How To Get Mortgage For A First Time Home Buyer?

19 Aug

19Aug

You need to first look at financing costs. Conventional loans are either fixed-rate loans or adjustable rate loans. Fixed rate loans will give you more security over a flat interest rate. You pay the same interest rate throughout the period of your loan. In an adjustable rate loan you take the rate of having to pay higher interest if interest rates go up. But then if they come down you are at an advantage.

Make sure that you understand the conditions under which such mortgage loans are offered. Mortgage loans can be of 10, 20 or 30 years. You can decide the period only after making the necessary estimates of how much you can pay each month. A short term loan would cost you less in the overall cost of finance, but would mean a steeper monthly payment.

If you are a first time home buyer the first thing that you have to be prepared for is making a down payment for the home of your choice. This may be quite a bit in places where real estate prices are high. However financing options in recent years allow you to make a down payment of just 3% with the balance 97% covered by the mortgage. Such low down payment and high mortgage loan schemes require higher interest payments. Besides this you would have to also buy mortgage insurance, as it is thought that with the low down payment you are more of a risk than others. This could mean an additional half to three quarters of a percent over the interest rate. But in spite of this it is always an advantage to own your own home and could also get you tax benefits.

The first thing that you should do before you go in for a mortgage on your home is to see that you are free of all other debts. Pay off all those credit card dues and other loans that are a monthly burden on you. It would mean that you would have less money to make the down payment, but it greatly increases your capacity to pay the mortgage as it comes due each month. Lenders would ask for details of all your monthly payments for other loans and this coupled with your mortgage will be limited to 40% of your earnings. So if you have other loans, the amount available for your mortgage payments may be very limited.

As a rule of thumb it is estimated that a home owners mortgage payments should not exceed 28% of his gross income. This will let you calculate how much mortgage you can get and therefore the amount of down payment you will have to make for the house of your choice. Be prepared to keep some money aside, about 5% of the cost of your home, for any closing costs and emergency repairs that your new home may require before it is habitable.

Once you have done all these calculations look for the best agency that can give you a mortgage for your loan. Government backed agencies like Fannie Mae and Freddie Mac will give you reasonably priced loans. You would be better placed to shop around if you can raise the down payment on the home, as then you would be considered less of a risk and could get better rates. 20% is what most realtors suggest, though the norm is 10%.

Some states offer down payment assistance loans but generally limited to the lower end of the market, and there are conditions of eligibility. If you make sure that your credit rating is good, you can get rates.