Part 2 of this four-part series dealt with analyzing your financial situation, getting prior loan approval, and determining your real needs/desires in a first home. All that having been accomplished, you will now want to look for a mortgage and decide which is the most advantageous for you.
As with any major purchase, you will want to shop around for the best deal. Contact several lenders (bank, savings and loan, credit union, private mortgage company, or a state or federal government lender.) Before doing that, however, you need to familiarize yourself mortgage types, terminology, and options. Your real estate agent will be helpful in this mission, as will the internet. Keying in First-time house buyers, mortgage assistance, HUD, or Community Housing Partners, will result in innumerable informative sites, a wealth of information for you to consider, and, most likely, a list of questions for you to ask your realtor and/or potential lender.
For help in determining which type of mortgage is best for you, check the chart found at http://mortgages.interest.com/content/first . In an easy-to-read format, the characteristics and suitability of many types of loans (fixed rate, step, balloon, adjusted rate –ARM) are simply and clearly explained. If, for instance, you plan to live in your South Central Vermont home more than 10 years and desire stability in payment amounts, then a fixed rate mortgage is for you. If, however, your finances are currently strained, but you know that in 5 to 10 years your monetary situation will improve or that you will most likely move within 10 years, then an ARM or balloon mortgage may be better for you. Being familiar with these options allows you to discuss them intelligently with your real estate agent and/or lender and then select the type which best fits your circumstances.
Another good source of information for first-time home buyers is the Department of Housing and Urban Development (HUD), an agency which oversees FHA loans. This type of loan is particularly useful if you have little money for a down payment, less than great credit, or large monthly bills. An FHA loan requires as little as 3% down (and it can be a gift from a relative or friend). In terms of your credit rating, the FHA is primarily concerned that for the past two years you have paid bills in a timely manner and have been steadily employed. With FHA you have to wait only two years after declaring bankruptcy, and your debit-to-credit ratio can be higher than for a conventional loan. You can qualify for an FHA loan if your monthly payments are no more than 43% of your income, and, as with conventional loans, you can choose from many types.
Of course, there are some negatives to consider before taking on an FHA loan. Interest rates generally run about 1/8 of a percentage point higher than conventional rates, but the real disadvantage of an FHA loan is that the borrower must pay an up-front insurance premium of 1.75% of the mortgage if the down payment is less than 20%. This cost can, however, be added to your total loan amount.
When you have done all of your homework and are ready to actually apply for a mortgage, be sure that you have all the figures and paperwork required by the lender–and bring them with you. You’ll most likely need the social security number of each borrower; copies of bank account statements for the past 6 months; evidence of any other assets; a recent paycheck stub showing your earnings; credit card account numbers and the amount due on each; account numbers and balances due on outstanding loans; copies of income tax filings for the past two years; and a contact who can verify your employment. Yes, it‘s quite an extensive list, but be sure to check with the lender to see if anything else will be required..
As always, to avoid mental stress, financial strain, and even real estate fraud/scams such as bait and switch or loan flipping while purchasing your South Central Vermont home, be forearmed with accurate information and heed the sound advice of your trusted real estate.
Coming next!! Part III–finding your perfect first home, making an offer, and preparing for the closing.