Some home buyers in the San Francisco Bay Area use the 5-year adjustable-rate mortgage (ARM)…
Are you buying your first home in California in 2017? Do you need to use a mortgage loan to finance your purchase? If so, keep reading! These are some of the most important mortgage tips for first-time home buyers in California. It’s a great place to begin your research.
5 Mortgage Tips for California First-Time Home Buyers in 2017
Researching the different types of home loans, putting a monthly budget on paper, and getting pre-approved. These are three of the smartest moves you can make before shopping for a home. So let’s talk about them in more detail.
1. Research and understand the different types of home loans.
California first-time home buyers often feel overwhelmed and intimidated at the prospect of choosing a mortgage loan. This is understandable. Buying a home is a major investment, so you want to do it right. At the same time, mortgage loans can be unfamiliar territory for first-time home buyers.
Here’s the good news. You basically have two primary choices to make when choosing a type of mortgage loan: (1) fixed or adjustable interest rate, and (2) conventional or government-insured home loan. There are pros and cons to both of these choices.
Regarding the interest rate, a fixed-rate mortgage might be best if you’re planning to stay in the home for many years, while an adjustable (ARM) loan could save you money during the first few years.
If you’re a member of the military, it’s hard to beat the VA loan program. It offers 100% financing, which means you could buy your first home in California with no down payment whatsoever.
Federal Housing Administration (FHA) home loans are a popular mortgage option among California first-time home buyers, because they offer a low down payment and flexible qualification criteria.
2. Consider paying points for a lower mortgage rate.
Here’s another important mortgage tip for California first-time home buyers. If you want to keep your monthly payments as low as possible, consider paying “points” at closing in exchange for a lower rate.
Discount points are basically a form of prepaid interest. One point equals one percent of the loan amount. With this strategy, the borrower pays a certain number of points (or even a fraction of a point) up front, in order to secure a mortgage lower rate. This is a viable option for California first-time home buyers who can afford slightly higher closing costs, and want to reduce their monthly payments as much as possible.
3. Create a basic housing budget with monthly spending limits.
Every first-time home buyer in California should have a basic budget on paper, before entering the real estate market. But that’s not always the case. Some people skip this step entirely, and this can lead to problems down the road.
Creating a home-buying budget forces you to think about your monthly income and expenses, your financial goals, and even your quality of life. The goal here is to find out how much you can afford to spend each month on your combined housing costs, and to stay within that range when shopping for a home.
4. Get pre-approved for a loan before house hunting.
This is another important piece of mortgage advice for California first-time home buyers, and it could save you a lot of time and energy.
You might be tempted to rush straight into the shopping stage of the process. After all, that’s the fun part! But there are things you should do before you start house hunting, and mortgage pre-approval is one of them.
Pre-approval is when a lender reviews your financial situation to determine how much of a loan obligation you can take on. There are several benefits to this. For one thing, sellers will be more inclined to accept your offer if you’ve been “vetted” by a lender. Real estate agents will also be more willing to assist you. Pre-approval also helps you shop within your budget, which can be a big time-saver.
5. Don’t be intimidated by down payments.
There are a lot of misconceptions regarding mortgage down payments. For example, some first-time home buyers in California believe they have to put down at least 20% of the purchase price. But that’s not always the case. Down payments can be as low as 3% for conventional loans, 3.5% for FHA, and 0% for VA home loans.
Additionally, most mortgage programs in 2017 allow for down payment gifts. This is when a friend, family member or employer gives the home buyer money to cover the down payment.
The point is, there’s quite a bit of flexibility when it comes to down payments. So you shouldn’t automatically assume you can’t afford one.
Need a loan? Bridgepoint Funding has been helping first-time home buyers in California for more than 15 years. We offer a variety of loan options with competitive rates and flexible criteria. Please contact us with any questions you have about getting a mortgage loan in California.