First-Time Home Buyer in Washington Guide
Buying a house is one of the most exciting things you can do in life – but you might be feeling nervous and confused about the process of getting a mortgage.
Luckily, if you’re a first-time home buyer in Washington, this guide is full of simple tips and tricks just for you. Read on to make sure you have a great experience buying your first home.
How Home Loans Work
When you take out a home loan, your lender gives you money to buy a house and then you pay the loan back in monthly installments with interest. A home is a significant purchase so it takes a little longer to get a mortgage compared to other loans.
Here are the steps you might go through as a first-time home buyer in Washington:
- You choose a lender and provide them with all the necessary documents and information, including how much you have as a down payment.
- You can choose a term that suits your budget.
- Depending on what type of home loan you get, you might be able to choose the type of interest (fixed vs. adjustable).
- You’ll get pre-approved for a certain loan amount and can start shopping for your new home within the right price range.
- You put in an offer on a house and your real estate agent begins negotiating the deal.
- It may take about six weeks to close on your home loan. This period might include an inspection or appraisal of the home to make sure it’s a good buy.
- Your lender gives you the money and you pay the sellers for the house.
- You’ll need to pay various closing fees upfront (or possibly have some of the fees rolled into your mortgage).
- You take possession of your house and start making monthly mortgage payments!
What You Need to Know About Interest
Your mortgage term will likely be between 10 and 30 years. Over that time, the interest you pay will add up to thousands of dollars so you want to get the best rates possible.
What’s a Fixed-Rate Mortgage?
This means you pay the same interest rate throughout the life of the loan. Your rate won’t go up and down with the market, but depending on when you lock in your rate, it could be higher or lower, so timing is everything.
The good news is, your monthly payment will be the same each month (except that taxes and insurance may change).
What’s an Adjustable-Rate Mortgage (ARM)?
ARMs usually have a low fixed rate for the first few years and then start going up and down with the market, so your monthly payment changes slightly, too. This is great if you want lower monthly payments at the start of your loan, giving you time to increase your income before your payments go up with fluctuating rates.
Another way to buy yourself time is through a balloon mortgage, where you plan to make a lump sum payment at an agreed time in the future.
Do I Pay the Same Amount of Interest Each Month?
The short answer is no. Even if your interest rate is fixed, you’ll see that most of your monthly payment at the start of your loan goes towards interest. Then, near the end of your term, a bigger chunk of your payment goes towards the money you borrowed (the loan principal).
This is because, each month, you pay interest on your current loan balance. So the interest payments are bigger at the start because your mortgage is greater. You can see all your future payments laid out in a schedule called an amortization table.
Does My Credit Score Affect My Interest Rate?
Yes, your credit score will impact the rate your lender can offer you: The higher your score, the lower your rates. Certain loans are available to people with lower credit, such as a Federal Housing Administration Loan (FHA).
Do I Need a Down Payment?
Some types of home loans don’t require a down payment. But having a down payment may improve your chances of getting approved, and you might be offered a better interest rate.
In some cases, a down payment under 20% may mean you have to get private mortgage insurance (PMI). For example:
- FHA Loan: Needs a down payment of just 3.5% plus upfront PMI
- Veterans Affairs (VA) Loan: Doesn’t require a down payment or PMI
- Conventional Loan: Down payment and PMI depends on interest type
How to Compare Loans With Different Terms
The loan term you choose will impact your monthly payment and how much total interest you pay. You can use a home loan payment calculator to play around with different loan terms and see what will work best for you.
Here’s what you need to know as a first-time home buyer in Washington:
- The shorter your loan term, the higher your monthly payment – but you’ll pay less total interest over the life of the loan.
- The longer your loan term, the lower your monthly payment – but you’ll pay more total interest over the life of your loan.
Note: Adjustable-rate mortgages might not come with the same choice of loan terms as fixed-rate mortgages.
What Lenders Look For When Processing Applications
It’s natural to feel daunted when you approach a lender for the first time, but you can relax knowing they’ve been through it many times before with people just like you. Your lender just wants to get to know you and make sure you’re a safe bet for a mortgage – because nobody wants you to lose your home if you default on payments.
As a first-time home buyer, your lender will likely check your:
- ID and proof of address
- Credit score
- Proof of household income and tax returns
- Bank statements and proof of any assets
- A gift letter if someone is helping with your down payment
Next Steps for First-Time Home Buyers in Washington
Before you take the next step in contacting your lender, make sure you have all your ducks in a row and documents ready. Hopefully, you’ve got your credit in shape. Maybe you’ve even managed to save for a down payment.
All that’s left to do is a little research. After comparing a few different home loans, you’ll be ready to ask your lender all the right questions.
Click below to read up on some great mortgage options for you and your family!ACU Mortgage Center