Five Tips For First Time Home Buyers  

Buying a home for the first time is an exciting and scary undertaking. There are several things you can do to make it easier and less intimidating.

First, get your credit scores, and examine them carefully for errors and any payments you might have missed along the way. The mortgage rate you ultimately qualify for will be dependent on a good score. So contact the credit bureaus to fix any problems that you spot. Home owners insurance at a reasonable rate might also be determined by your credit score.

Next, start to understand the mortgage market and your loan options. There are a variety of mortgage products out there. One of them is going to be best for you. These include:

·        30-year fixed or conventional mortgage. These require a down payment of from 5 to 20%. The amount of the loan is amortized over 30 years. In the early years, you are paying mostly interest which is deductible (along with your property taxes) on your income tax return.

·        Adjustable Rate ( ARM). These mortgages start out at a low interest rate that can be reset by the lender periodically. They often start out at a lower interest rate than a fixed-rate loan. However, when these reset, they can send your housing costs spiraling out of your ability to pay.

·        Hybrid Mortgages start off like a fixed rate mortgage with a stable interest rate for up to ten years. Then they convert to an Adjustable with the rate being adjusted every year for the life of the loan. This can be a good option if you are not planning to stay in the home for more than five years.

·        Option ARM has a low introductory start rate so you make low initial mortgage payments and you can qualify for a more expensive home. There are 4 major types of payment options. 1) Minimum Payment set for 12 months at your initial interest rate. After that, the payment changes annually with a payment cap to limit how much it can increase or decrease each year. 2) Interest Only Payment where you are only paying the interest on the loan. There is no reduction in the principal which becomes due in full at the end of the loan. 3) Fully Amortized 30-year Payment which acts like a 30-year conventional loan with principal and interest payments made each month. 4) Fully Amortized 15-year Payment which lets you pay your loan twice as fast and save more than half the total interest of a 30-year loan. There are additionally many more variations available. Consult your Mortgage professional for the best option for you.

·        Interest Only Mortgage. You pay only the interest, not the principal. At the end of the loan, the full principal amount becomes due and payable. Because you are not paying down the loan, you are in effect leasing. These can be risky if your home loses value or you lose your job.

Third, try to figure out how much house you can afford. If you are financially comfortable with the rent you are currently paying, use that as a guide in determining an affordable mortgage payment. There are many online calculators to help you fix on a price range that will put you at an affordable monthly payment. For example, if you are paying $1500 a month in rent, you could reasonably borrow $200,000 at 5.5% over 30 years. Your monthly payment including a 1.25% allowance for property tax and a .5% allowance for mortgage insurance would be around $1430. Home ownership will also allow you deduct your mortgage interest payment and property taxes on your income tax return. And, with luck, your property should appreciate in value over the years that you own it.

You don’t want to over-extend yourself financially, no matter what the mortgage lenders say. It is prudent to be spending around 30% of your gross income for your total housing costs which includes: principal, interest, taxes, property insurance, mortgage insurance, home owner association or condo fees and utilities. You can eliminate mortgage insurance by putting 20% down on the property.

Once your credit scores have been scrutinized and repaired if necessary, it is time to contact a Realtor®.  Most Realtors have relationships with mortgage companies, and they will be happy to refer you so you can get a mortgage pre-approval. This will be necessary if you want to make an offer on a house. A pre-approval is a letter that commits the lender to providing you with a loan for the stated amount based on the financial information you provide. Most sellers want this reassurance before they will accept your offer and withdraw their home from the market.

You won’t save time or money by trying to do this on your own without a Realtor. The seller pays the Realtor, and the Realtor’s help will prove invaluable to you. A good agent will make sure you do not overpay for the property and will guide you through the often complicated process. A good Realtor will also steer you away from a property that might be difficult to sell later. Look for a Realtor with an ABR designation: Accredited Buyer Representative.