An Exciting Time In Eveyone's LifeAn initial first step should include meeting with a lender for information gathering before you make any plans for home shopping. A good lender will help you make an initial analysis as to how much you can afford to pay for a house. This will be based principally on your credit score, debt obligations and verifiable income. But home loan financing for the first time buyer involves much more than what you qualify for. You should make a detailed estimate of a household budget before deciding on a loan amount. A move from a small apartment to a large home, for example, can result in a substantial increase in utility costs. Also include a home maintenance budget for items previously covered by a landlord. After establishing a budget, begin comparing home financing options. For a conventional loan -- 30-year fixed rate -- many lenders require a substantial down payment. However, the Federal Housing Administration (FHA) sponsors loans where you pay just a 3% down payment. This loan is specifically geared to first home financing and as such often carries a lower interest rate than its conventional loan counterpart. In a sellers market, however, accepting an offer with an FHA loan can be less attractive to the seller. Often, with the FHA loan, the seller is required to pay for certain items that he or she might otherwise balk at. Furthermore, if you decide to put down a heftier down payment you may consider other loan types. You might consider the 30-year fixed rate loan or an Adjustable Rate Mortgage (ARM) loan. The 30-year fixed rate loan is the industry standard for traditional safe and sound home buying. The ARM, on the other hand, is an option for the more transient home buyer and doesn't carry the same built-in protection of the 30-year fixed type. A 5/1 ARM, for example, will provide the buyer with a fixed rate for the first 5 years of the loan, after which it will vary based on a predetermined formula. The downside is that the rate, after the 5 years, can be significantly higher. The advantage is that they almost always carry significantly lower interest rates during the initial period than do the 30-year fixed rate loans. The ARM is ideal for someone who is certain they will either sell their home or refinance the loan before that time period has elapsed. For prudent first home financing you simply need to assess your financial situation and decide accordingly. Doing a little advanced planning, meeting with a lender and comparing loan types will give you the necessary information to make the process less overwhelming. Be informed and make your home purchase from a position of power and confidence. |
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