The excitement of buying your first home will stay with you for the rest of your life. You have started to look at different houses for sale in neighborhoods you might like to live in, made judgments about the type and size home you would like, and maybe you even have a price range in mind. But, along with all the excitement comes some serious financial business, getting a mortgage loan. Getting the best deal on a mortgage requires understanding mortgage terminology, careful shopping and comparison among lenders.
Issues to Consider
Since you have never had a mortgage before, getting one for your first house may be more difficult than if it were for a second or third home. Lenders may require a higher down payment to make the loan, charge you a higher interest rate or insist on other restrictions. But, if you meet the lender's criteria and then make a supreme effort to pay your loan on time every month, getting a mortgage for your next home will be much easier.
Credit History and Credit Score
Your credit history and credit score will figure into the mortgage application process, especially since you are a first-time buyer. If your credit history is marginal or poor, your best bet is to take a year or two and work to straighten out your credit. Make arrangements to pay down your debt and then make on-time payments. When you then do apply for a mortgage, your lender will be more likely to grant a loan with better terms.
Lenders or Brokers
Home loans are available from commercial banks, mortgage companies and credit unions. Lenders typically quote different prices, so it is important to contact several to make sure you get the best price. Mortgage brokers arrange mortgages but do not loan money directly. If you contract with a broker to act as your agent, he will find the best deal for you, but he will also charge a fee.
Mortgage loans use terminology that is often difficult to understand but important to your pocketbook. The rate is the interest rate charged on the loan. Points are fees paid to the lender for the loan. These are often linked to the interest rate. The more points you pay, the lower the rate. Fees can include a loan origination fee, underwriting fee or closing costs. All of these terms ultimately mean money you will need to pay, so be aware of their impact on your wallet. Your down payment is the amount of cash you will need to put down on the loan to mortgage the rest. Usually a 20 percent down payment is required, though some lenders will require less if your credit history is good.
Negotiation With Lenders
Negotiating the best terms of a mortgage can be tricky business, especially for the first-time buyer who is not familiar with how lenders operate. But, it pays to negotiate terms and fees, as this can greatly impact your monthly payment. And, just think, now that you have done this once, it will be so much easier when you buy your next home.
Lisa Nielsen is a marketing consultant for small businesses and start-ups. As part of her consultancy, she writes advertising copy, newsletters, speeches, website content and marketing collateral for small and medium-sized businesses. She has been writing for more than 20 years. She is also a business strategist, trainer and executive coach. Nielsen holds a Master of Business Administration from the University of Miami.