and Benefits of a First Interstate Bank Fixed Rate Mortgage
- Available for 15, 20, 30, and 40 year terms*
- Up to 95 percent loan-to-value financing (LTV)* (some government loans allow 100% financing)
- Jumbo loans available for loan amounts over $417,000
First Interstate Bank Adjustable Rate Mortgage (ARM)
With an ARM, your initial interest rate is set below the prevailing fixed interest rate for a period of three to seven years. At the end of the initial fixed-rate period, the interest rate is reset based on the prevailing rates at the time. If interest rates have increased over the initial period, your rate will be adjusted upward. Most ARMs include an annual adjustment cap of around 2% and a lifetime cap, typically around 6%. After the fixed-rate period, rates are adjusted annually (some may adjust every three years) with adjustments tied to a monthly interest rate index such as the LIBOR or the Treasury rate.
An adjustable rate mortgage may be right for you if you plan to move or refinance within a few years and you want the lowest possible mortgage payment for that period of time.
Features and Benefits of a First Interstate Bank Adjustable Rate Mortgage
- Available for 10,15,20, and 30 year terms*
- Initial fixed rate period of 3,5, or 7 years*
- No prepayment penalty
- Lifetime interest rate cap
- Up to 95 percent loan-to-value (LTV) financing*
First Interstate Jumbo Loans
Also called non-conforming loans, jumbo loans are mortgages with loan amounts that exceed the conforming loan limits set by Fannie Mae or Freddie Mac. A jumbo loan may be right for you if you need to borrow more than $417,000, which is the conventional loan limit.
Features and Benefits of a First Interstate Bank Jumbo Loan
- Both fixed rate and adjustable rate options are available
- Available for 10, 15, 20, and 30 year terms*
- Financing available up to $1 million
Gather Your Documents
With your credit in check, you're ready to obtain a pre-qualification from a lender. With a pre-qualification, you are able to shop for house that you know you can afford, and you will be in a stronger position to negotiate with the seller. You will want to approach your lender well-organized with essential documentation in hand. At minimum, you should have ready to hand over to your lender the following:
If you're pre-qualified, you'll walk out with a letter that indicates to sellers that you are ready to buy a home up to a certain amount. A pre-qualification letter gives you nearly as much purchasing power as walking in with cash. With letter-in-hand, you are ready to begin your home search in earnest.
Inspect what you Expect
When you find your dream home it is imperative that you thoroughly assess the home and its surroundings to know with the highest level of certainty possible that it is everything you expect. The mortgage process requires a home appraisal, but you will also want to conduct your own assessment of the neighborhood, the schools, the local business community, the social scene, etc.
Get Ready to Close
Going into the closing period you should be fully aware of all of the costs you will incur, some of which will need to be paid at the closing appointment, and others which may be included in your loan. Your lender should have provided you with "good faith estimate" of these costs at the time of loan application. Among the more common closing costs and fees are:
If you are considering buying a home now or in the future, we encourage you to sit down with a First Interstate mortgage loan originator to discuss your home buying plans. Visit one of our convenient banking centers at a location near you or start your application online.
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