Mortgage Lending Guide: First Time Home Buyers
What an exciting - and scary - time! You've decided on the community where you want to settle, at least for a few years, and you want to own your very own home.
But your head is spinning with questions. You're probably wondering:
- If your credit is good enough
- If you have enough money for a down payment
- If you'll be able to afford the payments
- If you'll choose the right house
- If you'll choose the right lender
Let's start with the credit issue. The first step is to find out your credit score so you know exactly where you stand. Under new laws, you're entitled to a free credit report once a year - and not the kind of "free" report that requires you to sign up for some kind of "frequent buyer program." Ignore those TV ads and go here.
If your score is 680 or above, don't worry. If your score is below 680 then you need to get busy making repairs. See our report Building Your Credit . In either case, don't do anything foolish.
What's foolish? Shopping for anything that requires you to hand over your Social Security number. When you do that, the would-be creditor will access your credit report, and that will lower your score.
The weeks and months prior to your home loan application are not the time to shop for a new car, or furniture for that new house. It's "window shopping only" until your loan closes. This is also not the time to run up extra debt on your credit cards or to let ANY debt be paid late.
This IS the time to clean up any outstanding debt you may have. There are some bills you don't want to pay because you believe you got poor service or products weren't as advertised. You're probably right, but not paying them could be more painful than paying because of their effect on your credit.
Your Mouse House Mortgage Loan Advisor will explain which debts must be paid, which should not be paid, and why.
The down payment:
Loan programs exist for every need - even for "low and no" down payment borrowers. If you have enough money to pay first, last, and deposit on a rental, you can probably purchase a house.
Yes, you will pay slightly higher interest, but you will probably still pay less monthly than you would for that rental.
Affording the payments:
You know how much you've been able to afford for rent, and you know if you have a little or a lot left over at the end of the month. Using those figures, you can work backwards to set a limit on the price of the house you'll buy.
The best method is to talk with a lender. Tell the lender exactly how much you have to put down and how much you can comfortably spend per month. Share what you've learned about your credit score, as well.
Armed with that information the lender will be able to approximate the interest rate you'll be required to pay. He or she will also estimate the taxes, insurance, and Mortgage Insurance and come up with a top price for your new home. Now you can shop with confidence.
Some lenders will tell you, based on your other commitments, that you can afford more than you'll feel comfortable with. Go with your own feelings and insist on knowing a price based on what you feel you can comfortably spend.
Choosing the right house:
Begin by making a list. Write down the ideal and the satisfactory for each of the following, keeping in mind your current family status. If you have growing children or plan to have children, consider the future as well as the present.
- Location: City, country, near school or work, etc.
- Number of bedrooms and baths
- Garages and outbuildings
- Size of rooms
- Style: Rancher or 2-story
- Size of yard - for play, gardening, pets, etc.
Keep in mind that no matter how much talent and ambition you have, you will not be able to purchase a "severe fixer-upper" if you are buying with little down. Lenders have no way to know that you'll do the required work and they want a secure investment in the event that you default.
When working with a Realtor, make sure that they know that your dollar limit is not negotiable, so they won't be tempted to show you homes you can't afford.
Choosing the right lender:
Yes, there are sharks swimming in those waters, and you are wise to be wary. That's why you'll do well to stick with a Mouse House Mortgage loan advisor.
If you want to shop around, there are three important points to consider. The first is personality. Feeling comfortable with the lender is vital to the success of the entire transaction. You'll be working closely with this person, so you need to be able to talk honestly with them, feel that all your questions are answered fully, and know that they will devote the necessary time to your loan.
Second is the list and amount of the fees they charge. Law requires that you get a "Good faith estimate" before you commit to doing business with the lender. Go over that estimate to see that there are no unusual or exorbitant fees. If you aren't sure what it should look like, ask your Realtor to go over it with you.
The interest rate should be about the same with every lender. If one is much higher, consider that a red flag and back away.
Mouse House Mortgage is a free service for people who are looking for a
mortgage loan with favorable rates, whether you have excellent credit or bad
credit. A friendly mortgage advisor will help you navigate your options and
access the best mortgage rates for your situation.
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