Buying the first home of your own can be the most exciting and important investment in your life. However, before establishing this huge milestone on your life way, there is a variety of daunting tasks to do, while the biggest one is ? financing!
For a first home buyer, the most challenging thing is down payment. Today in the US, purchasing a home in full is still a hard thing for most of us. Thus, cash-strapped people turn to mortgage loans for funding, in which they just need to put down an amount as down payment and mortgage up to 97% of the home value. However, the real fact is:
The more down payment, the greater savings!
This rule is simple to understand: the larger down payment you make, the lower monthly amortization will be, plus less interest amount throughout the entire life of the loan. Added to this, if you make a down payment at 20% or more, you could avoid private mortgage insurance (PMI), a kind of premium (fee) to protect lenders against higher-risk mortgages.
In the real mortgage market, the size of down payment usually varies between 5% and 20% of the total purchase price of your first home. As for a conventional mortgage, home buyers will be required to pay down at least 20% of the house’s price or the appraised value as the down payment. However, if you are unable to afford 20% down payment, you can choose a high-ratio mortgage with down payment as little as 5%. No matter which kind of mortgage you choose, one thing is always sure: the more down payment, the more you can save in the long run.
Moreover, as you are a first time home buyer, you might take advantage of FHA loan for smaller down payment and competitive interest rates. FHA loans refer to the mortgages offered by the Federal Housing Administration, which allows the minimum down payment of as little as 3.5% of the home purchase price, though borrowers are required to buy mortgage insurance.
Now, it seems that down payment is no longer a big concern and your first home could be just around the corner. But you may find things are still far from easy when you are shopping for a mortgage for your first "castle."
Today, for first time home buyers, as long as you have steady income and bear good credit history, obtaining a mortgage is not a difficult thing. However, as the mortgage loan is likely to be your biggest expense towards your first home, it’s quite important to choose the one that best meets your needs and financial conditions. That means you have to choose a mortgage plan that works best for you and your budget. The basic mortgage types of your choice include:
– Fixed-Rate Mortgages: The interest rate is the same during the life of the loan.
– Adjustable-Rate Mortgages: The interest rate fluctuates based on the Prime Rate.
– Hybrid Mortgages: The interest rate is fixed for a specific period and then turns into the adjustable one.
We know that buying a home with mortgage loans come along with benefits as well as responsibilities, particularly for the first time home buyers who are unfamiliar with the entire mortgage processes. To help you secure the right mortgage that is right for your first home, we provide four tips below:
- Fix Your Interest Rate: The mortgage interest rate could increase or decrease throughout a day. Negotiate a fixed interest rate with your lender to protect yourself against possible interest rate rise in the future, which may result in the increase of interest amount. If you plan to lock your interest rate, make sure that the lock period won’t end ahead of the closing date of your mortgage.
- Consider First Home Buyer Credit: As the first time home buyer, if you haven’t had a primary residence in the past three years, you may qualify for the federal first time home buyer tax credit, which is a sum of rebate of 10% of your home purchase price and up to $8,000.
However, this federal policy has never come into being since 2011, but you are encouraged to consult your lender or state about tax break or credit opportunities for first time home buyers.
- Get Pre-approved: Before your house hunting, you can look for a lender who agrees to pre-approve a mortgage to you. In most cases, the lender will ask you a number of questions about your income, living expenses and help you choose a borrowing level that fits you. This process would enable you to save a lot of time for you have known the price range of the houses that you qualify for.
- Shop Around for the Best Deal: The interest rates, mortgage products for first time home buyers, as well as loam terms would vary from lender to lender. Be sure to shop around for more choices and compare the quotes, closing fees, benefits and responsibilities carefully before you finally decide the one that best fits your personal needs.