Buying a house is probably the greatest venture the vast majority will make in their lives. Getting a house and mortgage is often one of the biggest purchases that most people will ever make. The procedure of discovering, purchasing, and paying for a home can seem mountainous for first time home buyer. Getting a first mortgage is also a big undertaking. It’s hard to know where to begin – what does a home loan involve? What are the best mortgage options? What are your choices? What preparatory steps are required? This article explains some of the major aspects of getting a mortgage for your first home purchase .
What to do with your first mortgage
Our friends at American Capital Mortgage Group have assembled an infographic that is a “Home Loan 101” for first time homebuyers. It addresses usual questions and concerns you may have when starting out on purchasing a new home and getting a first mortgage. First mortgage planning does not need to be difficult and can make buying your first home a success.
First Mortgage Financial Plan
Before you start, you’ll want to verify you’re fiscally prepared to purchase a home. What amount of would you be able to afford on a monthly basis. How long you plan to stay in this home, etc. These are great things to ask yourself when considering your new home purchase. Many people suggest that you do not spend more than 3X your annual income on home payments. This is just a guideline and it may be more reasonable to spend more or less on a first home in different cities.
It’s key to have good credit on the off chance that you need to be sanction for a home advance, so keep paying your bills on time in everything if conceivable. Moreover, you’ll have to have enough to put down a starting initial installment (this expense is ordinarily somewhere around 5 and 20% of the deal cost; if under 20%, you have to pay contract protection).
In the event that you need assistance scouting out the ideal home for yourself, it’s advised that you utilize a dependable real estate agent. As you can see in the home loan infographic, 88% of purchasers buy their home through a realtor agent.
Most importantly with your first mortgage planning, figure out your budget, what you can afford each month. Find out the property tax rate in your are a (from the tax assessor a website, do not believe what you read on Zillow or any other site like that. As they are almost always wrong). Figure out mortgage insurance, homeowners insurance, etc. consider all this when budgeting. This is how you decide how much you can afford, not the bank
Types of Home Loans: First Mortgage Planning
One of the toughest jobs in getting home load is choosing between all of the products available. Different mortgage types have many different advantages and benefits depending on your situation; so, you will want to consult a lender to figure out a plan of action. You will want to find the best fit for your needs based on credit, income, the price of the house, if you are military, etc.
Purchasing your first house can be an intimidating experience; however, it really doesn’t have to be. Do your research and break things into smaller, more manageable steps and you will be able to worry less about the process and focus on enjoying your new home!
Prepay Home Loan
Your payments on a fixed-rate loan are fixed at a given monthly amount. The percentage of any payment going to interest is determined by the amount of principal at the time, so if you prepay principal via additional payments over the required monthly amount, the interest due is thereby smaller and each payment can have a higher proportion of principal payment. The effect will be small initially but if you make significant prepayments as you describe here, your payments will soon be almost all principal and you will pay off the loan quickly and pay less interest as a result.
If you get a 15 year loan vs. a 30 year loan, you should get a lower interest rate. You can prepay either loan on the same schedule, but you will pay less interest if the rate is lower. If you intended to pay over 30 years, given interest rates right now it would be a horrible idea to get into a 5/1. But given you want to pay off in 5 or less, even if something comes up and it takes you a bit more than 5, you should still come out far ahead of a traditional fixed rate loan.
First Mortgage Planning Meeting with Bank
If you’re already educated about personal finance the “initial meeting to discuss affordability” is kind of BS (in my opinion). They will ask you how much you earn, what your debts are, are there bad marks on your credit. One of the banks I went to asked scripted questions like “why is now the right time to buy a house” and “where do you see yourself in five years” that I found really condescending and none of their business. I think the idea is that some people are just not in a financial position to buy a house and this meeting allows the bank employee to tactfully tell the person that. It’s totally informational and has no bearing on whether you’ll get pre-approved for the mortgage.
All banks in my area allow you to skip the meeting and just apply online for a pre approval. Also, they all have websites that tell what interest rate they offer and give a breakdown of what they charge for closing costs.
Other Tips for Planning for a First Mortgage
You want to know about all of the costs associated with the loan, including which closing agent and service companies the mortgage originator recommends. You can sometimes get better prices on mandatory services if you shop around.
In terms of the mortgage itself, you want to know when the rate would be locked, so you know they are not doing a teaser rate that somehow disappears when you need it most. You also want to be sure you understand whether any signing fees (aka points) are associated with a given interest rate, to allow a fair comparison.
Don’t be afraid to shop around. Getting quotes from a few different mortgage lenders is essential for first time mortgage planning and will allow you to compare the interest rates and costs/fees that each lender is offering. Good luck in your home search! Buying a home is a very exciting process.