How Sacramento home buyers can get their finances in order

For anyone who is planning to buy a house in Sacramento, it's good start by gaining a basic understanding of financing a home. Most home buyers are not able to pay cash for their home purchase, and many need to obtain a mortgage loan for the majority of the purchase. Because there are different types of mortgage loans, it is important to understand what your options are and where the current Sacramento mortgage rates are before you begin your house hunt.

For many home buyers who plan to buy a house in Sacramento, the first step is to determine how much home they can afford. Most lenders offer the option to get pre-approved or pre-qualified for a loan. Do not confuse the two. Pre-qualified is typically based solely on information regarding your income and debts that you provide to the lender. It is usually a fairly simple and fast process that can be accomplished over the telephone or over the internet at no cost to the potential borrower; however, it is imperative that a borrower understand that a pre-qualification is not binding on the lender. Because it is based only on information supplied by the borrower and does not include an in-depth credit analysis, it should only be used as a preliminary guideline.

Pre-approval, on the other hand, does include a thorough credit check and will typically result in a conditional commitment in writing for an exact loan amount from the lender. This process takes more time and usually requires an application fee, but with a pre-approval letter you have a much more secure idea of how much you can borrow.

Although you may be pre-approved for a specific loan amount that does not mean that it is in your best interest to actually borrow that much. Take the time to sit down and complete a detailed budget analysis, making sure that you account for your savings and potential emergencies. Once you are a homeowner, any necessary repairs will be your responsibility so you should also include a “repair” fund. Often, lenders will offer you a pre-approval that is at the top of your budget; however, spending up to the top of your budget is rarely a wise financial move.

Another big factor to consider when you buy a house in Sacramento is the Sacramento mortgage rates that apply to your loan. Mortgages come in two basic forms – fixed rate and adjustable rate mortgages, or ARMs. A fixed rate mortgage, as the name implies, has a mortgage rate that is fixed at the time the loan is taken out and does not change for the life of the loan. Fixed rate mortgages traditionally contemplate a 30 year repayment period, although 15 year loans are gaining in popularity. Sacramento mortgage rates for a fixed rate loan were at a record low of around 3.2 percent as 2013 began.

An ARM is a bit more complicated than a fixed rate loan. The interest rate can fluctuate during the course of the repayment period on an ARM. The interest rate for an ARM is determined by what is known as the index and the margin. The index is determined by the market and is published by a neutral third party. The margin reflects the number of points agreed upon in your loan that are added to the index to arrive at the interest rate for your loan. In a typical ARM, the rate will stay the same during the “initial rate period” which could last from one month to ten years. In most cases, the Sacramento mortgage rate on an ARM will be lower during the initial period than the rate on a fixed rate loan. As of January, initial rates for an ARM were as low as 2.3 percent. Although ARMs typically have built in caps, a borrower should still be very careful that he or she understands how the interest rate is calculated because it can surpass that of a fixed rate loan by a significant amount after the initial period.

Finally, before you set out to buy a house in Sacramento, be sure that you understand that many factors will affect Sacramento mortgage rates that are offered to you as a borrower. Only borrowers with a very good credit rating, low debt to income ratio, and a history of creditworthiness are offered the lowest interest rates, meaning that the rate you are offered may be higher than the lowest rate available. Be sure to talk to your real estate agent about your options before to begin your house hunting.

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