A mortgage is a type of loan used to pay for purchasing a house or land. Mortgages give many benefits such as having lower interest rates, getting homeownership, and tax benefits, especially for first-time buyers.
You’ll be classified as a first-time buyer if you – anyone you are buying with are purchasing your first residential property.
If you are a first-time buyer here are some mortgage tips for you. If you are struggling with first time mortgage, feel free to contact businesses such as Eden Hawk to get professional advice.
Preparation tips:
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Pay off all debt
Owning a home is much more expensive than renting, even if your monthly house payment will be less than your current rent.
This is because you are responsible for everything such as maintenance.
It is better to start buying your first home when you’re debt free as your money won’t be tied up in monthly payments.
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Determine your budget
Before you start looking for properties, it’s important to determine how much you can afford to borrow.
Consider your income, expenses, and credit score, and use online mortgage calculators to calculate how much you can borrow and your monthly payments.
Use the general 25% – 35% rule of thumb to see what type of house you can afford so that you have enough disposable income to cover other financial needs, such as everyday living expenses, emergency savings/investments, and retirement contributions.
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Start saving for the down payment and closing costs
A down payment requirement will depend on the type of mortgage you choose and the lender.
You can use a down payment calculator to decide on a goal and then set up automatic transfers from checking to savings to get started.
Closing costs are the fees and expenses that you need to pay to finalize your mortgage, it typically ranges from 2% to 6% of the loan amount.
Find out the estimated amount and start saving now!
Choosing mortgage tips:
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Explore mortgage options
Many first-time home-buyer loans require only a small down payment, but they cost tens of thousands of dollars more in the long run.
Here are some of the mortgage types and options:
- Conventional Mortgages
- Conforming Mortgage Loans
- Nonconforming Mortgage Loans
- Government-Insured Federal Housing Administration (FHA) Loans
- Government-Insured Veterans Affairs (VA) Loans
- Fixed-Rate Mortgages
- Adjustable-Rate Mortgages (ARMs)
You can also choose the length of your mortgage:
- A 30-year fixed-rate mortgage
- A 15-year fixed-rate mortgage (lower interest rate but higher monthly payments)
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Compare mortgage rates and fees
Shopping around for a mortgage is an important step in ensuring that you get the best mortgage rate and terms possible.
You can request loan estimates for the same type of mortgage from multiple lenders to compare the costs, including interest rates and possible origination fees.
Find the mortgage option that suits you.
For example, ARMs have a low initial interest rate, but if your lender raises your rate, your mortgage payment will go up.
Some mortgage options let you buy homes with no down payment or PMI. But they carry a bunch of fees and usually charge high-interest rates.
What to compare?
When comparing offers, consider the interest rate and annual percentage rate (APR). Interest rates can be fixed or variable and are determined by market factors and your own creditworthiness.
APR includes many of the other fees you’ll need to pay to get a mortgage and can give you a better idea of the real cost of the loan in your life.
Lenders may offer the opportunity to buy discount points, which are fees the borrower pays upfront to lower the interest rate.
Do your research and find the best mortgage for first-time home buyers.
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Shop around for lenders
Talk to at least three lenders and pick one that you are comfortable with.
Compare their interest rates, fees, and customer service to find the best one for your finances and peace of mind.
Don’t be afraid to shop around and negotiate with lenders to get the best possible mortgage.
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Get pre-approved for a loan
A mortgage preapproval is when your lender verifies your financial information and gives you a letter saying how much money you can borrow and under specific terms.
A preapproval letter shows home sellers and real estate agents that you’re a serious buyer, and it can give you an advantage over other home buyers who haven’t taken this step yet.
It also can help you understand how much you can afford and make you a more attractive buyer to sellers.
House shopping tips:
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Hire a real estate agent
A good real estate agent will search the market for homes that meet your requirements and will guide you through the negotiation and closing process.
When speaking with potential agents, ask some questions about their experience assisting first-time home buyers in your market and how they intend to assist you in finding a home.
Find someone who is trustworthy and knowledgeable about the current state of the market.
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Get clear on needs versus wants.
List down the things your house absolutely must have.
Be realistic and know that sometimes you have to make some sacrifices to stay within your budget.
Your real estate agent has assisted numerous first-time home buyers. They can assist you in determining your needs and desires, setting realistic expectations, and showing you houses that meet your criteria.
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Be patient
It takes time to find the right house. Be patient and look for several houses before making a decision. You may even make several offers before one is accepted but this is all part of the process.