What You Need to Know About a First Time Mortgage
Facing all the options for loan structure when buying your first home can be a very intimidating experience. You’ve probably heard of fixed-rate mortgages, and adjustable-rate mortgages, but you may not be familiar with the seemingly endless number of variations between the two.
Without a substantial income and a considerable nest-egg to lay out as a downpayment, it isn’t always easy to qualify for a first time mortgage. Add to that the fact that you’re being peppered with terms you don’t fully understand, and the intimidation factor is understandable. There are some very basic things to consider, which may help reduce the intimidation you feel.
First, make a realistic decision about how much you can afford for a downpayment. Don’t unreasonably discount your ongoing living expenses or the hidden costs of owning a home, particularly one with no drapes, worn carpet or faded paint. Give yourself a cushion for those other immediate costs.
Now, take a serious look at what you can afford to pay on a monthly basis, both initially, and after any potential rate adjustments. Don’t assume you’ll get a 10% raise every year, because you won’t.
Then ask your financing company to show you what they can offer you, within those limitations, for the term of the loan. Don’t be surprised if they say they have nothing within those parameters. Ask them how close they can come to your capabilities. That is when it will get interesting.
There are various types of stepping rate adjustment loans, where the payment remains the same for a few years, then adjusts. Those adjustments may occur once or twice during the term, or annually. There are balloon loans, wherein a monthly payment is computed on a 20 or 30 year term, but the loan becomes payable in full after a lesser number of years. The variations are virtually unlimited.
The first time home buyer must accurately predict his income for the entire term of the loan, or have a plan to sell the home after a certain period. Fluctuations in the interest rates, changes in employment status and the home market can all affect your ability to meet the obligation, or sell the home, so it is important to be realistic in your expectations. Make this important decision with your mind, not your heart! The last thing you want to do is to “find a way” because you’ve fallen in love with the idea of owning your own home. That is how many first time home buyers get in trouble.