You know the old saying, buying a home, and getting a mortgage, is the most important financial transaction most people will make in their lives. It’s a cliché, but it’s definitely true. Get the wrong mortgage and you may find your finances spiraling out of control and into trouble. The right mortgage, on the other hand, can make homeownership much easier (and less of a strain on your finances). With this in mind, here are some quick mortgage tips for first time home buyers.
Before you Apply
Preparing to apply for a mortgage is perhaps the most important step in actually getting the loan. Preparation is all about tidying up your finances, and making sure your credit is in order before you start contacting lenders.
Fix your Credit: Your credit rating is one of the most important factors that lenders use to determine how much mortgage they’re willing to lend you, and what your interest rate will be. If your credit is in poor shape, you can expect a higher interest rate, and very poor credit may even prevent you from obtaining a mortgage at all. To start fixing your credit, pay bills on time and check your credit report for errors. Make sure your credit is in good shape before you start applying for loans.
Evaluate your Finances: This part of the process is all about determining how much mortgage you can afford. Make two lists: one of your monthly income, and one of your monthly debts. This will help you figure out your budget and how much you can afford in mortgage repayments. Of course, these are only preliminary figures, but it’s good to know where your finances stand before you start talking with lenders.
Choose your Mortgage Type: Fixed rate mortgages aren’t always the best option. If you’re only planning to live in the home for a few years, you may find an adjustable rate mortgage is more affordable. You can always refinance to a fixed rate mortgage if you decide to stay in the home permanently.
The Application Process
Applying for a mortgage is a fairly complicated process. For first time buyers there are several important points to be aware of. Here are a few tips to help you get through the application process.
Choose a Lender: When you’re choosing a lender it can be tempting to simply choose the institution that offers you the lowest rates, but it’s wise to be aware of the fact that unscrupulous companies have no intention of actually giving you the low rates they advertise. It’s much more important to choose a trustworthy lender who is willing to answer your questions and help when you need it.
Buy Points: Most lenders offer “points” as a means of allowing you to buy down your interest rate. This can be an excellent way of saving a significant amount of money over the life of your loan, but the money you pay for points has to be paid in cash at closing, so make sure your cash flow can cover this. Also note how much the lender is charging per point – in some cases, points can cost more than you’d save over the mortgage term so buying points doesn’t always make sense.
Lock in your Interest Rate: Locking in a low interest rate can save thousands of dollars over the life of a loan, but trying to ride the market waiting for it to bottom out can be risky. Don’t wait too long to lock in your interest rate, and pay very close attention to the market, or you may end up with a higher interest rate than you can afford.
Investigate Hidden Costs: Closing costs, which typically cost between three and five percent of the value of the home, are payable in cash when you close on the house. When you receive your Good Faith Estimate from your lender, check it thoroughly for hidden expenses, such as document delivery fees and processing fees. If you’re careful you can save hundreds of dollars in hidden costs by negotiating with your lender, which means less cash to pay at closing time.
Tips for Closing
Closing can be tricky too, especially if issues arise at closing time that weren’t apparent previously, such as the need for home repairs. These types of problems shouldn’t affect your mortgage, however.
One aspect of closing that can affect your mortgage is the date on which you close. This is because when you close, you must pay in cash the pre-paid interest that accrues on your first mortgage payment. This cash payment covers interest from closing time until the time you make the first payment. If you don’t have much cash to spare, close at the end of the month to reduce the amount of pre-paid interest owing.
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Help answer the question about home repairs
Is my request for home repairs by seller unreasonable?I am a first-time buyer, and am under contract to buy a house in NJ. The disclosure statement reported no problems with the house, but the home inspection has turned up a few major ones: the A/C is 25 yrs old & needs to be replaced, the fence around the pool is not up to code, and the house failed the radon test (plus a number of other small issues:electrical work, poor pool maintenance). We've gotten estimates totaling about $10k for repairs. We've requested the major problems be repaired by the seller but they are refusing to pay for anything other than the radon remediation. (They are offering to leave a hot tub in lieu of making repairs!)
The house was on the market for quite some time and we think the sellers were hoping to sell the house for more, but I feel that shouldn't excuse them from making repairs. I love the house and hate to call off the sale. Am I missing something here? Are my expectations unreasonable?
The A/C was in poor condition and not working when the home inspector visited the house. The seller *personally* repaired the system, but has not provided any documentation for any repairs he made; simply says it is ready for reinspection.
A great place to start is http://www.hud.gov. This is the official website for the US Department of Housing and Urban Development. They offer a good walk-through of how to go about buying a home. There are also links available to programs for first-time homebuyers, which may offer assistance in lower rates, down payment assistance, or even both.
You also mentioned some worries about being taken by a real estate agent. What you might want to consider is using what is called a buyer's agent. Basically, it puts a real estate agent in your corner too. They will end up splitting the commission with the seller's agent, so they do have some incentive to get you into a home that fits what you want and need.
In the meantime, make sure you are a great candidate for getting approval. A good place to start here is annualcreditreport.com, the official government website to receive a free credit history from all three major bureaus. You'll want to check for public records, ie judgments, bankruptcies, and collections. If there are any, you'll want to get those resolved, or be sure you have the documents you need to show they are taken care of. Beyond that, if you have balances on your credit cards, keep working at whittling those away. Be aware of what "assets" you have, things like checking or savings accounts, 401K, IRA, anything you can use to show you have the money to move ahead with this pruchase. Having all this information easily available to you will make the process go much more smoothly.
There are a ton of ways to buy a house with no money down — you'd be smart to look for a Realtor and a mortgage broker that understand all of the options out there, and who can explain them to you in a clear manner.
When you use a Realtor, they will get paid by the seller. Generally, when the seller lists their home, they agree to pay somewhere between 2-6% in commissions to a Realtor or Realtors. The Realtor who lists the house usually gets 2-3%, and the Realtor that brings the buyer (you) usually gets another 1-3%. Those commission costs will be included in the cost of the home. If you can find a home that's for sale by owner, you might be able to buy it for less than a comparable purchase with Realtors involved, but that's no guarantee. A good Realtor should be able to help you understand the process and minimize the stress that YOU have to deal with directly.
It's a good idea to interview at least 3 Realtors that are familiar with the area where you want to buy. You can decide who is the best fit for your needs, and they will hopefully make the home-buying process smoother than if you do it on your own. You might want to look into a "Buyer's Agent"; most Realtors are a transaction agent, which means that they don't have any contractual, financial responsibility to you — they're working just to make sure the transaction happens. A real buyer's agent will have a financial responsiblity to look out for YOUR best interests, so they may be a better choice when it comes to negotiating, etc.
All that said, the experience and personality of a Realtor is more important than their certifications — make sure to interview other people that have worked with them to get an accurate picture.
As for choosing a mortgage lender or broker, you can use many of the same techniques listed above to find a good mortgage professional. You should definitely shop, as different brokers or lenders may have different ways to meet your needs. Contrary to what another person said in earlier post, you have a 14-day window where you may have as many as 20 credit inquiries for the same purpose without hurting your score.
The best thing to do is to interview several brokers. When you find a few that you like, find out your credit score, and ask each of them each to give you a GFE (Good Faith Estimate) and to outline their recommendations for you based on your score and your needs. Make sure that the GFE's are all provided on the same date, as interest rates can vary from day to day. Ask each broker to include an estimate of ALL fees, not just the broker or lender fees. You can compare the GFE's by looking at each individual line (they're numbered for reference) — that will give you a clearer comparison than just looking at the bottom line number.
Once you decide on a broker, tell them that you'll commit to them as long as they come through on what they promise. If they change what they're offering, make sure you get a good explanation for WHY the change occurred (some brokers will try the old "bait-and-switch", but sometimes there are legitimate issues that forces changes late in the loan process).
Searching for the right house at the right price can take a while; remember to stay within the price range that you can afford, and remember that there is no "perfect" house. Even if you get emotionally attached to a house, don't be afraid to let it go if it doesn't make sense financially. There are lots of houses out there, and there will always be another one that you like!
Finding a house can take anywhere from a week to a year — all depends on how picky you are. Actually BUYING the house (putting in a contract, getting the financing, and closing on the sale) will usually take somewhere in the range of 30-45 days (during which you and/or your spose will probaly go crazy from nervousness and uncertainty; that's why it's especially important to find a Realtor and mortgage broker that communicate well with you and with EACH OTHER).
Remember that this transaction will probably be the biggest financial decision/transaction you've ever made. That said, a good or bad experience won't make or ruin the rest of your life. Keep everything in perspective, expect that there will be some things that don't go right, and enjoy your search!
If you have further questions, feel free to respond to me directly through Yahoo Answers (no personal information allowed in posts)
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Make sure you get fix rate mortgages. Adjustable Rate Mortgages may sound good, but their interest rates will increase after the initial period.
Try to make a down payment of 20% to avoid Private Mortgage Insurance.
CitiMortgage is a good company to get a mortgage from.
In order to qualify for a mortgage loan you must be able to prove 2 continual years of employment in the same career field. Promotions within the same career field with an increase in pay is a good thing.
Buying a house is a step by step process, this is the first step. Once this step is taken the others will fall in place for you.
In order to find out the type of loan programs you are qualified for you will have to fill out a loan application, with a mortgage broker, which you can find one in your local telephone book.
Make sure this mortgage broker or mortgage banker is able to do government loans such as FHA and VA loans if you qualify for one.
He will fill out this application, which takes awhile so grab your favorite beverage and sit down. Once you have completed the application, he will run your credit report which will have your credit scores. These credit scores will determine your interest rate.
The amount of your monthly debt payments you are required to pay as per your credit report and the amount of mortgage you can take on based on your income will determine the amount of house you will be able to purchase.
When you speak with the mortgage broker you will need the following documents to complete the loan application, there will be others, but this will get you started.
#1 One month of pay stubs for each person that will be on the mortgage.
#2 Six months bank statements from each bank in which you bank as well as statements from any 401K from you place of employment.
#3 Two years of federal income tax along with the W-2 that match.
Once he has all that he need to do he can then issue you a pre-approval letter so you can purchase a home. In this pre-approval letter will be the amount of house you are qualified to purchased.
Once he gives you this pre-approval you may now find a real estate agent to find yourself a home or he might have a referral.
Now make sure before you get your pre-approval you and your mortgage broker go over all your options as to the mortgage programs you qualify for, the interest rate, monthly payments.
If you are getting a FHA, fixed rate, two loans to eliminate PMI like an 80/20 or one loan, if you are qualified for and approved for a 100% loan.
You should select the loan that best suit your financial condition at the time. That could be an adjustable rate loan. It could be a fixed rate loan for 5 or 10 years and then adjust. Some adjustable rate mortgages only adjust once.
Make sure your mortgage broker explain all your options so you may make an intelligent decision.
What might be good for one person might not be good for you, in other words just because your friends and all your real estate buddies are telling you about the great fixed rate they got, your financial situation might call for something else.
So select the best option for you and your financial situation.
You should also get a Good Faith Estimate (GFE) which will indicate the cost you will have to pay for getting this loan. It will also indicate the amount of your down payment.
Once you have found a home the real estate agent will then prepare a contract for you and the seller to sign.
Your mortgage broker will now order an appraisal to show proof of the property value.
The mortgage broker might ask for additional information or documentation, don't get all up tight this is normal, just supply the information or find the documents needed.
After the appraisal has been completed you will be called by your mortgage broker to sign your loan docs so you can take possession of your new home.
Before signing any loan docs make sure they say exactly what you and your mortgage broker went over when you decided on what mortgage program was best for you.
I hope this has been of some benefit to you, good luck
"FIGHT ON"
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Option 2 might would probably be better. When you apply for a loan, you're debt is calculated into the equation. A mortgage lender would probably inform you of this when you talk with them.
Unless you plan on keeping your house for over at least 5-10years, you probably won't see "ridiculous" appreciation in value (not in the current market). Things aren't going to turn around for a while! Many professionsals feel it will be a min. of 5 years before values start increasing again. In my area they are still declining. Many new buyers feel like they are making the best decision of their life buying a house, but make sure you are well informed and (like the other guy said) the house has had a Home Inspection and survey.
Good Luck!
i’m making sugar cookies MYSELF withouth setting the house on fire
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20 year mortgages don't exist and 15 years are ok IF you can afford them (not recommended) first time buyer only gives you some more mortgage options but with the recent sub prime crapola they are going to be very strict for a while. Stay smart buy what you can afford and you'll be ok. and do NOT GET AN A.R.M.!
I have an FHA loan which I got in 2005. I live in the bay area, California (homes are expensive here – not sure how Colorado compares).
The upsides were:
- I bought with no money down (I had similar income to yours and 720 credit score)
- They even covered closing costs, so my loans (total of 3) came to 103% of the purchase price
- The rate I got at the time was unbelievable (4.75% 30 year fixed, I think now they are at somewhere around 5.75% but I could be wrong)
- It is a fixed rate for 30 years, no worrying
- I was/still am not required to make any payments on the 2nd and third loan.
The downsides were:
- You have to pay PMI (private mortgage insurance) no matter what for the first 2 years, after which you might be able to get it removed if your home's value rises and fits certain criteria. This part is really irritating because (in my case) it is about $220/mo that I am basically throwing away for the priviledge of having this loan.
- You must live in the home for the life of the loan (you are not allowed to rent it out for any reason)
The rate difference between then and now is quite substantial. If I was in your shoes, buying now with no down payment I think I would:
- buy a home with CAL FHA (their rates aren't THAT much better than rates you can get elsewhere, but it's nearly impossible to find 100% loans elsewhere these days)
- they have no prepayment penalty (I think – please check on this as it's been a while for me) so you can refinance if you need to
- you can buy with no money down which is nearly impossible to do otherwise these days
- I would ONLY do this if I was buying a foreclosure or a short sale in a GOOD area in your state (a place more likely to weather the housing crisis right now) where I would be walking in with equity. Make SURE your agent gives you comparable RECENT sales of same size/same lot properties, you want to have equity on day one, in case values come down.
- I would ONLY do this if I wanted a *home* as opposed to a get rich quick scheme. You could be in this home for the long haul before prices stabilize and we start seeing growth again. If you walk in with equity there's less/little risk that your value goes down and you get stuck owing more than the home is worth, BUT keep in mind that it will be difficult to sell your home because everyone is having a harder time getting loans, and that means less people can buy. So you need to think long term.
I do think it is a good idea to buy right now with no money down because prices are low, and if you can get a good deal and a good loan that you are confident you can maintain for years (think 5 years) then you will come out ahead in the long run.
Note that if you did have a down payment, I would have suggested to explore other loans, because the PMI is money down the drain, and if this is your first home and you're single with no kids then it's unlikely you'll be living in it for 30 years anyway. But (not knowing anything about the Colorado market) my opinion is that going with CAL HFA in your situation is a great choice.
(And if I can be annoying for a minute and suggest about something you didn't ask — don't fall into the temptation of leasing a car or buying a brand new car with payments … really bad way to spend your money with no appreciation whatsoever! You'll do much better to buy a used car and get yourself into a home. I see so many people buying $30K-$40K cars with payments, it's killing me!)
I won't be harsh, but I WILL be realistic. If ANY of us had access to that real estate crystal ball, we would not be sitting here answering these questions.
Your guess is as good as mine, as to whether or not the market has hit bottom. A recent article in USAToday (quoting industry 'experts') indicates that the market may soften even a bit farther, and might take another eight months to fully bottom out. However, is this coming softening enough to absorb what might happen to interest rates in the interim ?