Buying your first home? Not sure what the difference is between a variable rate and a fixed rate mortgage? Do you understand the true cost of borrowing? Keep reading for 7 invaluable mortgage tips that are critical for any first time home buyer.
1. The bigger the down payment, the better.
The lower your down payment, the more you’re going to pay on a monthly basis. With a 5 percent down payment, for example, you’ll be expected to pay for mortgage insurance and will most likely be subject to higher interest rates. Most lenders like to see a down payment of at least 10-20 percent.
If there is any way you can squeeze that 20 percent down payment during the purchase process, you can literally save yourself tens of thousands of dollars over the life of the loan.
2. Good credit will save you money.
Lenders base your interest rate and your subsequent cost of borrowing heavily on your credit rating. If your credit is poor, you may be advised to wait a few years while you build your credit back up. The amount you save with a lower interest rate after rebuilding your credit could be tens of thousands of dollars over the life of the loan.
3. Remember the closing costs.
Every mortgage has hidden costs associated with it, from legal fees to home inspections to bank’s closing costs. Before you commit to any mortgage, remember to ask about all the closing costs. You don’t want a $ 5000 surprise on closing day.
4. Get pre-approved.
While pre-approval can sometimes be more difficult, you can also save yourself a lot of unnecessary headaches. Essentially, you apply to the bank for a potential mortgage up to a certain amount. From there, you have a clear idea of your budget as you search for houses, and you can consequently make an offer that won’t be dependent on potential financing.
Additionally, when a home seller knows that you are already pre-approved to borrow for the amount of their home, this lets him or her know that you are a more serious buyer and could gain you a few concessions during the negotiating.
5. Investigate FHA loans.
The Federal Housing Administration (FHA) offers free loan insurance to qualified buyers with a minimum 3 percent down payment. This insurance means you can get a better rate from lenders without having to pay for outside mortgage insurance. Typically, the FHA sets maximum limits that depend on your county and region, but are based on the median house price for that area.
6. Budget for home insurance and property taxes.
No lender will mortgage a home that has tax liens on it or isn’t properly insured. When laying out your home ownership budget, always remember to calculate the monthly cost for county property taxes and home insurance. Whether the lender collects amounts from you monthly to cover these fees or you pay them directly each year, these are inescapable expenses that must be accounted for in your budget.
7. Choose a reputable lender.
Don’t just accept the first mortgage offer you receive. Instead, look for a lender that’s stable, reputable and able to offer you quality customer service. A lending institution is one you will likely be dealing with for 30 years, so finding one with a stable history and good reputation should be a high priority.
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