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NEW JERSEY WILL & ESTATE PLANNING LAWYERS
Westfield - (908) 232-9962 directions
Short Hills - (973) 315-3089 directions
Fax - (908) 232-9965
Fax - (908) 232-9965
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& NEW JERSEY WILL & ESTATE PLANNING LAWYERS Westfield - (908) 232-9962 directions
Short Hills - (973) 315-3089 directions
Fax - (908) 232-9965 |
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| ARTICLES : Real Estate Buyer : Back To Articles Menu : Real Estate Learning Center GUIDE FOR FIRST TIME HOME BUYERS GUIDEGetting StartedMany people buying their first home are afraid lenders don't really want to work with them. But that's simply not true. Without you, there would be no mortgage lending business. Lenders want to help you buy your first house, and, in fact, many lenders specialize in First Time Mortgages. Q: I really want to own my own home, but I'm not sure I can afford it. Where do I start? A: Lots of people don't even consider buying a home because they're afraid they can't afford it. But for most people, home ownership is within reach - especially with some of the special programs for first-time home buyers. In fact, for many, home ownership is as affordable as renting - in some cases even more affordable. The best place to start is with a mortgage lender affiliated with the Mortgage Bankers Association of America; a lender can help you explore all the options of home ownership. Q: How do I know how much house I can afford? A: Before you start looking at homes, you need to have some idea of what you can afford. As a general guide, you can purchase a home with a value of two to three times your annual household income, depending on your savings and debts. However, you may be able to take advantage of special loan programs for first time buyers to purchase a home with a higher value. If you'd like to know more exactly how much you can afford, talk to a mortgage lender. If you're working with a Realtor, he or she can help you with this, too. Q: When should I talk to a mortgage banker? A: The short answer: when you start thinking about buying a home. It's true you can't actually apply for a mortgage until you've chosen your home and signed a contract to buy it. But you shouldn't wait until then to start talking with a mortgage lender. Any reputable mortgage lender will be happy to help you as you look for a home. The lender will work with you to determine how much house you can afford, help steer you to special mortgages for first time home buyers, and perhaps make suggestions that could make it easier to get the best mortgage for you. Another advantage: you'll already have a good relationship with a lender when it comes time to apply for your mortgage. How to Make Your First Meeting Work Many different institutions make mortgage LOANS, including banks, savings and loans, credit unions and, of course, mortgage companies. Whatever type of mortgage lender you go to, he or she will need some information from you to help you learn how much house you can afford. So when you go to your first meeting, try to bring the following information with you: About your employment and income:
About your personal assets:
About your credit and debts:
Important Decisions When our parents were buying homes, there was basically one kind of mortgage: the 30-year fixed rate. Today, you can choose from many different kinds of mortgages. It may seem confusing - but these new kinds of mortgages can make home ownership more affordable. Q: Aren't there really just two kinds of mortgages: fixed and adjustable rate? A: You could say that, because all mortgages fall into one of these two categories - that is, the interest rate you pay is either the same (fixed) for the life of the mortgage, or it can change (adjust) over the life of the mortgage (see The Low-down on Loans). But within these two broad categories, there are many different kinds of mortgages, designed to fit people in different financial situations - and many of them are especially for first time home buyers. Q: How do I know which type of mortgage is best for me? A: There isn't a single, simple answer to this question. The right type of mortgage for you depends on many different factors:
For example, a 15-year fixed rate mortgage can save you many thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. And an adjustable rate mortgage may get you started with a lower monthly payment than a fixed-rate mortgage - but your payments could get higher when the interest rate changes. The best way to find the "right" answer is to discuss your finances, your plans and financial prospects, and your preferences frankly with a mortgage lender. Q: What does my mortgage payment include? A: For most homeowners, the monthly mortgage payments include three separate parts: a payment on the principal of the loan (that is, the amount borrowed); a payment on the interest; and payments into a special account (called an escrow account) that your lender maintains to pay for things like your hazard insurance and property taxes. These elements are called P.I.T.I. (Principal-Interest-Taxes-Insurance). Q: How much will I need for the down payment? A: It's probably less than you think. Many first-time buyers are surprised to learn there's no set answer to this question. Generally, though, your down payment can be anywhere from three to twenty percent of the home's value. Down payments can be lower for some special, first-time buyer loans, and veterans or those on active military service can obtain loans with no down payment at all. Help for First Time Buyers There are many special programs and that can make getting a first mortgage easier. Some of the better-known national programs include: FHA (Federal Housing Administration) Loans are government-insured mortgages primarily for first-time home buyers. These loans allow you to buy a home with a lower down payment, and come with guidelines that let more people qualify. They're available from most mortgage lenders. There may be specific benefits and restrictions to FHA Loans in your area; ask your mortgage lender. VA (Veterans Administration) Loans are available to veterans of the armed services, those currently on active duty or in the reserve, and their spouses. A VA loan can make it possible to buy a home with no money down. Rural Housing and Community Development Service (RHCDS) RHCDS provides home financing to qualified borrowers who are unable to obtain home financing elsewhere. If you are a farmer, or live in a rural area, ask your mortgage lender if you may qualify. There are many other loan programs that offer homebuyers low down payments and have guidelines that let more people qualify. They may be administered by state or local governments, or other organizations. Be sure to ask your mortgage lender what other programs are available in your area especially for first-time home buyers. Application Process Q: How do I choose a type of mortgage? A: Discuss the options with a mortgage lender. Only a mortgage lender is qualified to evaluate your financial situation and match your needs with the best available type of mortgage. Q: Do they really need to know everything about me for the application? A: It may seem that way - but actually all your mortgage lender needs to know about you is your employment and finances, and information about the home you're buying. However, you will need to provide quite a few details about these topics, and your application process will go much more smoothly if you're prepared. Be sure to ask your mortgage lender what information you'll need to complete your application. Q: How much will my credit history affect my ability to get a mortgage? A: Many home buyers are very worried about this issue. We've even heard one story that an applicant was denied a mortgage because he had returned a rented videotape late! Of course, that could never happen. And most people don't need to worry about the effects of their credit history. However, you can be better prepared if you get a copy of your credit report to review before you apply for your mortgage. That way, if there are any errors you can take steps to correct them before you make your application. If you have had credit problems, be prepared to discuss them honestly with your mortgage lender and come to your application meeting with a written explanation. Responsible mortgage lenders know there can be legitimate reasons for credit problems, such as unemployment, illness or other financial difficulties. If you had a problem that's been corrected, and your payments have been on time for a year or more, your credit will probably be considered satisfactory. Q: What happens after I've applied and how long will it take? A: Your lender will begin the work of verifying all the information you've provided. This process can take anywhere from one to six weeks, depending on the type of mortgage you choose, whether you're buying a home outside your local community, and other factors. Within three business days after your application, the lender must give you an estimate of your closing costs. (The closing is the actual settlement of your loan.) You'll also get a statement that shows your estimated monthly payment, the cost of your finance charges, and other facts about your mortgage. For many home buyers, this waiting period can be nerve-wracking. So stay in touch with your mortgage lender, be prepared to answer any questions that might come up and remember that mortgage lenders are in the business of making loans, not denying them. ,br> Some homebuyers find the closing process to be one of the most intimidating aspects of buying a home because it's so unfamiliar. Ask your mortgage lender what to expect at your closing. Types of Loans Although there are many options for your first mortgage loan, they all fall into one of these general categories: Fixed Rate Mortgages Your monthly payments for interest and principal stay the same for the life of the loan. Your property taxes and homeowners insurance may increase, but generally your monthly payments will be very stable. Fixed rate mortgages are available for 30 years, 20 years, 15 years and even 10 years. There are also "bi-weekly" mortgages, which shorten the loan by calling for half the monthly payment every two weeks. (Since there are 52 weeks in a year, you make 26 payments, or 13 "months" worth, every year.) Adjustable Rate Mortgages (ARMS), also called Variable Rate Mortgages These loans generally begin with an interest rate that is 2-3 percent below a comparable fixed rate mortgage, and could allow you to buy a more expensive home. However, the interest rate changes at specified intervals (for example, every year) depending on changing market conditions; if interest rates go up, your monthly mortgage payment will go up, too. However, if rates go down, your mortgage payment will drop also. There are also mortgages that combine aspects of fixed and variable rate mortgages - starting at a low fixed rate for seven to ten years, for example, then adjusting to market conditions. Balloon Mortgages These mortgages offer low, fixed rate payments as though the mortgage was a thirty-year term. But instead, the loan has a fairly short term - for example, five to seven years - and then ends with a single large payment (the "balloon") for all the remaining principle. It can be a good choice if you know you'll only be in your home for a short time. There are other special kinds of mortgages available now that help achieve specific goals. Ask your mortgage lender or Realtor® for more information about your options. How to Choose Your Lender Choosing your mortgage lender can be as important as choosing your home. If you're comfortable with your mortgage lender, getting your mortgage - and your home - will be a less stressful and more pleasant experience. Consider Rates So you might want to start your short list by shopping for different mortgage rates. Many newspapers also list representative rates for mortgage lenders who are active in their area. Finally, you can also shop by phone. Just look under "Mortgages" in your yellow pages - and look for lenders with the MBA logo. Other Important Criteria Once you have a short list of possible lenders, dig a little deeper. Mortgages with the same nominal interest rate can end up costing different amounts, because of additional costs such as origination and application fees. So shop for more than just rates. In addition, consider how many different types of mortgages a lender offers. A lender with more different types of loans may be better able to match your needs. Finally, ask home owners and real estate professionals about the reputations and knowledge of different lenders. |
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