First Time Buyers
Purchasing your first home may be the largest investment one will make in their lifetime. There is a huge shift from living with family or renting, to owning a home. It can be an overwhelming experience and at times you may feel that you are barely keeping in step with the process. The home buyer tips we offer here are insightful, especially for people just like you – first time home buyers.
Commonly Asked Questions
There are many types of mortgages, and the more you know about them before you start, the better. Most people use a fixed-rate mortgage. In a fixed rate mortgage, your interest rate stays the same for the term of the mortgage. The advantage of a fixed-rate mortgage is that you always know exactly how much your mortgage payment will be because future national rate changes will not affect your loan.
Another kind of mortgage is an Adjustable Rate Mortgage (ARM). With this kind of mortgage, your interest rate and monthly payments usually start lower than a fixed rate mortgage. But your rate and payment can change either up or down, as often as once or twice a year. The adjustment is tied to a financial index, such as the U.S. Treasury Securities index. The advantage of an ARM is that you may be able to afford a more expensive home because your initial interest rate will be lower. Talk to us about the various kinds of loans before you begin shopping for a mortgage.
Most loans have 4 parts:
- Principal: the repayment of the amount you actually borrowed.
- Interest: payment to the lender for the money you’ve borrowed.
- Homeowners Insurance: a monthly amount to insure the property against loss from fire, smoke, theft, and other hazards.
- Property Taxes: the city/county taxes assessed on your property.
The most common repayment period for home loans is 30 years, although 15 year loans are available, too. During the life of the loan, you’ll pay far more in interest than you will in principal – sometimes two or three times more! Because of the way loans are structured, in the first years you’ll be paying mostly interest in your monthly payments. In the final years, you’ll be paying mostly principal.
You will, of course, have your monthly utilities. If your utilities have been covered in your rent, this may be new for you. In addition, you might have homeowner association or condo association dues. You’ll definitely have property taxes, and you also may have city or county taxes. Taxes are normally rolled into your mortgage payment.
Start by using our mortgage calculators to see how much mortgage payment you could potentially handle. If the amount you can afford is significantly less than the cost of homes that interest you, then you might have to wait awhile longer. Another good idea is to get pre-qualified for a loan. That means you go to a lender and apply for a mortgage before you actually start looking for a home. Then you’ll know exactly how much you can afford to spend, and it will speed the process once you do find the home you want.
The answer to this question depends on a number of factors, including the cost of the house and the type of mortgage you get. In general, you need to come up with enough money to cover three costs:
- Earnest money – the deposit you make on the home when you submit your offer, to prove to the seller that you are serious about wanting to buy the house.
- Down payment – a percentage of the cost of the home that you must pay when you go to settlement.
- Closing costs – the costs associated with processing the paperwork to buy a house.
When you write a contract on your new home, we will put your earnest money into an escrow account. If the offer is accepted, your earnest money will be applied to the construction process, down payment or closing costs. If your offer is not accepted, your money will be returned to you. The amount of your earnest money usually varies.
There is help available. Although as a single parent, you won’t have the benefit of two incomes on which to qualify for a loan, consider getting pre-qualified, so that when you find a house you like in your price range you won’t have the delay of trying to get qualified.
There are programs available for first time home buyers with poor credit and limited savings for a down payment.
A home is an investment. When you rent, you write your monthly check and that money is gone forever. But when you own your home, you can deduct the cost of your mortgage loan interest from your federal income taxes, and usually from your state taxes. You can also deduct the property taxes you pay as a homeowner. In addition, the value of your home may go up over the years. Finally, you’ll enjoy having something that’s all yours – a home where your own personal style will tell the world who you are.