subject: What A First Time Home Owner Needs To Know About Mortgages [print this page] If youre a first-time homebuyer considering taking out a mortgage for the very first time, the entire process, from the application to the approval, can seem intimidating. Taking some time to understand the basic elements of a mortgage, including rates and other terms, can help make the approval process proceed much more smoothly, and help you move into the home of your dreams with speed and confidence.
The two primary factors most potential borrowers concern themselves with when applying for a mortgage are the interest rate and the loan period, which is the length of time before your mortgage will be paid in full. Most mortgages, especially those of first-time home buyers, are 30 year mortgages, meaning it will take you 30 years to fully repay both the principal and the interest. Some individuals with larger down payments and larger incomes may opt for a 15-year mortgage, or a 20-year mortgage, while others may opt for a term that lasts for 40 years.
Your interest rate and, to a lesser extent, your term, are determined by a number of factors, including your income, work history, and credit rating, as well as the price of the home and your down payment. Interest rates go up and down over the years, but fortunately for todays home buyer, these rates are currently near all-time lows, meaning you may be able to qualify for a much lower rate than your parents, for instance.
When considering a mortgage, you also need to be aware of the two primary ways that interest rates are calculated. Traditional loans will have a fixed interest rate, which is applied for the duration of the loan, while newer loan vehicles may offer an adjustable rate, which is low at the beginning but rises over time. These loans are usually tied into the prime rate, rising and falling as the prime rises and falls. Todays record low interest rates make a traditional mortgage much more attractive than it was a few years ago, when adjustable rates offered initial rates that were lower than what traditional mortgages could offer.
In addition, some mortgage lenders offer discounts to men and women in certain professions, such as teaching and law enforcement, and there are often programs for first-time buyers (including more recent federal programs) that can offer tax credits or other discounts, making your mortgage even more affordable.
The term you choose will depend largely on your income, as well as your projected income. Shorter term loans involve higher monthly payments, but your loan is paid off more quickly. Longer term loans are more budget friendly, requiring smaller monthly payments over a longer period of time. Many first-time homeowners base their mortgage expectations on two incomes, and opt for a shorter term; but if one spouse may eventually leave the workforce to care for children, it may be a better idea to opt for a longer term, which will involve significantly lower monthly payments than the shorter term mortgage. Because you pay them off more quickly, shorter term mortgages can result in the equity of your home being built up more quickly.
Before applying for a mortgage, its a good idea to get a copy of your credit report, as well as a copy of your credit score. There are three major credit reporting bureaus, and different credit cards and lenders may report to one, two, or all three bureaus. Be sure to request a copy from each bureau and review each report carefully to make sure there are no errors. If you find errors, there are simple dispute processes you can use to remove errors and make corrections. Every U.S. citizen is entitled to one free copy of their credit report each year from each of the three bureaus. If youve already received your free report this year, you can obtain additional copies for a fee. You must pay a fee to see your credit score, also called your FICO score for the Fair Isaac Corporation, the company that calculates credit scores.
Depending on your income and credit history, you may qualify for a larger mortgage than you really need in order to purchase the home you want. In most cases, even though the lender is willing to loan you additional money, its a wise idea to stick with your original mortgage amount rather than incur additional debt. Of course, if you have credit card debt or other loans that involve a higher interest rate than the mortgage lender is offering, taking the additional amount in the mortgage and using it to pay down debts with higher interest rates can be a great idea.
Finally, before signing any mortgage, be sure to review the document thoroughly and ask questions about any terms or clauses that are confusing. By taking your time to read your mortgage carefully and making sure the terms suit your budget, you can begin your life in your new home with a greater sense of enjoyment and satisfaction.
by: mor123
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