Did you know that more homes were sold in 2020 than in the past decade? Despite the pandemic, many people used the time as a way to make major changes to their life, which included selling their houses and moving somewhere new.
If you and your spouse or loved one are first time home buyers, you may be wondering about the mortgage process and home loan process. Here are some key tips for how to avoid getting scammed while securing your very first home loan.
Longer Loan Periods
Although it may seem more attractive to pay less over a longer period of time, this can actually cause more problems for you. If you are buying a home in your twenties and you plan to stay there, a longer amortization may be the best option for you.
However, these loans usually have higher interest rates that compound over time. For those who plan on moving again, this option can cost you much more money overall.
Ever seen mortgage rates that seem too good to be true? Chances are that these are adjustable-rate loans, meaning that the lender can change them at any point during your loan contract.
You can get a good deal today, but if housing prices drop, the lender may raise mortgage rates in order to make up for the loss. That means you will make higher payments. However, adjustable rates can be a suitable option for people who move around a lot and buy homes frequently.
No Down Payment
Some special loan programs, such as the VA Loan for veterans, allow people to buy homes without money down. In theory, it allows people to get into a home faster because they avoid saving for a down payment.
However, this is generally not a good idea, as you could end up owing more on the house than it is worth. You are also more likely to put the house in foreclosure These factors discourage lenders from taking on borrowers with no down payment.
Balloon Principal Payments
You may see products like interest-only loans and loans that allow you to name how much you want to pay each month. While these seem attractive, they almost always have a huge amount, or a balloon payment, due at a certain time.
These types of loans also build negative equity for homeowners by upping their payments every month. To avoid getting scammed by loans with these tactics, make sure you sign up for one of the FHA loan programs, which have insurance on them.
First Time Home Buyers: Don’t Make These Mistakes
You should not have to worry about paying too much or engaging in shady mortgage deals to own your very own home. When you are first time home buyers, you can land the house of your dreams and feel secure in the mortgage decision that you made.
Want more tips on how to get the perfect home? Check out our Home section for more tips and advice.