Before you can start looking for a real estate agent to help you with the home buying process, as a first time buyer, you need to first concentrate on getting the best mortgage rates possible. Home buying is a big financial investment. The best way to do this is to do some comparison shopping. Make sure you speak with as many lenders as possible before you make a decision. Check out the following options you need to weigh as you go through the process of deciding on the right kind of mortgage for yourself.
Is a fixed rate or adjustable rate mortgage better?
Fixed rate mortgages have a consistent rate of interest throughout the tenure of your loan. This means the portion of your payment that is paid towards your principal as well as interest stays constant throughout the term of your mortgage loan.
An adjustable rate mortgage (ARM) on the other hand has rates that fluctuate throughout the term of your loan. There is usually an introductory period lasting between five and ten years where the rate gets locked in. Once the introductory period gets over your rate will begin to change depending on the prime rate. Home buyers are usually attracted to ARM for the low introductory rates that they offer. However, what you need to consider is the fact that this rate can go up significantly in the future. So, choose wisely.
Is it wise paying for points?
Some realtors may be able to guide you well with your mortgage shopping. You may also ask them about points while doing your own research. Usually a point means the upfront fee that you need to pay in order to lower the ongoing interest rate by a stable amount. Again, there are also negative points where your lender may reduce the upfront fee if you agree to pay a higher rate of interest in return. This paying for points may make sense if you plan to stay in your house for a long time, more than seven years at least because otherwise the upfront costs will outweigh the saving cost for interest rates in the future.
What could be the closing costs?
Your realtor should be able to give you an estimate of the amount of money you will have to pay as closing costs. It is usually 3% of the price of the house. These costs include a variety of expenses like the underwriting as well as processing fees, cost of appraisals, title insurance fees and the like. You may be able to lower your closing costs with a little negotiation and some more shopping.
Are there any special programs you could qualify for?
There are quite a few programs you could look into as your options in order to qualify for lower mortgage rates. Some of them are:
- VA loans: these types of loans are open to you if you or your spouse served in the military.
- FHA Loans: First time home buyers like this loan because of the lower down payments and comparatively lesser consideration for good credit scores.
- USDA Loans: This is especially good for home buyers in the rural areas. With these loans you may not even have to pay a down payment or even if you do it might be quite a low amount. Additionally, you might also receive help in covering your closing costs.
In addition, there are also a few first time home buyers’ programs you may like to get help from. Check with your agent and see if he can help you with any of this.
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