Best Mortgage Tips For First Time Home Buyers

First time home buyers are usually under a lot of stress because a home loan involves a lot of steps. The entire mortgage process involves a lot of paperwork and procedures, but you only have to do it once to own your ideal home. This comprehensive mortgage guide for new home buyers will explain the steps involved in financing your home purchase and the best type of home loans to use.

It helps if you have been reading on the different types of home loans available such as fixed rate versus adjustable rate mortgages. It is important that you get familiar with common mortgage terms and conditions, and understand their meanings. It will be foolhardy to expect the realtor or mortgage broker to act in the best of your interest, since they are most concerned with their commission instead of recommending the best home loan for you.

There are many free home buying seminars you can attend, and these are regularly organized by banks and real estate firms. On a minimum, you need to understand the following basic mortgage jargon:

  1. APR refers to the annual percentage rate or the cost of the home loan. When you compare between various mortgage lenders and home loan quotes, make sure you check which has the cheapest APR.
  2. AAPR is the annualized average percentage rate or true rate. The AAPR is important because it is the nominal interest rate per annum which accounts for all interest compounding and fees over your entire mortgage term. It is better to compare mortgage lenders using the AAPR, since it considers the fees that will occur over your entire loan period.
  3. Arrears simply means the amount of overdue interest you owe on your home loan.
  4. Closing costs for home loans include both prepaid items and non-recurring closing costs. Prepaid items are those which will recur every year such as your property taxes and homeowners insurance. Non-recurring closing costs are only paid once up front for buying the property or obtaining the home loan such as the legal fees. When you ask for a home loan quote, the lender will give a fair estimate of the closing costs required within 3 days.
  5. Collateral is usually used to secure a large loan. In this case, the collateral for a mortgage is simply the property. Homeowners who cannot pay back the loan will lose their property to foreclosure.
  6. Mortgage insurance is required by most lenders because this will cover the expenses involved when the borrower (you) defaults on the loan. Mortgage insurance will pay for the outstanding debt if the sale of the property is insufficient.

Whenever you need major financing, it is a good idea to check your credit report from Equifax, Experian and TransUnion on your own. Even though lenders will compute your credit score to determine whether things can be approved, scrutinizing your borrowing history for problems provide you a chance to rectify errors and this means you can qualify for cheaper loans. Generally, you have no problems getting a home loan with credit score above 620. If it is lower, consider your options with alternative home loan lenders.

If you have bad credit history, you still have time to fix it before closing on the home loan. Get a copy of your free credit report and dispute any mistakes on it. If you have not been late in your debt payments for the last 6 months, it is alright to consider buying a home. However, if you are still having problems with the minimum payments on your outstanding balances, then it is not a good idea to add a $200,000 mortgage loan now.

If your credit problems is a thing of the past and you are now financially sound with a stable income, you can still approach different lenders to check if they are willing to provide bad credit home loans. You can also refinance your first home loan for cheaper interest rates after you have raised your FICO score above 700.

You can choose to approach a mortgage lender directly or hire a mortgage broker to help you find a suitable home loan. For most home buyers, it is cheaper to find a lender yourself, since most information are available online directly. The main reason is because you do not need to pay any home loan broker fees.

However, first time home buyers with bad credit can benefit from the experience and extensive network of mortgage brokers. They will be able to plan out a suitable schedule for you to fix your credit and refinance your mortgage for cheaper payments.

When you are comparing between several lenders for the cheapest mortgage deals, let them know you have the quotes in hand and ask for a better deal. In short, make the mortgage lenders compete for your business. Be sure to ask for clarification on AAPR, fees and closing costs, prepayment penalty etc so that you have a clear picture which is the preferred lender. A home loan is possible the biggest debt you will add in your life, and it can take up to 30 years to pay off a home mortgage. You can save a lot of money by bargaining hard.

Most people will not need a lawyer for a home loan, especially if you are using a well established and reputable lender. The banks and lending institutions will be able guide you through the entire mortgage process and mandatory filing requirements such as title search, home inspections and appraisal, etc. If you are still worried, then feel free to hire an experienced real estate attorney to examine all your paperwork and contracts. Mortgage transaction delays are often caused by filing up the paperwork with wrong information because of inexperience with the local town and state laws.

Your financial planner will be the best person to recommend the best type of mortgage based on your current cash savings and expected income. Most people choose to take 15 and 30 year fixed rate home loans in order to lock in the very low interest rates available now. If you are buying a luxury house, a 30-year fixed rate mortgage is recommended so that the monthly payments are cheaper compared to short term mortgages. The main reason to choose a shorter home loan is when interest rates are very high and you have the means to pay larger monthly payment to quickly enjoy a fully paid off home. However, avoid being over aggressive or you may end up having to take loans just to meet the monthly mortgage payments in case you lose your job.

An adjustable rate mortgage (ARM) is preferred when you do not expect to stay in the new home for longer than 5 years. This is because initially, the interest rates on 3-to-1 and 5-to-1 adjustable rate home loans are much cheaper compared to fixed rate loans, thereafter the ARM rates will be revised up and pegged to the market rates. Since you will be selling off the house soon, the rates revision will not affect you. For home buyers who need to relocate due to work, 3-to-1 and 5-to-1 ARMs are very popular and can lower your short term home ownership costs.

A mortgage letter can help you negotiate for lower prices with home sellers. It identifies you as a serious buyer with ready financing, so that the deal can be closed immediately. Some home sellers do not want to deal with home buyers who have yet to secure any mortgage approval, since there can be delays and uncertainties involved.

To get a home loan, you need to disclose your financial information to the lender which includes your credit history, income, debts etc. Once they have processed your info, you will be approved for a certain loan subject to certain conditions such as 30-year 5% fixed-rate mortgage. A mortgage letter has a stated expiration date between 30 to 90 days. Hope the above home loan tips for home buyers help you save some money on unnecessary financing costs.


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