Buying a home is a massive commitment. When you’re going through the homebuying process for the first time, you want to make sure you understand the finer details to avoid unneeded stress. In this blog, we’ll share some essential information and advice to help make you a more educated and stronger buyer.
Differences Between an Interest Rate and APR
Your closing disclosure just came, and it looks like something isn’t quite right. You were promised one mortgage rate, but the disclosure now has an unfamiliar number on it.
You’ll probably recognize your interest rate from your pre-approval. The interest rate is the amount of money you’ll pay to borrow the money, expressed as a percentage of the total amount borrowed. This number is what your mortgage payment is calculated from.
That other unfamiliar number is your APR, or “annual percentage rate.” The APR represents the per-year cost of borrowing money and includes your interest rate and all the fees that will be applied to your loan at closing.
Your APR can be used as a great tool to help you compare offers from various lenders, but not the end-all be-all. Before you close, it’s important to pay attention to that number, but don’t skip comparing your rates line-by-line either.
Behind the Scenes of Your Pre-Approval
Do you think getting pre-approved for a mortgage is a simple online form? Think again!
There’s a lot that goes into the pre-approval process. There is a wealth of information that lenders will look at before they give you the estimated figure. Below, we’ll break down what lenders assess in each step of your pre-approval application.
Application Submitted: The lender collects the financial information from the borrower, including income, employment history, assets, and debts.
Soft or Hard Credit Pull Completed: The lender pulls the borrower’s credit report to assess their credit worthiness.
Loan is Structured: The lender determines the loan amount that the borrower can afford based on financial details, preferences, and loan program guidelines.
Loan Details are Reviewed & Estimate is Given: The pre-approval letter is issued and outlines the loan details that the borrower can use to shop for a home.
Monitor Client’s Status & Provide Property-Specific Info: The lender borrowers the borrower’s financial status and provides property payment & costs as the home search begins.
Seems like a lot, right? All these details are why I say to get a pre-approval well before you plan to buy a home. How early, exactly? At least a couple months and up to a year. Rushing the pre-approval process can lead to some undue stress, so be proactive to ensure the smoothest possible experience.
Staying in Your Comfort Zone Can Cost You
Buying your first home is an exciting process, but it can be daunting to step outside of your comfort zone. If you like your current neighborhood, it could end up costing you money if you refuse to expand your horizons.
It’s one thing when home prices or other life details make renting the cheaper choice for you. But too many people will be stubborn and stay put because what they think it’s like to live somewhere else rather than the reality.
It’s normal to have your fears and concerns about buying a home or moving to a new location. It’s also important to weigh the benefits and potential growth opportunities against those fears. By stepping outside of your comfort zone and taking calculated risks, you may find that life opens up in ways you never thought were possible.
When you’re buying your first home, knowledge is power. That’s why it’s so important to work with an experienced lender who you trust. If you have any questions or want to start your homebuying journey on the right foot, reach out to my team! We’ll be sure to provide you with all the knowledge and honest advice you need for the smoothest-possible experience.