Tips To Get You Into Your First Home
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Now that you have found your new dream home, where do you start? With so many home lenders
and mortgage brokers it’s a challenge. According to the Mortgage Bankers Association, each
year first time home buyers borrow over 980 billion dollars in loans. But the question still remains — how do you shop for the best mortgage rate when you have bad credit problems?
With all of today’s conveniences, obtaining a first time homeowner mortgage is really pretty
simple. However, there are many factors involved, which can seem confusing if you're a first- time
buyer.. To clarify the process for new home buyers the following 11 steps will assist you in
shopping for the prime rate you deserve.
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Step #1 Gather your documents.
In order to get your mortgage quest off to a good momentum, have the following documents
gathered, so that you are ready to begin the first time home buyer loan process:
Proof of employment and assets
Employment history
Income information and W-2s
Source of down payment
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Step #2 Check Your Credit.
As a serious new home buyer, you don’t need any surprises; therefore, it’s best to obtain a copy
of your credit report. Also, this will provide you the chance to review your credit report and correct
any errors along with cleaning up your credit act, if necessary.
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Step #3 Assess your comfort zone.
How much can you afford to spend each month without worrying about not being able to make
your mortgage? The general guideline of an affordable mortgage is that it should only take up a
third of your monthly pre-tax income (this includes your payment for principal, interest, taxes and
insurance).
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Step #4 Evaluate your qualifications and down payment.
Before you start contacting lenders, it’s best to understand what kind of loan you qualify for. Do
you have 10, 5, or 3 percent of your down payment? If you have between 10-5 percent, with a
steady employment history and decent credit you should be able to qualify for a conventional
loan , otherwise referred to as a conforming loan. If you don’t meet the criteria for a conforming
loan, you are most likely qualified for a non-conventional loan—which means that you'll most
likely incur a higher interest rate - but with no down payment.
Do You Have Bad Credit?
1. Have you declared bankruptcy in the past?
2. Do you have less than 5 percent of the purchase price of your new home?
3. Do you have a poor bill payment history, with a C to D- credit rating?
4. Are you self-employed or unable to verify your income for the pass 5 years?
5. Is your loan more than 28 percent of your monthly income?
If you answered yes to the majority of these questions, you most likely qualify for a non-
conforming loan.
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Step #5 Shop for low rate loans - even with bad credit problems.
LendingTree.com is marketplace of lenders competing for first time homeowners business.
Moreover, this marketplace of lenders is a network of lending institutions providing low rate
shopping tools. The process is so simple because it allows you the new home buyer, in the
privacy of your own home, to shop for the lowest rate with the best incentives. As a result, lenders
vie for your business by offering the you more options than their lending institution competitors.
So here are some smart tips for before you submit your application.
The Smart Way To Shop For Low Rate Loans
A) Be honest with lenders. Let them know if you received a better offer – so you can get the best
terms for your loan.
B) Check rate trends and use mortgage calculators to assess loan rates and payments according
to the lowest rates offered.
C) Remain in control – never give the impression that you must make take the first loan because,
this is your bargaining position. So don’t appear desperate.
D) Ask specific questions:
The actual cost for closing fees
Are there any up front points that you need to pay. Use the amortization calculator to figure in
fees, insurance and tax payments.
Ask specific questions regarding your good faith assessment.
Ask the lenders how much the title work and documentation processing fees will cost.
E) Choose a lender rated for first time home buyers.
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Step #6 Chart your choices.
After you've received 3 different quotes from different lenders, create a loan comparison chart of
the various loan differences.
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Step #7 Gauge your stay.
Are you planning on living in your new home for a very long time? If you're planning to reside in
your new property for the long haul, you might want to consider paying higher up front costs for a
nice low rate. However, if you plan to move within 5-7 years, you may consider a two-step
adjustable mortgage rate (ARM). This type of ARM gives you a fixed rate for a fixed short term of
3,5, or 7 years and then it becomes an ARM. If you sell or refinance within the initial term, you
could avoid higher ARM rates.
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Step #8 Play it safe.
Because you’re a novice home buyer, it's best to play it safe and start with the conventional 30-
year mortgage. If you're absolutely comfortable with the higher monthly payments, of a 15 or 20-
year loan, go for it. Otherwise, you can always double up on your payments as if it was a 15-year
loan and save a bundle in the long run.
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Step #9 Verify tax deductions.
Understanding mortgage loans is confusing in it’s self. Tax codes vary. In example, if you utilize a
separate check to the lender to pay the points on a first purchase mortgage, it's tax deductible,
immediately. However, if the points are financed along with the mortgage, the write-off is deducted
over the life of the mortgages term. The moral of the story: seek professional tax advice.
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Step #10 Analyze all details.
The best way to make the loan decision is to create a table comparing costs, all closing fees,
pints and yield spread premiums. As a result, this will provide the bigger picture savings and
advantages of your loan approvals.
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Step #11 Invest in your Home.
In addition to your monthly mortgage payment, the smallest extra payments each month will save
you over the term of your loan, not to mention the tax-free savings making you more and more
financially fit in your new home.
