First-Time Home Buyers How to get a Home Loan

Should I buy a house?

Are you thinking about buying a home, there are a number of  deciding factors that can help you decide when is the right time. Where to Start? Begin by reviewing a rent vs. buy calculator. You’ll can compare the cost of buying with the costs of renting. While your rent now could be less than a monthly mortgage, buying a home may save you money over the long term. So you may be actually paying more to rent than to own a home. The positives of renting are you do not have to pay for upkeep of your building, you can move in and out quickly and easily. The cons are rent will rise over time, and you may pay non refundable deposits.

Pros

As a homeowner, you can take tax deductions that renters can’t:

• Mortgage interest
• Real estate taxes
• Private mortgage insurance
• Discount points

Owning a home  allows you to build long-term wealth. When you make a monthly mortgage payment, a portion of the payment will go toward paying the loan down. The amount you gain every month is called equity. While the amount of equity you have in your house will change depending on the market value of your home, even small gains will add up over time. The other benefit is that when you pay off your mortgage you do not have any mortgage payments.

Cons

You’ll need to have money before you buy a home to cover your down payment and closing costs. You’ll also have to pay property taxes, which can go up from year to year. And there is no guarantee that your home’s value will go up over time. If you want to sell your home, you might not be able to sell it as quickly as you want, or the price you want to sell it for.  Home Owners insurance is also required so this will add to your monthly payment.

How much house can I afford?

Start with how much you want to spend each month on housing, find a monthly payment that you’re comfortable with. The lender will tell you how much you qualify for which may be more or less than you anticipated.

What are closing costs?

Mortgage closing costs, are fees charged for services that must be performed to process and close your loan application. Examples of mortgage closing costs include title fees, recording fees, appraisal fees, credit report fees, pest inspection, attorney’s fees, taxes and surveying fees. The closing cost of a loan will vary depending on your geographic location.

Lenders are required by law to provide you with two documents – the Loan Estimate and the Closing Disclosure – which outline your closing costs and help you avoid surprises at the closing table.

How do I find out the cost of homeowners insurance and property taxes?

Your property taxes and homeowners insurance can vary widely. You can usually get a quick estimate on homeowners insurance by calling an Insurance Agent. To see what kind of taxes you might pay, you can easily see that information online, with the listing information, from your Real Estate Agent or you can visit the county tax assessor’s website to find public records of the taxes of the you are interested in. There is also usually a tax estimator for the specific property you are looking at purchasing.

Popular Loan Options for First-Time Home Buyers

• FHA Loans– Purchase your home with only 3.5% down. Closing costs can be a gift from a relative!
• 1% Down – Well-qualified buyers can buy a home for just 1% down and get instant 3% equity  – a fantastic option for first-time home buyers.
• 30 Year Loan – The most popular mortgage. . Get a low payment and the security of a rate that won’t change for the life of your loan.
• VA Loan – No down payment, no mortgage insurance and lower credit requirements make the VA loan the best choice for veterans and active military members.

Mortgage Types

Conventional Mortgages

If your mortgage lender refers to your loan as “conventional,” it means that it follows guidelines set by Fannie Mae or Freddie Mac, two government-sponsored enterprises that invest in loans to allow lenders to lend more money. Because of this, the qualifications for conventional loans are stricter than they are for many other loans.

FHA Mortgages

FHA mortgages are insured by the Federal Housing Association. FHA loans require a lower down payment than other types of mortgage programs, and you don’t have to have stellar credit to qualify for one. An FHA loan is an excellent option for first-time home buyers.

VA Mortgages

VA mortgages are insured by the Department of Veterans Affairs and are only available to veterans, National Guard members, active-duty personnel and eligible surviving spouses. There are many benefits to a VA loan, but the best is that a down payment is not required.

 

Fixed Rate

Fixed refers to the fact that the rate won’t change over time. The biggest advantage of a fixed-rate mortgage is the consistency. You don’t have to worry about your rate going up. Your monthly principal and interest payment will always be the same.

Adjustable Rate

An adjustable rate mortgage (ARM) includes an initial fixed interest rate period that lasts three, five, seven or ten years depending on the loan. After the fixed interest rate period, your rate will adjust up or down once per year depending on the terms of your loan. ARMs  typically offer lower interest rates than other loan options. The advantage of the ARM is that you will have a lower monthly payment during the fixed period. For this reason, an ARM can be a great choice if you plan on moving or refinancing within a few years.

 

30-Year Term

A 30-year term stretches out your monthly payment, so it gives you a lower payment than you’d get from a mortgage with a shorter term. The long term also means that you’ll be paying interest for twice as long, which will  add up.

15-Year Term

The biggest advantage of a 15-year term is that you’ll pay off the loan faster, and you’ll save thousands in interest over the life of your loan. However, the shorter term means you will be paying higher monthly payments.

Getting Preapproved

When shopping for a home, you should get pre-approved first. A pre-approval determines how much money you’re eligible to borrow before you actually get a loan. To get preapproved, your lender will verify your income and assets, which include your bank accounts, investments, retirement funds and any real estate you might have. You’ll be asked for copies of pay stubs, W-2s and bank statements. Your lender will also consider your credit and debt-to-income ratio (DTI). If you have all your information in order, preapproval is a speedy process and can be done in just a phone call. Preapproval is also a great opportunity for you and your lender to discuss your mortgage options. Discussing your goals with your lender will help you find the best possible mortgage option for you. Once you’re preapproved, you’ll receive an official letter showing the amount you’ve been preapproved for. You can use your preapproval letter to show the seller that you’re serious about your offer.

Minimum Requirements

Does every buyer need money for a down payment? The only mortgage’s you can get that doesn’t require a down payment are a VA loan and USDA loan. Those are limited to eligible active-duty service members, veterans and their surviving spouses. The USDA is limited by geographic location and income.

Well-qualified buyers can get a mortgage by putting 1% down while gaining 3% equity on a conventional loan. For instance, if you wanted to purchase a $100,000 house, the down payment on a conventional loan would be $1,000. For FHA loans, the minimum down payment is 3.5%. You can qualify for an FHA loan with a credit score as low as 580.

Once you are preapproved you should find a Real Estate Agent. This is the person who sets up appointments on your behalf and gives you information on the houses that may be of interest to you. Typically, there are two agents involved when you’re purchasing a home. The Seller’s agent represents the seller of the house, and the buyer’s agent represents you, the buyer. Real estate agents earn a commission on the selling price of the house after it’s sold. The seller pays the commission of your agent and their agent. Much like the lender, the real estate agent doesn’t get paid until the job is done, so they’re going to be working alongside you to seal the deal.