Tips for First Mortgages

From enlightenme.com

A mortgage is the largest debt most American’s will take on, so most homeowners will read many first mortgage tips and do a great deal of research before taking a first mortgage. There are many things to consider when taking on a mortgage for the first time, such as the type of mortgage, the interest rate, and even how large of a mortgage you want to take. Essential first mortgage tips include an understanding of how mortgages work, and what your options are when it comes to taking on a mortgage.

First Mortgage Tips

A mortgage provides you with a loan to purchase your home. The home acts as collateral, securing the loan. This means that the lender holds the title and if you do not make your mortgage payments, they can seize the home. When you buy a house, it is standard to put down a down payment. This down payment provides you with equity interest in your home. Equity interest is the value of the home that belongs to you, not to the bank. Conventional wisdom suggests that you put down 20 percent of the value of the home as a down payment. Failure to do this can result in an additional fee called Private-Mortgage-Insurance which you will have to pay until you have equity in your home equal to at least 20% of the homes value.

When you apply for a mortgage, you are charged interest on the money you are borrowing. A number of factors determine your interest rate, including the type of mortgage you take, your credit rating and the national average of interest rates. You should try to ensure that your credit is in good shape before applying for a mortgage; scores above 700 qualify for the best rate. Improve your credit by making payments on time, paying down debt, and refraining from applying for any new loans or credit within two years of applying for a mortgage.

Federal help may be available for certain homeowners with bad credit, non-traditional buyers, or buyers without a down payment. The Federal Housing Administration, Department of Housing and Urban Development, and Fannie Mae all offer problems that can help you buy a home. These agencies also offer education to first time buyers. If you have special circumstances- for example if you are a veteran or disabled, you may also be entitled to additional government assistance.

Types of First Mortgages

Mortgages fall into many types, including fixed rate, adjustable rate, hybrid, balloon mortgages and interest only mortgages. Each of these different types of mortgages can have different terms, or different time limits in which you are required to repay your mortgage. There are risks and benefits associated with each of these types of financing, and different types are best for different situations. Make sure you do adequate research on each of these types of mortgages, and read tips for first mortgages relating to the specific type of mortgage, before you select a method of financing.

Other First Mortgage Tips

The most essential of first mortgage tips relates to ensuring that you buy a home that fits into your budget. Many people try to stretch to buy a home that they cannot quite afford, believing that a home is an investment, that it will rise in value, or that their incomes will grow. While many of these things may be true, buying a home that is outside of your price range can be a very risky proposition. Furthermore, you also must take into account additional costs that homeowners face, such as property taxes, insurance and repairs, that you did not have to pay when living in an apartment.

Calculate your budget carefully and determine exactly how much you can afford to pay each month. Follow conventional wisdom, which suggests that you do not take on mortgage payments that exceed between 25 to 33% of your gross monthly income. Think carefully about selecting alternative financing structures, such as interest only loans, in order to get into a house that is outside of your price range. Ultimately, a mortgage is a great tool and a home is a wonderful investment, but the most important first mortgage tips remain ensuring that you can afford to continue making payments to protect your investment.