Five Basic Areas to Know for First Time Home Buyers

Filed in Buying a Home on Oct.08, 2009

If you are buying a home for the first time. It is imperative to know several important aspects of the process. The glossary of loan terms is one thing that you should familiarize yourself with. However here are the 5 areas that can be critical. Being aware of these will help you avoid costly mistakes.

Today home loan programs are more responsible with FHA being the most popular with a minimal 3.5% down. A family member can gift you the required down payment. It is preferred to have between 10-20% down. If you can muster 20% down you may avoid mortgage insurance.

Real Estate agents will want to know that your are pre-qualified. This entails a look at your income, assets and credit history. It is a prime indicator of your sales price limit, ability to repay the loan and your probability of paying back the loan. In this step, your monthly payment is determined based on the current interest rates. Your credit score will also determine the rate. A score of 700 or higher earns you the best rates. Financial experts recommend around 25% of your income as a mortgage payment. A debt ratio of 38% or higher becomes a concern with regards to affordability. Your assets will be verified to confirm down payment, closing costs are in the bank and for how long. You may need 2-6 months of payment reserves to allow a cushion depending on loan product.

You will want to know your costs of doing your home loan. The Good Faith Estimate is the disclosure for this. It will detail all the loan particulars such as interest rate, monthly payment etc. It mostly gives you the detail of fees from the lender, title and escrow, and your taxes and insurance prepaid amounts. Keep in mind initially it is an estimate just as the title implies. You should get this disclosure before you leave a lender or shortly after a phone application. It is wise to keep this form to keep everyone generally accountable. Expect reasonable differences however as factors change along the way.

Your trusted local real estate agent and home loan professional will help guide navigate you through the process. You are now pre-qualified for a purchase price and can start looking for a home with features and location in mind. In the process of negotiation, it is normal to ask the seller to pay 3-6% of the closing costs. Check with your loan professional to be sure your loan product allows this. After making an offer, you will likely get accepted! This is the good news you want to get started. Now the ordering of the home inspection, appraisal, formal loan approval and satisfying underwriter conditions begin. Expect to be asked for more information, possible delays, and roadblocks as part of the process to completing your purchase.

The Closing is what is considered drawing loan documents for signing the deed of trust, the note, and all disclosures in title. In some cases a mobile notary may be used. Finally your loan should be ready to fund and record. Now the house is yours!

To sum it up, good communication and experienced professionals will help make the overall transaction smoother. Choose carefully in the beginning who you want to work with. Cathy Acosta of Mission Hills Mortgage Bankers says, I love first time home buyers as I am a teacher at heart and can empathize with their inexperience. It is important to not assume buyers know or understand the loan process fully. Seek people you trust and are recommended. Learn as much as you can and most importantly take the initiative.

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