Getting Your First Home Mortgage
November 17th, 2011 | Author: weissheiss
Long sought after as the American dream, home ownership and getting your first mortgage is a hallmark of independence and financial fidelity. However, there are several steps and considerations that must be observed in order to get a good deal.
A basic principle of all loans is the down payment. With mortgages, this could not be more important as the amount of debt in question is significantly higher than other loans. By increasing the size of the down payment, not only will the monthly payment be reduced, but the overall interest paid over the life of the loan will be smaller. At the same time, by making a small down payment (less than 20%), then private mortgage insurance (PMI) will be applied due the higher risk associated with the loan.
Secondly, be aware of the rates and types of loans when getting your first mortgage. The three main types of mortgages are the fixed rate, adjustable rate mortgage (ARM), and interest only. A fixed rate is just that, the interest rate will be fixed at the time of the financing. For example, in Denver, CO a 30 year fixed rate mortgage can run anywhere from 6.375% to 5.750% depending on the lender. An adjustable rate mortgage (ARM) has a rate that fluctuates with the market. These mortgages are riskier, but at the same time have lower initial payments. Later on in the life of the loan, the payments typically rise above that of a comparable fixed rate mortgage. Lastly, an interest-only mortgage is one where the buyer pays off the interest in monthly payments, then pays off the principal or refinances.
When applying for a mortgage, the first step is to get pre-approved. Getting pre-approved will allow the lender to get a better picture of the amount of debt that you will be able to accrue safely. During the pre-approval, the lender will inquire about income and expenses; a healthy credit score can help as well. The second benefit to a pre-approval is that it provides you with a better picture of the home you can afford, thus aiding in the home search.
The final step to factor in when getting your first mortgage is the impact on monthly expenses. When considering the home you want versus what you can afford, the advice can vary. The traditional down payment percentage is 20%, but some recommend for a higher amount such as 33%. As for the total cost of the home, some recommend that the price should not exceed 2.5x your salary. A third key piece of advice to consider is the total amount of income devoted towards living expenses, which in most cases should not exceed one-third of your monthly earnings.
Posted in 
Tags: