What You Should Know in Finding a Mortgage Before Buying a Home
Before you start looking for a home, you should get pre-qualified for a loan. Banks, credit unions and mortgage bankers make home loans. The lenders like myself will take an application, process the loan documents, and see the loan through to the funding stage.
If you have marginal or bad credit, again consult your lender like myself. I might be able to qualify you for a loan depending on how long ago and what reason(s) caused the bad credit. And I will be able to advise you on whether your credit history will prevent you from qualifying for a home loan.
You will need a down payment. Down payment requirements vary depending on the type of loan. There are also many down payment assistance programs exist too. These programs may loan or grant you the funds necessary for the down payment like the Nehemiah Program often used with FHA Mortgages.
You will need funds for closing costs Closing costs are charges for services related to the closing of your real estate transaction. They include, but are not limited to:
Escrow fees charged by the company handling the transaction
Title policy issuance fees charged by the title insurance company
Mortgage Insurance fees
Fire and homeowners insurance
County Recorder fees for recording your deed
Loan origination fee
If I am doing your transaction, I will be able to give you the actual estimate of these costs, as well as information about loan programs which can assist in financing your closing costs.
Some loans have "points" and some do not. A point is a loan fee equivalent to 1% of the loan amount. Together with the interest rate they constitute the yield on your loan for the lender.
Should you select a mortgage with a fixed rate or an adjustable rate? The answer to this question depends on whether mortgage rates are at a high or a low point when you purchase, and on how long you plan to live in the home. If rates are high, an adjustable rate might be attractive since subsequent rate drops could reduce your monthly payments. Additionally, lenders may offer a low rate during the first few years of an adjustable mortgage to make it appealing to you. If interest rates are low you might want to take a fixed rate to protect yourself against the possibility of rising interest rates.
There are two main types of loan categories.
Conventional Loans. Conventional mortgage loans are available with fixed or adjustable interest rates. Some loans may require mortgage insurance (MI). MI is typically required when the Loan-to-Value (LTV) for the primary mortgage is greater that 80%.
Government Loans. These include Federal Housing Administration (FHA) fixed and adjustable rate mortgage loans, and Veterans Administration (VA) fixed rate mortgage loan
For low or moderate income homebuyer, there are special programs designed to help you. These loans are available local and state housing agencies, like the California Housing Finance Agency (CalHFA).
Why might you have to pay mortgage insurance? Mortgage insurance protects the lender from potential loss if you should default on your mortgage loan payment. Generally, conventional loans that require larger down payments do not require mortgage insurance. Mortgage insurance is always required on FHA mortgage loans.
Many organizations offer home loan counseling to prospective homebuyers. These organizations like ACORN provide classes for homebuyers to cover the steps to homeownership. They will cover home selection, realtor services, lenders, loan programs, homeownership responsibilities, saving for a down payment, and other important pieces of information. Many first-time homebuyer programs require homebuyers to attend this type of class to be eligible for selected programs.
For More Information on These First-Time Home Buyer Programs, Please contact me and/or also read:
2 Comments on Finding a Mortgage: Ten Tips for First Time Homebuyers
Alan, I have been considering a first home buyer tips list. But there are so many factors I am having trouble coming up with my preferred list. It was good seeing your list and let me know any feed back you get from your clients.
Alan 'AJ' Nisen California Contra Costa Mortgage Officer
Lafayette, CA
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A Large Bank in America
Office Phone: (925) 688-3820
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AJ, as part of the Active Rain family, uses this forum to discuss issues that affect the Real Estate market, all aspects of Mortgages, Loans and refinancing, to build working relationships and friendships. AJ’s conversations include such topics as, the sub prime lending fallout, mortgage market changes, and localism (revitalizing downtowns, business growth, community volunteerism and events)
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Alan, I have been considering a first home buyer tips list. But there are so many factors I am having trouble coming up with my preferred list. It was good seeing your list and let me know any feed back you get from your clients.