New Construction: Advice on First Time Home Buyer Loan
The first bit of advice we can give you is, do your research and shop carefully to ensure you find exactly what you want and need. Financing your new home purchase can be a daunting experience, but it should be fun. In both cases, deciding how much to spend on your home and which type of mortgage will work best for you. There are many sources that can help you get prepared well before you step foot into a sales office, model home or open house.
Get familiar with the Home Mortgage lingo.
Figure out what you can actually afford to pay on a monthly basis. Remember that, in addition to the monthly principal and interest, you will also pay into escrows for property taxes, hazard insurance and possibly a home owners’ or condominium association assessment. You have more knowledge about your living expenses than a lender. Hold firm with that number and don’t be tempted to agree to an amount higher than what you are comfortable spending. Mortgage calculators are a great way to figure out what your monthly payments would be based on interest rates and down payment amounts. Calculators can be found on most real-estate-focused websites. We like to use the Zillow Mortgage Calculator.
Pay down your debts.
Credit card debt limits what you qualify for from a lender. Lenders want to see a total debt service ratio that is less than 40% of your monthly income.
Attend a first-time home buying seminar or talk to a credit counselor who does not work for a lender. You can research your options without being influenced by someone who has a financial interest in the home or loan you choose. The U.S. Department of Housing and Urban Development(HUD) offers free housing counseling and seminars.
Check out government resources
HUD also has a helpful web page, Common Questions from First-time Home Buyers, which provides additional resources for first-time buyers, including special financing options and HUD programs.
Select your lender or broker and get pre-approved.
When you have done your research and are ready to move on to the next step, visit a lender and/or broker. Here are the pro’s and con’s.
Banks, mortgage banks and non-bank lenders all are direct lenders; that is, employees review your application and make the decision to lend you money. Typically, the institution will sell your loan on the secondary market.
Benefits of a direct lender:
- Reliability: You probably know and trust the institution. It is regulated by state and federal agencies and likely has strong ties with your community.
- One-stop shopping: You deal directly with the source of your loan.
- Savings: As the loan originator, an institution may save you money in the loan process.
- Speed: A direct lender also may process your loan faster than other providers.
Risks of a direct lender:
- Limited choice: Lenders offer only their own programs. To comparison shop, you will need to speak with several lenders.
A mortgage broker is a middleman who may represent the mortgage loan products of many lenders. The broker’s goal is to match you with the loan product that best meets your needs at the best price. Once your loan is approved, you will usually deal directly with the loan originator or their mortgage service provider.
Benefits of a mortgage broker:
- Variety: By shopping across a range of different programs and lenders, a mortgage broker may find you a better fit than a direct lender could.
- Qualifying: A mortgage broker can best steer you to the national or regional lenders that are most likely to accept your application based on your financial and personal information.
- Savings: You may get a more favorable mortgage rate.
- Speed: A broker saves you time shopping for a loan.
Risks of a mortgage broker:
- Hidden costs: Some mortgage brokers attempt to increase their profit by writing hidden costs into your loan. Best hedge: Know the loan process and ask questions.
Understand the loan choices that would be available to you, and, once you’ve determined the most suitable loan, get pre-approved for that loan. Since you will already know how much money you can borrow, you will know what price range you should look at and can move quickly if you are bidding on a house that has several interested buyers. A lender’s pre-approval would still be subject to a final verification of your credit and a satisfactory appraisal, but it’s a big step toward becoming a homeowner.
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