What To Expect for Your First Mortgages
Are you a first-time homebuyer that’s looking for their first mortgage? Do you have an interest in buying a home, but unsure of where to start? If so, then you need to learn all that you can about what to expect with your first mortgages.
Doing so can help you understand the process and the obstacles that you might face. You can use these first-time home buying tips to prepare yourself. As they always say, the first step is the hardest one to take!
See below for a list of tips that you can use to enhance your first experience looking for a mortgage, as well as what to expect.
You Should Be Saving More Than You’d Think
Everyone thinks they have a basic understanding of how the home buying process works. Most first-time homebuyers expect to place a down payment on a home, then the mortgage will cover the rest.
Many first-time interested buyers believe that a first-time home buyer loan will save them from the old-fashioned “place 10-percent down” model of years past. They’ve seen that a first-time home buyer lender will allow a down payment of as little as 3-percent.
Make no mistake about it, however. That 3-percent can still be a good chunk of change. A 3-percent down payment on a $250,000 is still $7,500. That can be a large hurdle for most first-timers to save.
The upfront costs don’t end there, either. You also have to think about closing costs and moving expenses as well. For those of you unfamiliar with the term, closing costs are the expenses (costs) that you need to finalize the mortgage you receive.
Experts say to plan for a mortgage that’s 5-percent of the loan amount. So let’s say you’re looking for a $242,500 loan to go with your previously-mentioned $7,500 down payment. Five percent of $242,500 is $12,125.
So in reality, you don’t just need to save $7,500 for the down payment. You need to save around $19,625 to cover the down payment and closing costs combined.
There are some scenarios in which a seller will cover the closing costs, but you shouldn’t anticipate that. Especially not if the real estate market is leaning towards the seller.
Learn About the Technical Terms
Most first-time homebuyers get lost in a sea of real estate jargon when they first start to look at homes. That’s why we recommend that people spend the first few months dream shopping and familiarizing themselves with real estate terminology.
Doing so can make the entire process seem less intimidating. Once you know the terms and how they apply to your situation, your goals as a first-time buyer will become more clear. It can also help you find the right real estate agent to hire.
Here are just a few of the technical real estate terms that you should know:
- Closing– The last step in buying your new home. After the offer is accepted, the transferring of the property begins. This includes being able to start moving in and renovating as you see fit.
- Equity– The portion of the property that you own. You gain more ownership of the property as you pay off your mortgage. You should also understand how equity release interest rates work. Find out more here.
- Home Inspection– Involves hiring a certified home inspector to do a non-invasive inspection of the property you’re considering buying. It ensures that no glaring repairs or replacements are awaiting you. Don’t ever buy a home without hiring a home inspection first.
- Offer– The initial offer that you make to the seller of a property. This is where a real estate agent is of vital importance. Based on several factors, they’ll help you make the right offer, rather than going too high or too low on your initial bid.
- Title Search– A thorough analysis of the property’s previous ownership history. This examination ensures that the person selling the home to you is the rightful owner. Otherwise, there could be property liens that come back to haunt you later.
Your Credit Score Plays an Important Role
As you can imagine, any mortgage lender you reach out to is going to perform some due diligence on your situation. They want to make sure that you have the ability to pay them back for the mortgage they give you.
Fair or unfair, your credit score is going to have an important role in that. Actuaries have determined that a person’s credit score has a direct correlation to the risk (or lack thereof) of giving them a mortgage.
That said, it isn’t as strenuous as you might think. As long as you have a good credit score (or better), mortgage lenders will see you as a good fit and give you desirable rates as a result.
However, there might be a need for you to build up credit first. You can do that by paying your bills on time or getting a credit card and paying it off quickly (on small things like gas, groceries, etc.).
Take the time to discuss your homebuying goals with a home loan lender. They’ll ask you several questions to help you understand the entire mortgage process better.
Use These Tips When Searching for First Mortgages
Now that you have seen several things to expect when searching for first mortgages for the first time, be sure to use them to your advantage.
Remember, you want to make sure it makes sense. Don’t rush into anything if the time isn’t right. It’s better to save a little longer then buy, rather than buying now and putting yourself in a pit.
Be sure to browse our website for more articles on home buying, as well as many other helpful topics you will enjoy.