Essential Guide For First-Time Home Buyers

Direct Lenders vs. Mortgage Brokers

Direct lenders are in direct control of funds and the decisions regarding loans but offer only limited in-house services and loan options.

In most cases, mortgage brokers are better for providing competitive interest rates. Mortgage brokers are middlemen who charge a fee to offer financial services and loan options through various providers.

Although everyone’s financial situation is different, Mortgage Brokers are typically more popular among buyers than direct lenders.

Fixed-Rate vs. Adjusted-Rate Mortgage

In a fixed-rate mortgage the interest rate remains the same over the entire course of the loan. One advantage of a fixed-rate is that you’ll always have the same monthly P&I (principal and interest) payment to budget and plan around. Another obvious advantage of a fixed-rate mortgage is that you’ll be protected against rising interest rates and market instability.

Adjusted-rate mortgages are usually based on the U.S. Treasury index for a one-year Treasury bill, although they are sometimes based on other indexes. Lenders add anywhere from 2-4% interest to the base index to create your adjusted rate.

First Time Home Buyer’s Guide

We’ve put together a brief guide for the first-time home buyer to use in the process of looking for and buying that first home. In it we’ve outlined the buying process in 5 simple steps:

1. Define Your Financial Situation

Good credit and a solid debt to income ratio are the keys to landing the loan or mortgage on the property you want. What you make, minus your expenses must be sufficient to justify a loan on a house. Remember that the expenses involved with owning are much greater than those from renting. If your credit, savings, and monthly income aren’t quite where they need to be, it’s far better to wait to buy a house than to move forward into a financial disaster. Spend a year working on your credit score and/or try to save 20% of each paycheck towards your down payment. Either way, closely examine your financial situation and determine whether taking this step is right for you.

2. Home Loan Pre-Approval

Before you begin viewing houses, contact a lender or mortgage loan officer and get a Pre-Approval letter in the price range of the house you want. For this they will do their own assessment on your finances and credit. Your income, liabilities and credit score will all be used to determine the amount a lender will lend toward your purchase. The Pre-approval letter will be needed to submit offers and will give you a general idea of the your home’s purchase price. Different lenders offer different loan options, so shopping multiple lenders is often beneficial.

3. Identify New Home Location

Once you’re locked into a mortgage on a certain property, it’s too late to change your mind on location. Be patient, research your options, and be sure you love your new home location. We suggest using a realtor. Realtors are valuable allies when it comes to buying a house. Let them help you find houses that match your specific search criteria and go see them all. Don’t be afraid to be specific about your home location needs and expectations. The realtor is there to help you. It’s alright to be picky and take your time with a decision as big as buying a house. Tip: Realtors may be able to assist you in securing financing and can also help throughout the buying process.

4. Searching and Viewing Process

By yourself or with the assistance of your realtor, use online MLS search services to set your search criteria for your desired location and budget. Let your realtor help you find houses that match your specific search criteria and go see them all. The average buyer views around 12 options before settling on one. Never buy a home you haven’t physically seen and never trust online property photos.

5. Make an Offer, Negotiate, and Close the Deal

When making an offer on a house, remember to be realistic on the conditions of the market and the seller’s motivations. Start your offer low, and be ready to counter with a higher offer if you’re outbid by another buyer. Knowing the seller’s motivations for selling can help during negotiations. If the seller is highly motivated and needs to sell the property fast, they’ll usually be more likely to lower the price or help you with costs. Good luck!