STRASBURG — When showing a house to clients, Realtor Amy Jett makes sure they see a home.
Whether it’s by helping buyers visualize where they’ll place the family Christmas tree or figure out what color to paint their front door, knowing today’s popular home trends allows Jett to help her buyers make the most informed decisions when buying their dream home.
“For me, it’s about a house that could become your home in a neighborhood that you love,” Jett said. “But maybe it has a really great basement, but it might feel a little too dark. Knowing how to transform a space from dark to light with something as simple as paint, it’s all of a sudden a great party space. You could put in a bar and suddenly everyone’s watching football at your house.”
Helping a client find a home is much more than signing on the dotted line and passing off the keys, Jett said. It’s about how her clients can use the space — whether it’s a young couple wanting to grow their family or for the crafter seeking a corner to create in.
“Clients will come to you and they will tell you the basics of what they need,” Jett said. “You want to have enough knowledge about what’s trending and popular so you can look for that perfect property that when they walk in they can call it home.”
Jett said trends come and go. Similar to seeing a fashionable haircut on one person and then on a hundred, house trends ebb and flow.
“Buying a home is the biggest investment you’re going to ever make,” she said. “You’re spending more money on that than most anything else that you’re ever going to spend money on so you want to make it perfect, or pretty close to it.”
To be able to do that, Jett said today’s buyers are looking for move-in-ready homes, which also happens to one of the biggest trends of the year. Gone are the days of purchasing homes that need massive renovations. Rather, buyers are seeking homes that need minimal changes, such as a fresh coat of paint on an accent wall or new knobs on bathroom cabinets.
Colors
As for what colors are attracting buyers right now, Jett said shades of blue are popular for inside and outside the home.
“Continental blue is becoming popular for outdoor use,” Jett said. “It’s a beautiful deep blue with a gray undertone. You can add a pop of burgundy as an accent with a bright white trim.”
Shades of blue are becoming a staple in kitchens. Jett followed the trend by updating her kitchen cabinets.
“There are different ways to make a room feel based on something as simple as what colors and where you place them. It doesn’t have to be white or gray walls. It can be an accent color — paint is inexpensive and something easy to change over time.”
Another popular exterior color palette Jett is seeing this year are muted grays, with dark wood or accent colors. It’s not quite black, she said, but almost so. Again, with a pop of white.
Dark exterior homes such as gray with black trim and a stone accent or a dark brown door, are starting to make a comeback throughout the Valley.
Cozy spaces
Inside the home, Jett said buyers are seeking rooms that feel cozy, like a reading nook in a corner of a room that can be used dual-purposely, such as an office, guest room or playroom.
“People are now starting to come out of working from home, back into working on site. Not everyone needs a dedicated office anymore.”
Wallpaper
Also in the interior, Jett said she’s noticed while showing homes to buyers, that heavier curtains are returning as well as the use of wallpaper.
“It’s so easy to use now because it’s all peel and stick,” she said. “You don’t have to use all that glue because it goes on and off easily.”
Jett, who loves a bold wallpaper statement, said she enjoys sharing her ideas with buyers who may see a blank wall, where she may see an accent wall with endless possibilities.
“When you walk into a home, it’s a blank slate,” she said. “By imagining the possibilities, such as a bright, bold, dark wallpaper with flowers, I’m helping them imagine what they could do to create their ideal space.”
Homeowners making minimal changes are updating their kitchen and bathrooms with color-appropriate appliances, fixtures, flooring and countertops as well as fresh coats of paint on cabinets.
“For several years everything was gray,” Jett said. “It’s starting to brighten up with pops of color. Lighter flooring and countertops, but having darker appliances.”
Outdoor features
Other exterior trends Jett is seeing are outdoor living spaces, impeccable views and water features.
“Gurgling water while they’re reading their book and enjoying the birds singing,” she said.
Buying your first home can be tedious and overwhelming.
While it’s exciting to visit properties and daydream about your dream home, getting over the financing hurdles is another story. But don’t fret.
This comprehensive guide for first-time homebuyers will walk you through the entire process from start to finish.
Benefits of Being a First-Time Homebuyer
As a first-time homebuyer, you may feel a mix of excitement and apprehension. While the home buying process can seem overwhelming, it’s important to recognize the numerous benefits that come with this milestone.
Financial Assistance
First-time homebuyers have access to several financial assistance programs that can make homeownership more affordable. These include down payment assistance programs, low-interest mortgage loans, and grants specifically designed for first-time buyers. Some of these programs are offered by state and local governments, while others are provided by non-profit organizations or private lenders.
Lower Down Payments
Several loan programs offer lower down payment requirements for first-time homebuyers. The FHA loan, for example, requires as little as 3.5% down if your credit score is 580 or higher. The USDA and VA loans even offer zero down payment options in some cases.
Access to Educational Resources
There’s a lot to learn when you’re buying a home for the first time, but fortunately, there are plenty of resources available. Many organizations offer homebuyer education courses that can help you understand the process and make informed decisions. Some lenders and assistance programs require you to take one of these courses, but even if it’s not mandatory, it can still be a valuable resource.
Before Starting Your Home Search
Check Your Credit
Not only will your credit score play a considerable factor in whether you’re approved for a mortgage, but it will also determine your interest rate.
A small increase or decrease in interest rates may not seem like a big deal. However, mortgage loans are for a hefty sum and for an extended period of time. So, a slight increase or decrease equates to thousands of dollars more spent or saved over the life of the loan.
To have the best chance of being approved for a home loan, you should aim for a credit score of at least 620. It’s possible to get approved for select home loan programs with a score as low as 580, but you may have fewer lenders to choose from.
Run the Numbers
It’s tempting for first-time homebuyers to start searching for homes when they know their credit score is up to par. But that’s probably not a good move until you determine how much home you can afford. Yes, the loan officer will give you a figure when you obtain a preapproval, but that amount isn’t always indicative of what you can afford.
Why so? Well, they focus on the debt-to-income (DTI) ratio to get an idea of a loan amount you qualify for. According to the Consumer Financial Protection Bureau, lenders prefer a DTI ratio of 43% or lower with your new mortgage payment. To illustrate:
CURRENT MONTHLY DEBT
GROSS INCOME
DEBT-TO-INCOME RATIO
MAXIMUM MORTGAGE PAYMENT (USING 43% RECOMMENDATION)
$1,000
$4,000
25%
$720
$2,000
$6,000
33%
$580
$3,000
$10,000
30%
$1,300
Note: Debt-to-Income Ratio = Aggregate Amount of Monthly Debt / Gross Income
The problem is that it fails to consider any expenses unrelated to debt. And if you have hefty insurance, childcare, or even grocery bills, that could be a major concern.
So, your best bet is to look at your current budget and come up with a realistic figure for your new mortgage payment. But don’t forget to keep the recommended DTI ratio in mind.
Explore Mortgage Options
There are several mortgage options on the market for first-time homebuyers, but the most prevalent are:
Conventional Loans
A conventional mortgage is a type of home loan that is not insured or guaranteed by the government. It’s typically offered by a private lender, such as a bank or credit union, and is the most common type of mortgage used to purchase a home.
Conventional mortgages typically require a down payment of at least 3% of the purchase price of the home. Borrowers typically must have a credit score of 620 or higher and a DTI ratio of 36% or lower to qualify. If you have bad credit or are unable to make a large down payment may have a harder time qualifying for a conventional mortgage.
If the loan amount is over $726,200, it becomes a jumbo loan and requires a higher down payment.
FHA Loans
An FHA loan is a type of home loan insured by the Federal Housing Administration (FHA), a government agency within the U.S. Department of Housing and Urban Development (HUD).
FHA loans are designed to make it easier for people to buy homes, especially for first-time homebuyers. They offer lower down payment requirements and more flexible credit guidelines than conventional mortgages.
The minimum credit score required for an FHA loan is 500. If your credit score is between 500 -579, the down payment is 10%. However, if you have a credit score of 580 or above, the down payment is 3.5% of the purchase price.
VA Loans
VA Loans are insured by the Department of Veterans Affairs. They don’t require a down payment and are easier to qualify for than conventional loan products. However, you must be an active-duty member of the armed forces. Surviving spouses also qualify.
USDA Loans
A USDA loan is a type of mortgage offered by the U.S. Department of Agriculture (USDA) to low- and moderate-income borrowers who are looking to buy a home in a rural or suburban area.
See also: 14 First-Time Home Buyer Grants and Programs
Check Out Our Top Picks for 2024:
Best Mortgage Lenders
Most mortgages have a 30 or 15-year term. The latter will cost you more per month, but you’ll save a load of cash on interest.
You can also choose from a fixed or adjustable-rate mortgage (ARM). Fixed-rate mortgages have the same interest rate for the duration of the loan. But ARMs typically start with a lower interest rate for a set amount of time. In fact, they usually span from five to ten years and then adjust depending on the housing market.
Some first-time homebuyers choose ARMs over fixed-rate mortgages because it gives them the option to make a smaller monthly payment in the first few years. It could also mean that you can qualify for a more expensive home. But, be careful not to get too overextended, as erratic market behavior could cause the rate to skyrocket.
Get Preapproved
This is one of the more time-consuming parts of the entire mortgage process for a first-time home buyer. The good news is you don’t have to settle for the first offer that comes your way out of fear that your credit score will take a hit.
“FICO Scores ignore [mortgage] inquiries made in the 30 days prior to scoring,” according to myFICO. So, you won’t be penalized for multiple inquiries.
So, start by researching mortgage lenders that you may be interested in working with. You could also solicit the help of a mortgage broker if you’re strapped for time or want someone to do the legwork for you.
Once you’ve settled on a few lenders, be prepared to provide the following to get preapproved:
Financial statements to confirm your assets, including retirement accounts and real estate
Recent bank statements
Last two pay stubs
W-2s from the last two years
They will also pull your credit report and credit scores. If you qualify, the mortgage lender will then provide you with a preapproval letter, valid for a certain time period, that specifies how much you’re eligible for.
Save Up for a Down Payment and Closing Costs
During the preapproval process, the lender should have discussed loan options that could be a good fit for you. They should also have communicated how much you will need for a down payment and closing costs.
While some sellers may be willing to cover closing costs, be prepared to provide earnest money to secure your offer. And you may need a large down payment if you’re taking out a jumbo loan, or don’t qualify for the FHA or VA loan program. If that’s the case, now’s the time to figure out a plan for it.
If the seller is not paying closing costs, expect to pay between 2% and 5% of the sales price. And if a hefty down payment isn’t required, it’s not a bad idea to bring money to the table. Doing so allows you to reduce the Loan-to-Value, which positions you as less risky to the lender.
You may also be able to avoid private mortgage insurance (PMI), which is required until you reach 20% in equity, and possibly qualify for a reduced interest rate.
How to Find the Perfect Home
Go Home Shopping
All squared away with a preapproval and planned to save up the cash you need? Now, it’s time to go home shopping. But before you go, you have to decide if you want to enlist the assistance of a real estate agent.
It’s possible to find a slew of listings within your price range on the web with minimal effort. However, real estate agents have access to a system that could expand your reach. Even better, they could be integral in helping you choose a home that’s a good buy and negotiating the final purchase price.
And the seller’s agent pays their commission, so no need to worry about forking over extra cash. Just be sure to hire a real estate professional that is seasoned and reputable.
Now for the fun part: home shopping. Be careful not to judge a home solely by its appearance. Some other important factors to keep in mind:
Taxes: are the property taxes affordable or beyond what you can comfortably afford? (You can roll property taxes and homeowners insurance into an escrow account, but they can easily make or break your budget if the figures are steep).
Location: is the home in an area that has historically held its value? Is the location optimal for your commute to and from work?
Crime: is it a high crime area or is it relatively safe?
Condition: how old is the property? Does it need tons of repairs, or is it close to being move in ready?
Floor plan: is the floor plan feasible or ideal for your situation? Would it be appealing to other buyers if you had to sell?
School district: how are the schools? Have they received a good rating, or do they struggle to stay afloat?
All of these factors can have an effect on the value of the property over time.
Submit an Offer
You’ve found the perfect home, and you’re ready to sign on the dotted. Before you can finalize the paperwork and move in, there’s one more important step. And that’s making the offer. Even if the sales price seems fair, you may need to make an offer that’s higher or lower to snag the home.
Why so? Well, there could be a slight or drastic bidding war going on, and the only way for you to win is to beat out the competition. Or maybe your real estate agent did some research and determined the asking price was a bit high based on similar properties in the area or the home’s current condition.
Either way, you want to submit an offer that stands out and gets accepted. Your real estate agent will be able to do so on your behalf. But if you don’t have a real estate agent, check out these letters from Trulia to get you started.
The Mortgage Process
Even after your offer is accepted, there’s still more work to do. You’re not done just yet! It’s time to move on to the mortgage process.
Remember that preapproval letter? The lender will make sure all the information you initially provided is accurate through a process called underwriting.
Depending on how long it’s been since you were preapproved, you may be asked to provide updated bank statements or pay stubs.
The faster you submit the requested information, the quicker you’ll get a response. So, don’t drag your feet if you want a closing date that’s sooner than later.
Home Inspections and Appraisals
Before you close on the home, you will need to have a home inspection and appraisal complete.
The home inspection shouldn’t cost you more than $500. It will give you an overall assessment of the property and identify any potential issues.
The appraisal also plays an integral role as it will give you a solid idea of the home’s fair market value. The lender will mandate it, but it’s not a bad idea to get an independent appraisal done to serve as a second opinion.
An inspection and appraisal may help you decide if you should lower your offer or walk away from the property.
Purchase Homeowners Insurance
Your mortgage lender will require that you take out homeowners insurance. So, you want to start shopping around for quotes and select a policy prior to closing.
Close on Your Loan
At last! You’ve reached the finish line, and it’s time to close on your loan. During the closing, expect to:
Sign a load of paperwork.
Provide any amounts owed for the down payment.
Pay closing costs, which could include property tax obligations, premiums for homeowner’s insurance and association dues, title insurance, and any other costs associated with finalizing the loan.
Pay discount points or prepaid interest that can reduce the interest rate.
But before you show up at closing, it’s a good idea to speak with the lender, so you’ll know what to expect. You can also request a copy of the final closing document, or Closing Disclosure, to see a detailed breakdown of expenses.
A Few More Tips
Here are a few more suggestions for first time home buyers to help you get approved for your first loan:
Refrain from applying for new credit before you close. This could throw off your DTI ratio, lower your credit score, and ultimately prevent you from closing on the loan.
State and local programs may be available to assist with down payments. If you’re low on funds, be sure to explore options that may be available to you.
Several builders offer buyer incentives, like allowances for upgrades and closing costs. So if you haven’t considered new construction, it may not be such a bad idea to take a look if the price points are within your budget.
Should You Rent, Instead?
Perhaps you’ve done a little legwork, ran the numbers, and are on the fence about home buying. You will typically find that it’s cheaper to make monthly mortgage payments than to pay rent.
You can also take advantage of tax deductions and build up equity as you’re making monthly payments. The equity can be borrowed against for a loan or put some extra money in your pocket should you decide to sell before the repayment period ends.
However, renting a home gives you the flexibility to move to a new location if the home isn’t quite what you expected, don’t like the neighborhood, or want something more affordable.
Furthermore, renting allows you to pass the costs of maintaining the home on to the owner. But as a homeowner, you’ll be responsible for costs associated with maintenance and repairs.
Another reason why some choose to rent over buying is the upfront costs. Most landlords require a security deposit. However, it could be substantially lower than the money you may have to bring to the table for the down payment and closing costs.
Ultimately, you have to decide which is the better fit: investing in an asset that could build wealth or continuing to pay rent until you feel the time is right. There is no right or wrong answer; it just depends on your personal preference and financial situation.
Bottom Line
By taking the time to learn about the home buying process, you’ll be well-prepared and save yourself time and headaches. Best of all, you’ll increase your chances of landing your dream home with the most competitive mortgage product on the market.
Frequently Asked Questions
What is the process for buying a home?
The process for buying a home typically involves the following steps:
Determine your budget and get preapproved for a mortgage.
Find a real estate agent and start looking for homes.
Make an offer on a home and negotiate the terms.
Get a home inspection and address any issues that are found.
Get a mortgage and close on the home.
How much house can I afford?
When determining how much house you can afford, there are several factors to take into account. You should consider your income, expenses, down payment, credit score, and mortgage type before making a decision.
A larger down payment can help you get a lower mortgage rate, and a higher credit score can qualify you for better rates and loan terms. Shopping around for mortgage rates and considering different types of mortgages, such as fixed-rate or adjustable-rate, can also help you find the best deal.
Keep in mind that owning a home involves more than just the monthly payments. You will also need to factor in property taxes, insurance, and maintenance costs. You should create a budget that includes all of these costs and leaves room for unexpected expenses.
How much money do I need for a down payment?
The amount of money you need for a down payment will depend on the type of mortgage you get and the price of the home you are buying.
Some mortgage programs, such as FHA loans, allow for down payments as low as 3.5%, while others may require a higher down payment. It’s a good idea to speak with a mortgage lender to determine how much you will need.
Can I buy a house if I have a low credit score?
It’s possible to buy a house with a low credit score. However, it may be more difficult to get approved for a mortgage, and you may have to pay a higher interest rate. Before applying for a mortgage, work on improving your credit scores, as this will help you qualify for a better loan and save you money over time.
How much will closing costs be?
Closing costs are fees that are paid at the closing of a real estate transaction. These costs can vary widely and may include things like mortgage origination fees, title insurance, and appraisal fees. On average, closing costs can range from 2% to 5% of the purchase price of the home.
What is a mortgage preapproval?
A mortgage preapproval is a letter from a lender that indicates how much you are qualified to borrow for a mortgage. The preapproval letter is based on a review of your financial information, including your credit score, monthly income, and debts. A mortgage preapproval can help you understand how much you can afford to borrow and can make you a more competitive buyer in the real estate market.
What is a mortgage rate?
A mortgage rate is the interest rate that you will pay on your mortgage. The mortgage rate will determine the amount of your monthly payments and the overall cost of your loan. Interest rates can vary depending on the type of mortgage you get and your credit scores.
What is PMI?
PMI, or private mortgage insurance, is insurance that is required by lenders for certain types of mortgages when the borrower has less than a 20% down payment. PMI protects the lender in the event that the borrower defaults on the mortgage. The cost of PMI is typically added to the borrower’s monthly mortgage payment.
Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.
Home equity loan
Home equity line of credit (HELOC)
Interest rate
Fixed
Variable
Monthly payment amount
Fixed
Variable
Closing costs and fees
Yes
Yes, might be lower than other loan types
Repayment period
Typically 5-30 years
Typically 10-20 years
FAQ
What is a rate lock?
Interest rates on mortgages fluctuate all the time, but a rate lock allows you to lock in your current rate for a set amount of time. This ensures you get the rate you want as you complete the homebuying process.
What are mortgage points?
Mortgage points are a type of prepaid interest that you can pay upfront — often as part of your closing costs — for a lower overall interest rate. This can lower your APR and monthly payments.
What are closing costs?
Closing costs are the fees you, as the buyer, need to pay before getting a loan. Common fees include attorney fees, home appraisal fees, origination fees, and application fees.
If you’re trying to find the right mortgage rate, consider using Credible. You can use Credible’s free online tool to easily compare multiple lenders and see prequalified rates in just a few minutes.
Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.
Home equity loan
Home equity line of credit (HELOC)
Interest rate
Fixed
Variable
Monthly payment amount
Fixed
Variable
Closing costs and fees
Yes
Yes, might be lower than other loan types
Repayment period
Typically 5-30 years
Typically 10-20 years
FAQ
What is a rate lock?
Interest rates on mortgages fluctuate all the time, but a rate lock allows you to lock in your current rate for a set amount of time. This ensures you get the rate you want as you complete the homebuying process.
What are mortgage points?
Mortgage points are a type of prepaid interest that you can pay upfront — often as part of your closing costs — for a lower overall interest rate. This can lower your APR and monthly payments.
What are closing costs?
Closing costs are the fees you, as the buyer, need to pay before getting a loan. Common fees include attorney fees, home appraisal fees, origination fees, and application fees.
If you’re trying to find the right mortgage rate, consider using Credible. You can use Credible’s free online tool to easily compare multiple lenders and see prequalified rates in just a few minutes.
Not too long ago, getting a mortgage meant a lot of paperwork, visits to the bank, and waiting weeks or more for underwriter approval. But the way we apply for mortgages is changing fast, thanks to the digital world we live in.
You can apply for a mortgage online quickly and easily, adding layers of convenience to what used to be a tedious and harrowing experience. Applying for a mortgage online is becoming more popular because it’s convenient, quick, and easy.
As with so many other facets of life, the internet has made the mortgage process simpler and friendlier. With a few clicks, you can start the journey to owning your dream home.
In this article, we’re going to look at the pros and cons of applying for a mortgage online. Whether you’re buying your first home or thinking about refinancing, it’s important to know how the online mortgage process works. By the end, you’ll have a better idea of whether an online mortgage is right for you and how to handle the process.
The Rise of Online Mortgage Applications
The mortgage industry has shifted dramatically from traditional, in-person processes to digital applications. Here’s a brief look at this evolution and the current trends in the United States.
Traditional vs. Online Processes
Traditionally, getting a mortgage meant visiting a bank, dealing with lots of paperwork, and waiting weeks for approval. It was a process filled with face-to-face meetings and manual document handling. In contrast, the online mortgage process is faster and simpler. You can apply from anywhere, upload documents electronically, and get quicker responses.
Why the Shift Happened
This move towards digital applications has been driven by a demand for convenience and speed. The rise of technology in finance and changes in consumer behavior have played significant roles. The COVID-19 pandemic accelerated this trend, as remote and digital services became essential.
Current U.S. Trends
In the U.S., online mortgage applications are now a popular choice, especially among younger homebuyers who prefer digital interactions. Many mortgage lenders offer online options, and some operate exclusively online. This trend is driven by the ease of comparing rates, quicker application processes, and the overall convenience of handling things digitally.
Pros of Applying for a Mortgage Online
The shift towards online mortgage applications brings several advantages. Here’s a look at the key benefits:
Convenience and Accessibility
Applying from anywhere: One of the biggest advantages of online mortgages is the ability to apply from home or on-the-go. This flexibility is a game-changer for many, especially for those with busy schedules or limited access to traditional banks.
Available 24/7: Unlike visiting a traditional bank or mortgage broker, businesses that keep daytime hours, you can apply for a mortgage online at any time, day or night. You can even pause the application process and pick it up again later. If you prefer to handle your financial matters outside of standard banking hours, an online mortgage app makes it possible.
Speed of the Process
Faster applications and approvals: Online systems are designed for speed. From submitting an application to getting approval, the process is significantly quicker compared to traditional methods. This efficiency can be crucial in competitive housing markets.
Real-time updates: Online platforms often provide instant updates and digital communication channels. Stay in the loop with automated notifications, so you know exactly where your application stands. Prospective homebuyers no longer have to deal with the anxiety of waiting for responses.
Easier Comparison Shopping
Rate and term comparisons: Online platforms make it easy to compare mortgage rates and terms from various lenders. This ability to quickly view and compare options can lead to better financial decisions.
Informed decision-making: With online resources, you can research different mortgage products, understand the nuances of each option, and make an informed choice without feeling rushed.
Automation and Efficiency
Automated document handling: Online applications often come with automated systems for document submission and verification, reducing the chance of human error and accelerating the review process.
Streamlined processes: The overall application process is streamlined online, with clear instructions and fewer steps. This saves time and makes the entire experience less daunting for applicants.
Cons of Applying for a Mortgage Online
While there are many benefits to applying for a mortgage online, there are also some drawbacks to consider. Here are the main cons:
Less Personalized Service
Limited face-to-face interaction: Online applications lack the personal touch of meeting with a loan officer. This can be a downside for those who value direct, personal advice.
Challenges in customized advice: Getting tailored advice for unique financial situations can be harder online. This could be a concern for applicants with complex financial backgrounds or specific needs.
Security and Privacy Concerns
Potential data breaches: Applying online involves sharing personal and financial information digitally, which could be vulnerable to cyber threats like data breaches and identity theft.
Verifying lender legitimacy: It can be challenging to ensure the legitimacy of online lenders. You’ll need to be extra diligent researching lenders to avoid scams and fraudulent entities.
Complexity in Handling Unique Cases
Addressing complex financial situations: Online systems may not handle complex financial scenarios as effectively as a human loan officer might. This could be a problem for applicants with non-standard income sources or credit issues.
Automated systems limitations: While efficient, automated processes might not fully understand or accommodate nuanced financial situations, potentially leading to misinterpretation or oversimplification of an applicant’s financial state.
Reliance on Technology
Technical issues: The entire process depends on having a stable internet connection and functioning technology. Any disruptions in these can hinder the application process.
Comfort with technology required: You’ll need to be relatively tech savvy to complete an online mortgage application. This could be a barrier for those less familiar with digital platforms.
What to Consider Before Applying Online
Before diving into the online mortgage application process, there are several factors you should consider:
Assessing your financial situation: Take a close look at your finances, including your income, expenses, debts, and credit score. Understanding where you stand financially will help you determine what you can afford in monthly payments, including loan principal, interest, taxes, and insurance, and what kind of loan terms might be best for you.
Comfort level with technology: Consider how comfortable you are using digital tools and platforms. You’ll need to know how to use websites, upload documents securely, and communicate digitally in a timely manner.
Researching online lenders: It’s crucial to research and verify the credibility of online lenders. Look for reviews, check their credentials, and ensure they are legitimate and trustworthy to avoid scams and security risks.
Tips for Applying for a Mortgage Online
When you’re ready to apply for a mortgage online, keep these tips in mind for a smooth and secure experience:
Ensure a Secure and Informed Process
Use a secure internet connection: Always apply from a secure, private Wi-Fi network. Avoid public Wi-Fi to protect your sensitive personal and financial information.
Understand the application steps: Familiarize yourself with the online application process. Know the stages involved, from initial application to final approval.
Prepare necessary documents: Gather all required documents in advance. This typically includes proof of income, tax returns, bank statements, and credit reports. Having these ready will speed up your application.
Safeguard Your Personal Information
Choose secure platforms: Apply through reputable lenders with secure websites. Look for HTTPS in the web address as a sign of security.
Be cautious with your info: Share your personal and financial details only on the application. Avoid providing sensitive information via email or over the phone, especially if it’s an unsolicited request.
Regularly update your security software: Ensure that your computer or device has the latest security updates and antivirus software. This helps protect against malware and cyber threats.
Effectively Utilize Online Tools
Use online calculators: Leverage online mortgage calculators to estimate your monthly payments, understand interest rates, and determine affordability.
Comparison tools: Take advantage of comparison platforms to compare different mortgage rates and terms from various lenders. This can help you find the best deal suited to your needs.
Educational resources: Many online mortgage platforms offer educational resources. Use these to understand the types of mortgages available, the application process, and other important aspects of home buying.
By following these tips, you can apply for a mortgage online more confidently and securely. Remember, being prepared and informed is key to a successful and stress-free mortgage application experience.
Conclusion
Applying for a mortgage online comes with a unique set of pros and cons. It offers convenience, speed, and the ability to easily compare options, but it also requires a comfort level with technology and lacks the personalized service of traditional methods.
Before deciding, consider your own financial situation, your comfort with technology, and the credibility of the online lenders you select. By weighing these factors carefully, you can make a choice that best suits your individual needs and circumstances in your journey towards homeownership. If you decide to use an online lender, heed the tips above to get through the process securely and effectively.
Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.
Home equity loan
Home equity line of credit (HELOC)
Interest rate
Fixed
Variable
Monthly payment amount
Fixed
Variable
Closing costs and fees
Yes
Yes, might be lower than other loan types
Repayment period
Typically 5-30 years
Typically 10-20 years
FAQ
What is a rate lock?
Interest rates on mortgages fluctuate all the time, but a rate lock allows you to lock in your current rate for a set amount of time. This ensures you get the rate you want as you complete the homebuying process.
What are mortgage points?
Mortgage points are a type of prepaid interest that you can pay upfront — often as part of your closing costs — for a lower overall interest rate. This can lower your APR and monthly payments.
What are closing costs?
Closing costs are the fees you, as the buyer, need to pay before getting a loan. Common fees include attorney fees, home appraisal fees, origination fees, and application fees.
If you’re trying to find the right mortgage rate, consider using Credible. You can use Credible’s free online tool to easily compare multiple lenders and see prequalified rates in just a few minutes.
Spring is a time for new life and new vibes and home décor is one of the best (and easiest) renewal tools you have for a fresh start. Your space should feel as comfortable and stylish as it is functional, so adding the perfect home décor accents is a great way to make that dream a reality.
Plus, this year has been ripe with trends as timeless as they are trendy. Whether you want to go full Barbie with a retro pink kitchen, incorporate Pantone’s 2024 Color of the Year, or hope to soak up some sunshine with a tropical chic décor theme, the following list will take you wherever you want to go. And you’ll get there in style. From sprucing up your home coffee station to creating your dream eclectic kitchen, check out these trendy home décor ideas for an easy spring makeover.
For your home coffee station
1. Cuisinart Grind and Brew 12-Cup Automatic Coffee Maker
Cuisinart Grind and Brew 12-Cup Automatic Coffee Maker
Start your daily grind with the perfect cup of coffee. In fact, with this great grind and brew machine, you can start it with 12 cups.
2. Glass Coffee Containers
Glass Coffee Containers and Coffee Station Organizer
Keep your coffee ingredients in order with these airtight containers for maximum freshness. The coffee organizer means you’ll give off major barista vibes any time you invite friends over for a cup of joe.
Eclectic kitchen décor finds
3. MacKenzie-Childs Courtly Check Canister
MacKenzie-Childs Courtly Check Canister
This set of three checkerboard pattern canisters will make your kitchen look great, and keep your ingredients organized all at the same time. Because home décor is no game!
4. Softiest Designs UO Exclusive Disco Donut Sculpture
Softiest Designs UO Exclusive Disco Donut Sculpture
You’ll be ready to dance the day away with this sparkly disco donut sculpture to liven up your kitchen.
To refresh your coffee table décor
5. Anthropologie Less Ottomans Hand-painted Menagerie Tray
Less Ottomans Handpainted Menagerie Tray
With two color options, this hand-painted menagerie tray makes an interesting addition to any coffee table, whether it’s used for food and beverage service or just for holding your favorite nicknacks!
6. Annie Leibovitz XXL Coffee Table Book
Annie Leibovitz XXL Coffee Table Book
Annie Leibovitz is one of the most celebrated photographers of the 20th century. Now, you can have her most iconic photos gracing your living room coffee table.
For your retro pink kitchen
7. Pink Smeg Retro Stand Mixer
Smeg Retro Stand Mixer, Pink
Nothing’s more fun than mixing it up with this gorgeous pink retro mixer from Smeg.
8. Retro Bottom Freezer Refrigerator in Pink
Retro Bottom Freezer Refrigerator in Pink
This retro pink refrigerator makes a real statement. And that statement is “I’ve got style and I don’t care who knows it!”
For your work-from-home setup
9. Industrial Modular Wall Desk
Industrial Modular Wall Desk
If you want to set up the ultimate work-from-home area, check out this high-quality adaptable wall desk set. It has five wood finishes and changes constantly to suit your needs, unlike your boss.
10. Katsunori Ergonomic Executive Chair
Katsunori Big and Tall Ergonomic Executive Chair
While comfort is important, great looks can’t be underestimated when it comes to a quality executive chair. This one is as comfy on the eyes as it is on the back, especially for the big and tall.
For fans of tropical chic décor
11. Tropical Leaves Wall Art
Tropical Leaves Wall Art
You’ll swear you’ve landed in the South Seas with these trendy wooden tropical leaves. They offer a lovely tropical silhouette to your living room wall.
12. Tropical Bloom Removable Wallpaper
Tropical Bloom Removable Wallpaper
What’s better than beautiful tropical wallpaper? How about beautiful tropical wallpaper that you can take with you when you move?
To hop on the aluminum furniture trend
13. Deco 79 Aluminum Drip Accent Table
Deco 79 Aluminum Drip Accent Table
This aluminum table is dripping with style. It’ll be a real conversation piece in any room you choose to place it.
14. Leporis Aluminum Accent Stool
Leporis Aluminum Accent Stool
This aluminum table is absolutely dripping with style. This will be a real conversation piece in any room where you choose to place it.
For Vintage Americana vibes
15. American Flag Framed Print
American Flag Framed Print
Nothing gives off vintage Americana vibes like a weathered framed flag print adorning your wall. You’ll pledge allegiance to spring with this one!
16. American Art Décor Licensed Chevron Gas Pump Plaque
American Art Décor Licensed Chevron Gas Pump Plaque
This cool gas pump wall plaque takes you back to a time when gas was just fifty cents a gallon and you had to buy cool wall décor IN PERSON.
For fun chalk sign ideas
17. Rustic Magnetic Kitchen Chalkboard Sign
Rustic Magnetic Kitchen Chalkboard Sign
A farmhouse-style chalkboard is a great way to give your kitchen folksy charm while offering an easy method to leave notes to family. Just don’t let them add too many treats to that grocery list!
18. WiFi Chalk Board Sign
Simply Said, INC WiFi Chalk Board Sign
Perhaps the most common question in any modern home is “What’s the WiFi password?” Now you can answer the question before it’s even asked with this fun chalkboard.
For fish tank-themed fun
19. Maryjane Mirrored Wall Mounted Aquarium Tank
Maryjane Mirrored Wall Mounted Aquarium Tank
Here fishy fishy! Decorate your home with this lovely one-gallon fish tank without taking up any additional counter space.
20. Fantasy Jellyfish Aquarium
Fantasy Jellyfish Aquarium
Now you can have fish tank fun without the hassle of caring for…you know…fish! This aquarium is maintenance-free and features lifelike rubber jellyfish that move and sway.
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After plummeting during the height of the pandemic in 2020 and 2021, mortgage interest rates have been on a steady upward trend. Thanks to decades-high inflation and a surging benchmark interest rate meant to tame it, mortgage interest rates have risen exponentially, hitting their highest point since 2000 last summer. While they’ve come down slightly since, disappointing inflation reports to start 2024 have resulted in the Federal Reserve keeping interest rates unchanged — and mortgage rates have stagnated.
That said, today’s mortgage rates are still relatively low, historically speaking. And the hope is high that a reduction in the benchmark interest rate later this year will also lower homebuyers’ rates. But there are some compelling reasons why homebuyers shouldn’t wait for that to happen. Below, we’ll detail three times you may want to buy a home even with interest rates as high as they are.
Ready to get started? See what mortgage interest rate you could qualify for here now.
4 times you should buy a home with interest rates high
Here are four instances in which you should consider buying a home despite higher mortgage rates.
When you find your dream home
Your dream home won’t be listed for sale every day, hence its name. When it does come up for sale, then, many would recommend buying it, even if it comes with a higher interest rate. After all, you could always refinance to a lower rate in the future, when the market stabilizes.
But, if you wait, you’ll lose out on the opportunity to own a home you truly love — and that opportunity may not arise again soon, particularly in desirable neighborhoods and locations around the country.
Learn more about today’s mortgage rate options online.
When you can afford the higher rate
Crunch the numbers and closely review your budget. You may be surprised at how much you can afford, even with today’s elevated rates. While no one wants to pay more than they should, mortgage interest rates are temporary and subject to change over time.
So if you can afford the higher rate and want to buy a home now, feel free to do so — and just look for the opportunity to refinance in the future.
When the home price is affordable
If you find a home priced right, or even lower than expectations, it could be worth buying, even with mortgage rates as high as they are. Understand that when mortgage rates eventually do come down, a whole slew of related complications may come into play, including a potential rise in home prices. But if you find an affordable home now, before that happens, it could be worth purchasing.
When the alternative is renting
Renting may be the only recourse for many. But renting is not a long-term investment and won’t build any equity. If this is the current alternative, then, it may be worth purchasing a home if you can afford it instead of renting with no end in sight.
While it may be more expensive than preferred, there are multiple advantages to owning a home versus renting, from the aforementioned home equity accumulation (which will build immediately) to interest tax deductions each year (which can be substantial at today’s high interest rates) and the potential profit that can be earned when selling.
Learn more about today’s top mortgage options online.
The bottom line
Today’s elevated mortgage rate environment isn’t preferable for homebuyers, but it doesn’t mean that you should refrain from acting, either. If you discover your dream home, can afford the interest rate, find an affordable house, or have an alternative to rent, it can be worth it for you now. Just make sure to crunch all of the numbers — including closing costs — before proceeding so you know exactly what you can afford to buy at today’s rates.
Matt Richardson
Matt Richardson is the managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
Generally, it helps to save up to 20-25% of a house’s sales price. However, factors like geographical location, economic climate, real estate interest rates, and global events will influence how much money you’ll need to buy a house.
Key Takeaways:
An ideal down payment is 20% to 25% of a home’s value.
USDA and VA home loans traditionally don’t require down payments.
If you make a down payment below 20%, you may be required to get private mortgage insurance.
How much money do you need to buy a house? That cost depends on numerous factors like inflation and real estate trends. According to the Census, homes sold for a median price of $420,700 in January 2024.
Thankfully, you don’t need to pay off that amount all at once. A down payment that’s 20% to 25% of a home’s value can help you secure a property. Even if you don’t have the funds to make a sizeable down payment, low and no-down-payment mortgage options are available.
Below, we’ll share our expertise to help you learn all about loans and mortgage options. We’ll also answer several common questions and share helpful tools, like Credit.com’s mortgage calculator.
All Costs Associated with Buying a House
Spend enough time shopping around for houses, and you’ll learn very quickly that a property’s sales price isn’t the only expense you’ll have to pay. Below, we’ll cover down payments, earnest money deposits, and other factors that determine the real cost of a home.
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Down Payments for Different Mortgage Options
According to the United States Census Bureau, 661,000 new homes were sold in January 2023. Most homebuyers don’t pay off their properties in full from the get-go. Instead, they cover a portion of the home’s cost with a down payment, then gradually pay off the remaining value via monthly mortgage payments.
“How do home mortgage rates work?” and “What types of mortgages am I eligible for?” are common questions for first-time homebuyers.
Below, we’ll discuss four mortgage options and break down how each of them works.
1. Conventional Mortgage
A conventional loan is a mortgage option that’s offered by a private lender instead of the government. Mortgage companies, credit unions, and banks offer conventional loans, though they might require a down payment between 20% and 25% of a property’s sales price.
Lenders might request that you purchase private mortgage insurance (PMI) if your down payment is less than 20%. PMI reimburses lenders if you don’t make your mortgage payments, and borrowers will have to pay for coverage annually.
2. USDA Mortgage
The United States Department of Agriculture (USDA) offers this unique mortgage to borrowers who live in rural areas. A USDA mortgage has no down payment requirement, and its interest rate is very competitive.
To qualify for a USDA loan, you need to:
Buy an eligible property. Your potential home has to be in an eligible rural area.
Meet income guidelines. To qualify for a USDA loan, your income can’t exceed a state-specific amount.
Use the home as your primary dwelling. You have to live on the property permanently.
Be a U.S. citizen, a U.S. national, or a qualifying resident alien. Foreign nationals not authorized to remain in the United States can’t get USDA loans.
You’ll also need to meet the lender’s credit requirements. On average, a credit score of 620 or more will qualify you for a government-backed USDA loan.
3. FHA Mortgage
The Federal Housing Administration (FHA) offers this distinct government-backed mortgage. Borrowers can secure an FHA mortgage with a down payment as low as 3.5%.
Borrowers with very low credit scores might be eligible for an FHA loan, at the expense of having more strict loan limits and higher up-front costs.
To get an FHA loan, you need to meet the following requirements:
Primary residence. The house associated with your loan must be your primary residence. You can’t rent it out to others for profit.
FHA maximum limit. FHA loans can only apply to properties within a set price range. In 2024, the maximum FHA loan amount is $498,257 for single-family homes.
Debt-to-income ratio. To qualify for an FHA loan, you must spend a maximum of 43% of your income on housing costs and housing-related debt.
4. VA Home Loans
Veterans Affairs (VA) loans offer low credit requirements and come with no down payment restrictions.
Certain people qualify for VA loans, including:
Service members who’ve served for at least 90 days consecutively.
Veterans who’ve served at least 181 continuous days, depending on their deployment date.
National Guard members with six years of Active Reserve status or 90 consecutive days of active duty service.
Surviving spouses of veterans, including veterans who are missing in action or being held as a prisoner of war (POW).
Earnest Money Deposit
An earnest money deposit is a payment that buyers can place to demonstrate how serious they are about obtaining a property. Earnest money deposits are normally between 1% and 3% of a property’s sales price. This deposit is not the same as a down payment.
When you make an earnest money deposit, those funds are put into an escrow account. If the seller of a property closes on a deal with you, your earnest money deposit is then added to your down payment. If the seller doesn’t close on the deal with you, it’s possible to regain your earnest money deposit if contingencies are set in place.
Several common contingencies include:
Home inspection contingency: Buyers request to have an inspection conducted on a property. If problems are discovered, buyers can back out of a deal.
Home sale contingency: Buyers who might need to sell their current home can ask for extra time.
Insurance contingency: This is for buyers who may need time to obtain home insurance for a property.
Closing Costs
Closing costs include taxes, appraisals, home inspection costs, title costs, and attorney fees. They’re generally between 3% and 6% of your mortgage principal. Your mortgage principal is the amount you borrow—so the bigger your down payment, the less you’ll pay in closing costs.
Let’s use the $200,000 home above as an example. Consider these three 4% closing cost scenarios:
Your down payment is 10%, or $20,000, leaving a mortgage principal of $180,000. Your closing costs will roughly amount to $7,200.
You offer20%, or $40,000, as your down payment. Your mortgage principal is $160,000, and you’ll pay $6,400 in closing costs.
You apply for a mortgage with no down payment, so your mortgage principal is $200,000. Ultimately, you’ll pay $8,000 in closing costs.
Home-Buying Examples
Next, we’ll show you how to determine your down payment on a home with the previous loans as examples. Let’s imagine your dream home is on the market for $200,000.
Down payments for conventional mortgages are usually $10,000 – $40,000.
USDA mortgages normally don’t require down payments.
An FHA mortgage can cost as little as $7,000.
A VA home loan also doesn’t require a down payment.
USDA and VA home loan mortgage options have the lowest up-front costs for eligible borrowers. An FHA mortgage is less costly than a conventional loan, but interest rates will affect your total payments in the long term.
Financial Resource Ideas
Making a down payment can be challenging because you need a paper trail of your purchases. In most cases, you can’t use borrowed money for a down payment.
Conversely, we know several creative ways to come up with a down payment:
Profits earned from stock or bond sales
Filing for an IRA or 401(k) withdrawal
Paying with money from your checking or savings account
Cash earned from a money market account
Using funds from your retirement account
Monetary gifts
You can roll other funds, like your tax return or a security deposit refund, into your down payment, too.
How Much Money Should I Save Before Buying a House?
It’s important to look at the big picture when buying a house. You’ll need to pull together a down payment and closing costs, but you’ll also need to budget for removal costs, inspections, and repair fees.
A tool like a monthly budget template can put your common expenses into perspective and help you better understand how much house you can afford with your current income.
When Should I Seek Mortgage Relief?
“What happens if I miss a mortgage payment?” is another concern for new and long-time homeowners. First, know that your home won’t immediately be foreclosed on if you miss a payment. Foreclosure usually isn’t imminent unless you’ve missed two or three payments.
If your mortgage payments aren’t within reach, you can contact your lender and explain your specific situation. Seeking forbearance, which is a temporary pause on your payments, can also help you regain your bearings.
Prepare to Buy a Home with Credit.com
Knowing your credit score and understanding the elements that affect it can help you know what you need to do to prepare for loan opportunities.
Sign up for Credit.com’s ExtraCredit® subscription to check out 28 of your FICO® scores. Afterward, visit our mortgage rates page to get additional information.
Building your dream home from the ground up is a great way to make sure it meets all your expectations. Securing a home construction loan can assist you in realizing your plans, but you need to know the specifics that come with these types of loans.
Here’s an overview of what you should know when obtaining a construction loan.
What is a construction loan?
A construction loan is a type of loan specifically designed to finance the cost of building a new home or renovation of an existing property. It’s a short-term loan with a variable interest rate, and is typically used during the construction phase of a project.
Unlike a traditional mortgage, construction loans are disbursed in installments as the construction progresses, rather than as a lump sum. This helps to minimize the risk for both the lender and the borrower, as the loan amount is based on the actual costs of construction.
How do construction loans work?
Construction loans are typically offered by specialized lenders or banks and are often secured by the property being built. Borrowers are usually required to provide a detailed construction plan, as well as a budget and timeline for the project. The lender will then release funds as each construction milestone is completed and inspected.
At the end of the construction process, the construction loan will typically be converted into a permanent mortgage. This conversion process can occur automatically or require a separate application and approval process, depending on the lender’s requirements.
3 Types of Home Construction Loans
There are three main types of home construction loans: construction-to-permanent, construction-only, and renovation.
Construction-to-Permanent Loan
With this type of home construction loan, once the home is built, the loan converts to a permanent mortgage. You typically only have to pay closing costs once, which can save you money.
You can also choose to pay interest during the building phase. However, it’s typically a variable interest rate, so your payments will fluctuate. After the home is built, and your construction loan converts to a permanent mortgage, you might be able to choose whether you want a variable rate or a fixed rate.
You may want to consider this type of loan if you have a feasible plan for your house’s construction, and you want to pay it back over time with a reliable monthly payment.
Construction-Only Loan
This type of loan requires full repayment at the end of the construction phase, rather than automatic conversion to a mortgage. This means that you’ll incur two sets of closing costs and have to secure approval for two separate loans.
However, a construction-only loan may require a smaller down payment compared to a construction-to-permanent loan. If you already own a home, you may consider obtaining a construction-only loan initially and waiting to sell your current home to accumulate a larger down payment for a mortgage.
Construction-only loans can be a suitable option for individuals who currently have limited funds but expect to have more in the future. After completing construction, you can apply for a mortgage to pay off the loan.
One potential drawback of this type of loan is that if your financial or credit situation changes during construction, you may not qualify for a mortgage large enough to repay the loan. This can lead to new problems, including the possibility of losing your home before you even move in.
Renovation Construction Loan
Rather than helping you build something new, a renovation loan is designed to help you cover the costs of a major remodel. If you want to turn a fixer-upper into the home of your dreams, but aren’t sure if you have the money for renovations, this type of loan can help.
It’s important to note that these aren’t home improvement loans. A home improvement loan often deals with smaller remodels and is based on how much equity you currently have in the home. Renovation construction loans are about major overhauls.
Typically, you’ll get a loan big enough to cover the costs of renovations as a mortgage. You only apply for one loan, and it’s based on the likely value of the home after the remodel is finished. This can be a big help if you don’t want to try to finance the cost of upgrades after you buy the house.
Expenses Covered by Construction Loans
In general, you’ll find that most construction loans pay for various aspects of a project, including:
Obtaining the land (or the fixer-upper if you’re getting a renovation loan)
Getting the plans for the home
Applying for the permits
Paying the fees associated with construction
Contingency reserves for covering unexpected costs
Closing costs
You might also be able to have interest reserves built into your construction loan if you would rather not make interest payments while your home is being built or renovated.
The idea is that everything you need to complete your home, whether new-built or a renovation, is wrapped up in the loan.
Create a Plan for Your Custom Home
When building a home, you can’t just ask a lender for an appraisal or just get approved for a certain amount. Construction loan lenders expect to see a plan for the construction of the home.
When you apply for a home construction loan, you’ll need to let your lender know the following information:
Size of the home and the lot
Placement of the lot
Home plans (possibly include blueprints)
Materials used to build the home
Types of renovations you plan to make (for an applicable loan)
Timeline for completing the home
Contractors that will be hired
Lenders will dig into this information to decide if you’re a good risk. They want to know that the home, or the lot, will at least be worth something if you default on the loan. Part of the process is understanding that the home will at least be worth what you’re borrowing once it’s finished.
At each stage of construction, and before disbursement is made, the work will have to be inspected. If you choose a general contractor that’s experienced and respected, they can help you provide needed information to your lender, and you can be reasonably assured that they will do good work.
Qualifying for a Home Construction Loan
Now that you have a plan for your new home, it’s time to qualify for your construction loan. In many ways, the process is the same as qualifying for a traditional mortgage loan. The construction loan lender will review your financial situation and decide if you present a relatively low risk. Some of the things that a construction loan provider looks at include:
Credit score: This is the most important element of any home loan, and it’s no different with construction loans. In fact, because there might not be anything of tangible value before construction, you might need an even higher credit score. You typically need a minimum credit score of 680 to qualify, so you need to improve your credit score if you’re not there yet.
Debt-to-income (DTI) ratio: As with a regular mortgage, the lower your debt-to-income ratio, the better off you’ll be. Most lenders require that your DTI be no more than 45% of your gross monthly income.
Down payment: While you might be able to get by with 5% or less for a down payment with traditional mortgages (FHA, USDA, and VA loans famously come with much lower down payments), construction loans are a different story. You’ll likely have to put down at least 20% to make it happen. In some cases, though, as with a renovation loan, you might get away with a lower down payment.
By planning ahead and making sure your finances are in order, you have a better chance of qualifying for a construction loan.
Prepare for a Longer Closing Period
Realize that there are many moving parts to your home construction loan. It’s not just you and your lender involved. You’ve got a builder or contractor as part of the arrangement, and you’re not going to get a lump sum. Instead, the lender will evaluate you and the contractor you choose separately.
Additionally, a timeline for disbursements needs to be set up. Moreover, a lender might need to consider insurance related to the process. Plus, whether you choose a construction-to-permanent or construction-only loan matters a great deal as you negotiate with a lender about your terms.
As a result of these different aspects of construction loans, you might have to allow for a longer closing period. Additionally, you’re likely to see delays and additional costs during the building portion, so making sure you have adequate contingency reserves built into your new home is vital.
Bottom Line
With a construction loan, you can turn your dream home vision into a reality, whether building from the ground up or renovating a fixer-upper. Be aware, however, that a construction loan entails different terms and conditions.
Your lender will not simply grant you the entire loan amount without first ensuring your ability to use it responsibly. You must prove your financial capability and the viability of your construction project. Your lender will keep a close eye on the allocation of funds as the project progresses.
If you have a good understanding of how a construction loan operates, it can be a valuable tool in ensuring you achieve the home of your dreams.
See also: Is It Cheaper to Build or Buy a House?
Frequently Asked Questions
How do I qualify for a construction loan?
To qualify for a construction loan, you will typically need to have a good credit score and a sufficient amount of equity in your property (if you are building on land that you already own). You will also need to provide a detailed construction plan and budget, as well as proof of your ability to repay the loan.
How long does it take to get a construction loan?
The process of getting a construction loan can vary in length depending on the lender and the specifics of your situation. In general, it can take several weeks or even months to complete the application process and receive approval for a construction loan.
How much can I borrow with a construction loan?
The loan amount you can obtain through a construction loan is based on various factors including your credit score, the worth of the property, and your equity in the property. Usually, borrowers can expect to secure up to 80% of the property value. However, the loan amount can differ based on the lender’s policies.
How are funds from a construction loan distributed?
The distribution of funds from a construction loan is typically done in stages, based on the progress of the construction project. The lender will release funds as specific milestones are reached, such as the completion of the foundation, the rough framing, or the final inspection. This process helps to ensure that the funds are used for the intended purposes and that the construction project is proceeding as planned.
Before each release of funds, the lender may require an inspection to verify that the work has been completed to their satisfaction. The exact terms of the distribution of funds may vary based on the lender and the specifics of the loan agreement.
Are construction loans more expensive than other types of loans?
Construction loans can carry higher interest rates and fees due to the higher risk for the lender. However, the total cost of the loan will vary based on the lender, loan type, and loan terms.
Can I use a construction loan to remodel my existing home?
Yes, construction loans can be utilized for renovating an existing home too. Normally, those borrowing must present a comprehensive renovation plan, cost estimate, and demonstrate their repayment capability.