Tips For First Time Home Buyers
Buying a home anytime is a big deal, but buying your first home can be quite overwhelming. This article was written to make you aware of a few things that first time buyers should know. First of all, realize that the old adage is true; location is the most important thing. Start by choosing an area you like, in a good neighborhood, with a home that suits your present and future needs, and then you can get started on the details. The important things to consider are listed below:
Your Financial Situation and Plans for the Future:
Evaluate the price of the rent you currently pay so that you will be able to compare that with all the costs of buying and owning a home. One of the most important things to do is count your savings and see if you really have enough to cover the down payment and closing costs. Weigh your income and job security (any upcoming promotions?) and how they coincide with your plans for the future. If you plan to move within the next 10 years, you will definitely choose a different type of loan than if you plan to be in the same place for 20 years, whereas if you plan to move within 3 years, it may be more economical to keep renting until then.
Current Market Conditions and Loan Programs:
Check out the property prices; if they are rising, now could be a good time to buy, but if they are falling, buying now could end up costing you money if you try to sell in the future. Look at the market’s current interest rate and compare that to the points (closing fees) your lender will charge you, as a low interest rate often means higher points. Next, learn about the available loan products. Learn the difference between fixed rate and ARM loans, balloon, jumbo, and interest only loans. Your credit history will make a considerable difference in the kind of loan and interest rate you qualify for, so keep that in mind.
Extra Costs:
As unpleasant as it is, you will need to calculate the closing costs into your budget for buying a house. These costs include attorney’s fees, appraisal fees, the title fee, credit report fee, the application fee, the broker/lender fees, an inspection fee, and state mortgage taxes.) Find out from your lender what all these fees will total. Finally, you can’t forget the down payment, which can be as much as 20% of the cost of the home with a conventional loan. If you don’t have enough money saved the down payment can be subsidized by the lender, but that will result in a larger overall loan.
Something often forgotten by first time home buyers is the ongoing cost of owning a home. Property taxes and home and life insurance, in addition to home maintenance, can be a little overwhelming. One thing to keep in mind is what is called the 28/36 rule. This is that your monthly housing payments should not surpass 28% of your monthly earnings, and that all of your monthly debts should not be more than 36% of your total monthly income. If you can keep to this guideline you can afford a house.
If, after evaluating all the costs of buying and owning a home, you decide that you can’t afford it right now, it is wise to wait and keep saving. It is better to rent now while saving for that down payment than to jump into water over your head. If you decide that now is the time to buy, start early, because closing takes time, and find a mortgage professional you can trust.
How to Get the Best Mortgage Loan
Finding the best mortgage loan for your needs can be a complicated process. There are many factors to take into account, including the interest rate, the points and fees, and the length and type of loan. When you are searching for the best deal there are several things you should know and do to get the right home mortgage.
First of all you should figure out your needs, preferences, and financial capabilities. Before you start shopping around you need to determine how much of a home you can afford and what type of funding your credit score will allow you to qualify for. You should also determine how much money you can afford to contribute to a down payment on a home. This will make a big difference in the type of interest rate you can secure. You should also decide what type of loan will best fit your needs, whether it’s a 30-year or 15-year term, or a fixed rate loan or adjustable rate mortgage. You should have a good idea of what you want and what you can expect before you start your search.
After you have done your research on your personal situation, it is time to start shopping around to compare programs, rates, and fees offered by different lenders. In this process it is important not only to find the lender with the best loan features but also to find a lender that you feel you can trust. A home mortgage is a huge undertaking and you want to make sure you work with someone who makes you feel comfortable, someone you feel will take good care of you through the years.
Once you find a several trustworthy lenders, it is time to compare their offerings. Start by getting mortgage quotes from all of them. Have them include the interest rate they would offer you on your preferred type of loan as well as an estimate of the closing costs that would be required. Do not forget to ask for a quote on how many points (a point is equal to 1% of the loan total) you have to pay. It is best to get a quote from each lender at a certain interest rate and compare the amount of points and fees attached to that particular rate. That will give you a fair idea of which lender offers the best total package.
Another important piece of information to compare among lenders to get the best mortgage loan is whether private mortgage insurance will be required and how much you will expect to pay. Private mortgage insurance is an insurance policy paid for by the borrower to protect the lender against loss in the event of foreclosure. It is generally required on all loans where the down payment is less than 20% of the home value. The policy can be cancelled after your equity-to-loan balance ratio reaches a certain point, but it can still be a costly expense in the meantime. The amount of money you have for a down payment may not be something you can change quickly, so you may simply have to find the best quoted price for private mortgage insurance.
If you have less-than-perfect credit you may not be able to get exactly the terms you are looking for, but you should still go through the same process of shopping around and comparing to get the best rate for your situation
Getting the best deal on your next home mortgage will be the product of your hard work and understanding of the process. Be aggressive in challenging lenders to find you the best deal. Make them compete for your business in order to get the right mortgage loan for your needs.
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