The home financing process can feel overwhelming — especially if you’re a first-time homebuyer. Why are there so many types of loans? Which is the best for me? What even is preapproval? These questions are understandable. After all, you’re new to this. That doesn’t mean lenders will necessarily be more forgiving or steer you in the right direction.

To find the ideal home loan and put yourself on the right path to responsible homeownership, you’ll need to understand the basics of the process and the various options available to you. Here’s our quick guide:

What to do and know before applying for a home financing

You should carefully review your current financial situation to better understand if you’re in a position to finance your new home. Factors like your credit score and any existing debt can make it much harder to get approved or force you to take a less than optimal loan with a higher-than-expected interest rate. Typically, interest rates will depend on the kind of loan you have and the bank’s belief in your ability to repay the loan. If, for example, you’re still paying off a significant chunk of your student debt, it’s probably best to wait a few years and accumulate more money.

In addition to a careful analysis of your own finances, it’ll be beneficial to review what you’ll likely need for a monthly payment. Look at real estate listings in the area you’re looking to buy and determine whether a home with the amenities you’re looking for is feasible. You should also familiarize yourself with the added cost of taking out a loan and closing on a house. This will help ensure there aren’t any unpleasant surprises down the line.

Types of home loans and mortgages

Mortgage loans tend to vary based on just a few important factors — including the number of years needed to pay off the mortgage and whether it’s a fixed or floating rate mortgage. A fixed rate mortgage offers the same interest rate across the entire length of a mortgage. A floating rate mortgage, meanwhile, has an interest rate that fluctuates with market conditions. While this can potentially save you money, it’s also far more unpredictable. As a result, many home buyers tend to prefer a fixed rate mortgage.

Some common mortgage loan offerings include:

30 year fixed rate mortgage

This is by far the most common form of mortgage out there — and understandably so. The extended timeline means a lower monthly payment compared to a shorter loan type, and fixed interest rates mean you can feel confident knowing what you’ll be paying each and every month.

15 year fixed rate mortgage

The same concept as the 30 year fixed rate mortgage, but paid off in half the time. While that means a high monthly mortgage payment, you’ll typically get a lower interest rate and will own your home outright in a shorter period of time. This option is best for home buyers with the savings on hand to pay off their loan at a faster rate, or those who had a significant initial down payment. Paying off your mortgage quicker also makes it easier to refinance your home at a better rate down the road if necessary.

Adjustable rate mortgage

A common example of a floating-rate mortgage, the adjustable rate mortgage typically includes a fixed rate for a set period of time, called a “teaser” rate, followed by interest rates that change at a set interval. Adjustable rate mortgages can be a good deal if interest rates drop over time, but can also be deceptively expensive depending on the current state of the market. This can feel especially frustrating if you’ve gotten used to a lower “teaser” rate.

VA loan

If you’re a U.S. military veteran or active service member, you’re eligible for mortgage loans backed by the Department of Veteran Affairs. These loans come with several unique perks — including no requirement of either a down payment or mortgage insurance. Any military-qualified borrower should strongly consider this mortgage option.

FHA loan

This category of loans describes mortgages that are backed by the Federal Housing Administration, which runs several different loan programs. FHA-backed mortgages tend to be easier to qualify for than a conventional loan and have lower down payment requirements.

Interest-only mortgage

A relatively unique option, the interest-only loan involves the buyer initially paying off the lender’s interest, rather than the mortgage itself. This type of loan is only appropriate for buyers who have a relatively high monthly income that they can put toward quickly paying off their interest. 

The process of applying for home financing

Now that you understand the kinds of finances you’ll need on hand and the mortgage loan options available to you, it’s time to break down the process for actually applying for financing. Using your newly gleaned knowledge of loan types, find a mortgage lender that offers the kind of plan and terms that are appropriate for your needs. You must then provide a variety of financial documentation — either to get preapproved or apply for a mortgage outright. It’s the lenders’ responsibility, however, to give you options based on your financial situation.

Getting preapproved

A clear-cut way to expedite the mortgage approval process is to get preapproved before you begin even seriously looking at new homes. Preapproval is essentially a note from a lender saying your finances are in order to borrow up to a certain amount. It is, however, not a loan in itself, and doesn’t bind you to any home or payment. To get preapproved, you’ll need to submit a variety of financial documents, including your credit history, W-2 and 1099 forms.

Now that you know how much you’re approved to borrow for, you can set a price range and begin the house-hunting process. While endless open houses and bidding wars can be exhausting, Bungalo makes it easy, with touring on your schedule through our app and no bidding.

Fill out a mortgage application

Once you’ve found that dream home it’s time to apply for your mortgage (at last). Some common documentation that lenders ask for include tax returns, W2s from your last few years working and recent pay stubs. In addition to your general financial documentation, you’ll need information from the purchase of your new home, like the purchase and sales agreement.

Get approved!

In general, if you’ve already been preapproved for the amount you’re looking to borrow, this stage should be relatively hassle-free. Once you’ve been approved you can begin to work out the specifics of closing (the Bungalo closing checklist can help) and even set a moving date!

Alternative paths to buying a home

A traditional mortgage agreement isn’t the only way to become a homeowner. If you have the capital saved up, you can buy a home outright with cash. While this keeps the transaction simple and takes interest out of the equation entirely, it’s not a feasible option for most people, especially younger and first-time buyers. Other options include rent-to-own arrangements, where you get the option of purchasing a property after renting it for several years, or seeking a loan from a private financier. Private companies tend to lend to buyers who can’t qualify for a traditional mortgage, but often charge high interest rates.

No matter what path you’re taking to finance your home, there’s no doubt you’ll need to jump through several logistical hoops. Luckily, Bungalo has an easier way to buy. While you’ll still probably need to work with a lender to secure funding, we simplify the real estate buying process by:

  • Working with the mortgage lender of your choice: Get preapproved with the lender of your choice. Whoever offers the best deal for you, we’re happy to work with them.
  • Offering clear, “No Hassle” pricing: Bungalo homes accept the list price on a first-come, first-served basis. That means every willing and able homebuyer has an equal opportunity to own one of our homes.
  • Closing assistance: We offer an easy-to-use closing checklist that ensures you’ve done everything you need to hit your move-in-day target.

Reach out for more information on who we are, and how we help potential buyers find the homes of their dreams.

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.


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