Buying a house doesn’t have to be a traumatic experience
If you’re looking to become a first-time homeowner, you know there are dozens of different things you need to think about before taking the plunge. Not least among your headaches is finding and arranging a mortgage for your new home. The thought of borrowing such an enormous amount of money and being tied to a home loan for 20 to 30 years can be enough to give anyone nightmares. But the process doesn’t have to be as scary as it seems. Here are half a dozen simple pointers that will help make the process of getting your first mortgage a bit less painful:
1. Figure out how much you can afford
Once you’ve found a house or apartment you would consider buying, use an online mortgage calculator to work out approximately how much you would be paying every month. Remember that you’ll have to fork out for taxes and insurance as well. Then set that figure against your budget (you have made a monthly budget, haven’t you?). Most experts say your accommodation shouldn’t eat up more than 30% of your disposable income. This will give you an idea of what you can realistically afford.
2. Get educated
Ordinary fixed-rate mortgages are fairly easy to understand, but there are several other kinds of home loan that can be harder to get your head around. Ask your loan officer to clarify how your loan works, especially if you are applying for an ARM (adjustable rate mortgage) or other complex home loan where rates will change over the course of the loan term. That way you’ll know what to expect at various points.
3. Check out FHA mortgages
As a first-time buyer, you can apply for a home loan that is insured by the Federal Housing Administration (FHA). Thanks to the extra security it gets from having the mortgage insured by the FHA, your loan issuer is likely to ease its requirements a little, even if you have less than wonderful credit or have declared bankruptcy at any time. With an FHA-insured mortgage, your required deposit will be relatively low, as will your interest rate, although you will have to buy mortgage insurance.
4. Lock in an interest rate
Mortgage lenders will allow you to lock in a rate for a set period of time while your mortgage application is being processed and you’re closing on your purchase. This is important as interest rates fluctuate from day to day, and even from hour to hour. Your loan officer will be able to explain how rate changes can impact your chances of having your loan approved, as well as your monthly payment level.
5. Make sure you get your tax credit
The 2009 first-time homebuyers’ tax credit has been extended, and has even been supplemented with a repeat buyers’ credit. As long as your new purchase is going to be your main residence, you can get up to $8000 as a first-time buyer (defined as someone who hasn’t owned real estate in the past three years), and $6500 as a repeat buyer. To qualify, you need to have a contract signed by April 30, 2010, and to close on the deal by June 30, 2010. These tax credits are fully refundable, which means you can benefit even if you don’t pay that much in tax. There’s no guarantee that there’ll be another extension, so be sure to use your tax credit while you can!
6. Shop around
You’ll find a slightly different selection of home loans from each mortgage provider. That’s why you should always compare mortgages from a number of lenders before signing on the dotted line. Ask them what interest rates and repayment conditions they can offer you, and what their loan requirements are. They might also have different closing costs and down payment requirements. Once you have all the information you need to make a final decision, you can be sure you’ll get the mortgage that best suits your requirements and financial situation.