Monday, July 15, 2013

Common First-Time Home Buyer Mortgage Questions & Common Home Buying Mistakes

Common First-Time Home Buyer Mortgage Questions

If you are considering your first home purchase, you probably have lots of questions. There are many issues to consider and many confusing terms that you will hear as you start the home-buying process. The following are some of the more common questions that first-time home buyers have about mortgages and they may help you in your quest for homeownership.
How much money will I have to pay upfront to buy a home?
The answer to this question is not a simple, one-size-fits-all answer. The exact amount will depend on the price of the home you buy as well the type of mortgage financing you choose. The basic costs for any home loan though will include the down payment and the closing costs. Depending on your loan program, your down payment could be as much as 20% of the homes price, although there are loans available that require as little as 2-3% and even some loans that will let you get by with no down payment at all. Be aware however, that the lower your down payment, the higher your interest rate on the loan will be. Closing costs account for all the fees associated with processing your loan. These include appraisal or inspection fees, title search costs, lawyer fees, insurance, and points. The typical range for closing costs is between 3% and 6% of the loan value. So if you are buying a $150,000 home, your down payment could be anywhere from $0 30,000 and your closing costs would likely be between $4,500 and $9,000.
Can I buy a home if I do not have money for a down payment?
The answer is yes! In addition to no down payment loans, you can also try getting a government insured loan like an FHA mortgage where you can have down payment funds gifted to you. You can either arrange for the home seller to cover the down payment costs, or you can contact one of several non-profit organizations designed to grant down payment money to first-time home buyers. And don't despair if you have little or no money for closing costs either. There are gift programs available for closing costs as well. Another option is to find a mortgage lender that will allow you to roll the closing costs into the total loan amount. It is not a good idea to buy a house if you have no money at all to contribute, but if you have enough income to afford the monthly mortgage payments, there are ways to finance your closing costs and down payment.
Will I qualify for a home mortgage loan?
The only way to determine the answer is to do some research. You need to have some important figures handy. You need to know your annual income, your annual or monthly debt payments, and an idea about what your credit score is. (You can obtain a free copy of your credit report once a year from any of the three credit reporting agencies.) Lenders are able to work with a variety of financial situations, but they will definitely want to see that you have income sufficient to afford a monthly mortgage payment and that your current debt will not be so big of a burden that it keeps you from making those payments. They will also expect that you have a credit score between a certain ranges. There are lenders who will loan you money no matter what your score is, but basically, the better your score, the better the loan and interest rate you will receive.
Your approval for a loan may also largely depend on the price of the home you are buying. You may be able to qualify for funding, but just not for the amount you are seeking. You may have to start with a smaller or cheaper home to get a loan.
There are many, many more questions involved in making your first home purchase, but answering these basics will help point you in the right direction. Be sure to counsel with your financial advisor or a mortgage professional to determine all the specifics for your situation.

Common Home Buying Mistakes

Buying a home is likely the biggest purchase you’ll ever make. Such a weighty decision should be carefully made because many of the associated purchase terms will last the entire length of your homeownership. In addition to making all the right decisions, you should know what the wrong decisions are and how to avoid them.
Mistake #1: Choosing the Wrong Agent
One huge mistake many home buyers make is choosing the wrong real estate agent. A good agent can be one of your greatest assets in the buying process. She will be knowledgeable and experienced and typically be able to answer any questions you have. A good agent can help you when you have second thoughts about a purchase by showing you the pros and cons of buying the property. She can also help you get your deposit back in necessary.
If you pick an agent that seems incompetent or untrustworthy, you’ll feel alone in the buying process and perhaps let many important questions go unanswered. Try getting referrals from friends to find the right real estate agent. You can also check into properties that the agent has sold previously to find out if they are qualified in their field.
Mistake #2: Failing to Set a Budget
Paying more for a mortgage loan than you can truly afford can lead to many problems. If your mortgage bills seriously overtax your resources, a financial emergency could end up sending you into default and foreclosure. You might also find that the home you bought is too expensive to allow you to save for the future. Heavy monthly mortgage payments could also limit your ability to carry on your former lifestyle in terms of entertainment and leisure purchases.
Before you even begin looking at houses, calculate the maximum amount you’d comfortably be able to commit to a monthly mortgage payment. A good rule of thumb is to not let your monthly debt exceed more than 36% of your monthly pre-tax income.
Mistake #3: Making Credit Purchases during the Application Process
You are qualified at the beginning of a loan process based on your existing financial income and obligations. This means that if your monthly bills increase during the application process, your loan approval status could be reviewed and your application could be denied.
Lenders want to protect their investment in your loan by ensuring that you will be able to afford your monthly payments. Any added installment purchases will decrease your ability to pay for a home, in their opinion. You should avoid making any large purchases until your home loan closes. These would include cars, major appliances like washers or dryers, computers, expensive gadgets and gizmos, and new home furniture. Once your loan closes, it is up to you whether you can afford these items or not.
There are many, many mistakes homebuyers can make, but if you avoid the three listed above and do your best to stay informed of all the important details of the sale, you’ll do well.