First Time Home Buyer Mortgage Advice

Signing your name on your first mortgage contract can be a bit nerve-racking, as it's likely the biggest purchase of your life. A little mistake could cost you big over the term of your loan. Learn basic mortgage tips before you commit to a loan, and you'll feel a lot more confident when the time comes to finalize the terms.


Of course you want to purchase the home of your dreams, but if you can't afford it yet, it's better not to push the limits. Taking out the maximum mortgage that a company will allow doesn't give you much wiggle room in your monthly payments. If your situation were to change, you could lose your home. Instead, be realistic about what you can afford, and only look at houses in that price range.

Understanding Your Mortgage

A fixed rate mortgage is easy to understand -- you simply pay the same amount every month. However, other types of mortgages get a lot more complex. There are mortgages that have a fixed interest rate for a certain period of time, then adjust the rate either up or down, based on market conditions at that time. Other mortgages require you to pay only the interest on the loan for the first few years. In all cases, you should understand the worst-case scenario -- the maximum amount that your monthly payment might become. You should also carefully look over the paperwork for hidden fees, such as a "paperwork" fee, and ask the bank to waive them.

Minimizing the Costs

The easiest way to minimize the cost of your mortgage is to make as large a down payment as you can. If you pay down more than 20 percent, you'll avoid private mortgage insurance, as well. Making biweekly payments, rather than monthly payments, will cut the amount that you pay in interest -- sometimes by tens of thousands of dollars -- and allow you to pay the loan off faster. Ask the bank if this is an option before you finalize the deal.

Down Payments

A 20 percent down payment might be ideal, but you can still buy a home without plunking down that much. If you qualify for a first-time homebuyer's loan from the Federal Housing Administration, you can pay only 3.5 percent down, though you'll also have to pay private mortgage insurance. A "piggyback" loan allows you to avoid private mortgage insurance by taking out two mortgages -- one for 80 percent of the value, and one to make up the difference. However, the smaller loan will come at a higher interest rate.

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