Top 6 Tips For Buying The First Home

If you have watched the news in the past few years, you should know the home prices have fallen in most real estate market, and the interest rates are at the lowest ever, so this is the best time to buy a home. You should begin to prepare now if you aim to be a homeowner 3 months down the road.

You have to make sure you are ready to buy a home before you start the home searching and buying process. Generally, a new home will take 3 to 5 years or longer to build equity and recoup your investment costs. So, you have to prepare to get through the years, especially if you buy the first home via a mortgage. Below are the 6 important tips to get you started on the process of buying the first home:

Tip 1: Check your credit score

Unless you buy the home with the money from your own saving account, you will have to apply for a mortgage to finance the new home. Since lenders base your mortgage qualification from your past credit performance, your credit score is important determining factor that will help you get the best interest rate for the mortgage. You will be considered a high risk borrower if you have credit score below 620 and your mortgage application may not get approved until you can improve the credit score. If you have a score of 720 and sometimes 740 and above, you will be to get the best mortgage rates.

Tip 2: Set your housing budget

Based on your credit score and financial status, a lender will let you know how much you can borrow. Don't buy a home that you can't afford to pay. You have to create a simple budget based on your income and other expenses so that you know how much you are afforded to spend on housing payment. The financial experts will normally advise their clients not to spend more 30% of your income on mortgage repayment.

Tip 3: Get pre-qualified for a mortgage loan

Before you start to look for your dream home, you may want to meet up a lender to understand how much mortgage loan you are qualified to apply for. Then, add in the down payment you are afforded to take out from your saving account, you will have a budget for the price range of house you should look for.

Tip 4: Find a reputable Realtor

If you are using a Realtor service to help you find a home, you should look for a Realtor who have experience so that he/she can represent your interest during negotiations and help you recognize the value in different homes and neighborhoods. Since it is your first home, a Realtor will play an important role to find a home that meets your requirements.

Tip 5: Have a home inspection

Never pay a booking fee or down payment without having it inspected. When you visit the home, you are not only looking for serious flaws in the home, but you will find out how good the home maintenance is so that you can negotiate for the terms of repairing or replacing systems and appliances as an owner.

Tip 6: Finalize the details

Once you have signed the contract to confirm the purchase of the house, you have to make sure you stay in touch with your Realtor and lender to make sure financing is taken care of along with all the necessary insurance coverages. An experienced Realtor will have a checklist to ensure everything is accomplished in time for settlement. That's why it is important to deal with an experienced Realtor when you buy the first home.

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What is Reverse Mortgage?

A reverse mortgage is a form of equity release. It allows a person who owns a home that has built equity to turn the equity into cash. This cash can be cashed out in one lump sum amount, ongoing monthly payment or a combination of both. Reverse mortgage loan advances are not taxable, and generally don't affect your Social Security or Medicare benefits. You retain the title to your home, and you don't have to make monthly repayments. In other words, a reverse mortgage is a type of home equity loan that secured against your home. However, there are a few differences between reverse mortgage and regular home equity loan. One of them is a reverse mortgage is designed to defer the mortgage interest and it does not need to be paid until one of the following occurs:

1. The house owners or the borrowers sell the house; o
2. The borrowers/owners of the house are no longer the primary residences; o
3. The borrowers/owners pass away.

 However, there are also terms and conditions that enable lenders to request the borrowers to pay the loan if one of them are triggered such as the insurance and property taxes are not kept up-to-date and/or the house owners do not maintain the house up to the standard as stated in the loan agreement.

Types of Reverse Mortgage

There are three types of reverse mortgages:

1. Federally-insured reverse mortgages, known as Home Equity Conversion Mortgages (HECMs) and backed by the U. S. Department of Housing and Urban Development (HUD) 
2. Single-purpose reverse mortgages, offered by some state and local government agencies and nonprofit organizations
3. Proprietary reverse mortgages, private loans that are backed by the companies that develop them

Reverse Mortgage Requirements

Reverse mortgage is eligible for everyone. It has a number of requirement that must be met before a borrower is qualified to apply for it. General requirements include:

• The borrower owns a home with built-up equity must be 62 years of age or older.
• The applicants must own home outright or have a mortgage balance that can be paid in full with the loan.
• The borrower must be the principal residence of the house. For example, if the house is used as a holiday home, it can't be used to apply to reverse mortgage.
• No proof of income required as the balance of the loan can be paid in full at the end.

If you are considering to get a reverse mortgage, you should shop around and search from the Internet for the various offers. Compare them and learn as much as you can about reverse mortgages before making the final decision on the best option that fits the best for you.

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What is a Mortgage?

Mortgage is a loan to finance the purchase of a home. It is the largest debt you will ever take on and typically it may take 15 to 30 years of repayment. Your home is the collateral for the loan, meaning that if you default the mortgage repayment, lender has the right to execute a foreclosure on the home. The mortgage agreement you have signed is also a legal contract between you and the lender that you promise to pay the debt, with interest and other costs; else the lender will have a right to take back the property and sell it to cover the debt.

Different Types of Mortgages

There are several types of mortgages. The two common types are fixed-rate mortgage and adjustable-rate mortgage, each has its pros and cons. The fixed-rate mortgage enables you to lock the interest rate at the time of signing up the mortgage. The rate will not change throughout the life of the loan. Whereas, the adjustable-rate mortgage's interest rates will fluctuate based on the market rate. The fixed-rate mortgage is good if the market foresees the increase of interest rate and you are able to lock at the lowest interest rate at this moment. You don't need to worry about the increase of interest rate in the future that may cause the increase of the monthly payment. If the market has close to a constant rate and you want to take advantage of low interest rate that may happen throughout the life of loan repayment, then you may choose the adjustable-rate mortgage.

Mortgage Repayment

Generally, a mortgage allows you to make payment in installments over a period of time such as 15, 20, or 30 years, known as repayment term. You choose the repayment period that is comfortable based on your affordable monthly repayment.

Factors that affect a mortgage application

Factor #1: Credit Score

You may search for the best mortgage from the market, but there are other factors that will determine your advantage to get the best mortgage from lenders. If you have a good credit score that shows you are a low risk borrower who will make the debt repayment on time, you have a good chance to secure a mortgage at lower rate than others who have bad credit score.

Factor #2: Down payment

Generally, if you pay less than 20% as the down payment when you purchase your home, you will be considered by lenders as a higher risk borrower than those who pay larger down payments. Therefore, lender will offset the risk by higher interest rate; or an escrow account will be set up to collect additional expenses, which are rolled into your monthly mortgage payment.

Research your Mortgage

Even though there are many mortgage offers you can choose from, it is important for you do as much research as possible before deciding the best mortgage. Moreover, mortgage is the largest legally-binding financial obligation you will take on. Therefore, you have to carefully consider not only the repayment term, but also the type of mortgage that will work the best for you.

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