First Time Home Buyers Advice

By David Ciaudelli

So you’re thinking of buying a home, congratulations! While mortgage rates are still at historic lows, this is the perfect time to consider buying. There are so many advantages to buying over renting, including tax deductions, building equity, and basic pride of ownership.

But since there are hundreds of types of home loans offered for first time homebuyers, finding the one that best suits your needs and profile can be a complicated and daunting task. The best that thing you can do is to learn the basics of how mortgage loan applications are analyzed, learn how to compare different mortgage programs, begin preparing financial documents, and get pre-approved so that the mortgage loan process will run more quickly and smoothly.

Basics of How Loan Applications are Analyzed

All mortgage loan applications are evaluated on four central criteria: income, assets, credit, and property value. Each of these four criteria are assessed on their own but are intimately linked so that strength in one area can compensate for weakness in another. For instance, bad credit can sometimes be balanced by a higher down payment or having excellent credit can compensate for a low down payment.

How to Compare Different Mortgage Programs

To determine which mortgage program is right for you, you should define your priorities and evaluate your goals. Ask yourself: do I expect my income to increase moving forward or will it likely stay in its current range? How long do I expect to live in this home? The answers to these questions will help you determine whether you should look to a Fixed Rate Mortgage Loan or an Adjustable Rate Mortgage Loan (ARM).

In a Fixed Rate Mortgage the interest rate stays the same throughout the duration of the loan term, which is generally 30 or 15 years. This is a good option if interest rates are low, you expect to stay in the property for a long time, and you feel secure knowing exactly what your mortgage payments will be each month during the life of the loan.

If you think you may relocate or outgrow your house – as many first time homebuyers do – or perhaps you need the flexibility of a lower monthly mortgage payment as you are just starting out, strong consideration should be given to an adjustable rate mortgage loan. An ARM is known for low initial interest rates when compared to the Fixed Rate alternative. The low rate is in place for an introductory period, and when that period expires, the rate is adjusted periodically based on a particular index (the one year Treasury Bill, for example). If the index rate increases or decreases, the new rate is this index plus some set margin.

Preparing Documentation for Mortgage Loan Applications and Getting Pre-Approved

No matter which program you choose, the key to a quick and smooth mortgage is having your accurate and complete financial documentation in order. In general terms, the following documentation will be required in connection with your mortgage application:

  • At least one month’s worth of pay stubs
  • W-2’s from the two most recent years
  • Bank, brokerage, and retirement account statements reflecting at least the past two month’s activity. Be sure to include all pages of the statement as they will be evaluated not only for the balance but also checked for unusual activity within the account.
  • In the case of the self-employed or those whose income is comprised mainly of commission or bonuses, you will be asked for Federal Income Tax Returns for the two most recent years.

Credit history is a key factor in determining if you can get a mortgage and how much interest you will pay. If you haven’t checked your credit recently, it makes sense to get a copy of your credit report early so that you have enough time to correct any possible errors.

Lastly, it is also a good idea for first time home-buyers to get pre-approved for their mortgage. For pre-approval, mortgage lenders review and analyze your financial documentation and credit score to determine the size of loan you would be approved for. This information will let you know how much you can borrow so that you don’t waste time looking at houses that are not in your range. Written pre-approval also makes you more appealing to sellers who realize that you are serious about buying and are likely to get the loan and close the deal. And in a hot real estate market, this may be just the edge you need to get the home of your dreams.

About the Author:

David Ciaudelli, President
Bergen Capital Finance
Phone: 888-898-1414
email: info@bergencapitalfinance.com
url: www.bergencapitalfinance.com