First time home buyer financing question?

Question

Ok I'm new at all this financing stuff. I am wanting to purchase my first home. What is the process on getting a loan? How long does the process take? How do I go about getting the best interest rate? I dont want to put down a large down payment what mortgage would be best? Can you explain how points work?
I have excellent credit and am debt free. The type of home I plan on purchasing is a fixer-upper and I plan to live there at most 3 years and then I will either sale it or rent it out. I know this is too many questions but the mortgage process gets overwhelming and I dont want to get shafted in the loan process.

Answer 1

If you have a checking acct, the bank where you currently bank. Ask to speak to a loan officer. It is best to be pre-qualified before you make an offer on a house. If you pre-qualify, you fill out all the paper work for a loan and the bank will let you know how much of a loan you can get and the terms (interest, etc.). It takes 14-30 days usually to process a loan...depending on how prepared you are...you should have the last two years tax returns, a couple of months of pay stubs, and get your credit report on your own (you can get it for free).

Points are the loan fees the bank charges to process the loan...some loans have zero points, so it pays to shop around. The points are not usually tax-deductible, but some of the other fees are, so check how things are itemized.

You can also go to a mortgage broker...the broker will take your application and shop it around to four or five different lending establishments. The broker will get you the best deal possible and will get paid a commission based on you closing the loan. A broker can be a good way to go for a first time buyer.

Answer 2

The process of getting a loan approval can take to two days if the loan officer is shopping for the best interest rate for you. You don't have to put down large sum of money. You can go with either a 80/20 loan which the 20 is always a high interest rate. Sometimes its better to pay PMI. Some lenders say they won't charge you points, but the bad thing is that the lenders is going to give you a higher interest rate to make up the cost of the loan.

All the questions you asked are very important and all tie to the Interest Rate. Check this site out http://www.firstmeridiancapital.com/9StepstoOwnership

It has information on all the question you just asked and more The link is a video that shows you the process of purchasing a loan. The site even has a loan application, and filling out the loan application is half the battle!

Answer 3

If you are living there for "at most" 3 years , then see if the rate on a 3 year ARM (adjustable rate mortgage) is better than the current fixed rate for 30 years. Be aware that if you do not sell after 3 years, your payments will go up. They are only fixed at the lower rate for the first 3 years. CAUTION. If you are going to rent, not sell, then you may want the fixed rate.
Process can take about 6 weeks. Banks usually require a lot of documentation such as paystubs, tax returns, investment account information. Your current bank is a good place to start. Compare this to rates in your area (look under yahoo finance) and you may find a better rate at another lender. Keep in mind that APR is your best way to compare. A bank may offer 3%, but it's closing costs and fees make it an APR of 7%. Another bank might have a rate of 6.0%, but its lower fees may cause an APR of only 6.5%. The government imposed APR reporting so that everyday folks could compare rates easier.

Phew, last question. Points. Points is a fee in two ways. Some banks charge an origination fee on the loan of one point. A point is simply 1% of the loan amount. Sometimes, you can buy down the rate by purchasing points. For 1 point (same calc as before), the bank will reduce your interest rate by some amount (NOT 1 %!) this is confusing. Usually you get about 1/4 % reduction in rate for a point (1% fee). You can compare your monthly savings in payment through the reduction in the fee to the upfront cost of the fee. For example. If your loan is $200K, your point is $2,000.00 up front. If this only reduces your monthly payment by $50 due to a lower interest rate, your assessment would be that you are staying in the home for 3 years, thats $1800 saved in payments, and you paid $2K up front. So that's not good in this example but usually it works out better. Ask your loan rep for help with this analysis. Good luck!

Answer 4

Ahhhhh...these are all great questions and first time homebuyers just so happen to be a speciality of mine.

Most everyone is going to be pretty close in rate. They will vary from about .125% to about a .25% percent difference. At least they should. Current rates are going to be in the high 6% range to the low 7% range depending on what type of financing you go for. As for 3 year ARM's, those are not bad rates or loans, but I would highly suggest not taking an ARM out on your first time around. Get some experience as a new homeowner, then get creative. Again, I specialize in this type of financing.

You will not need to put a large down-payment on the house. In fact, you may not have to put anything down on the home. With your credit score, adn your debt free status, you are a perfect client and ready to buy.

Points are basically fees to the loan officer who takes care of EVERYTHING that needs taken care of on the loan. Yes, it is alot. That is why there are fees. That is how we get paid.

I would recomend that you do NOT go to a bank or credit union. They are not going to be able to service you the way you need serviced. You may end up having to put down a chunk of money with these types of institutions. Use a MORTGAGE LENDER, or a MORTGAGE BANKER. Stay away from the brokers. (Sorry brokers....no offense.)

If you would like some more in depth information about the financing of your home, I would be more than happy to help you with any other questions. You can contact me at timothy.kazee@americanhm .com. Feel free to do so at anytime.

I wish you luck on the purcahse of your new home. What an exciting time for you.

Answer 5

Shop around at various local banks and credit unions. Ditech.com is also a pretty good source. They take your application and give you word on pre-qualification in a few days normally. The process then is put on hold until you've made an offer and it's been accepted since the value and condition of the home are factors.

If you have good credit as you say, skip the mortgage brokers. You don't need one. They charge fees that are often hidden in the interest rate or are buried on the settlement sheet. It won't hurt to ask around if you're curious but you can usually do better on your own if you have good credit. Avoid any mortgage broker who refuses to disclose how much they will make on placing your loan!

If you're a first-time buyer, ask about special programs for first-timers. Some states have special programs for folks just like you. Also, there's the FHA insured program where you need as little as 3% down.

If you go with a conventional loan and put down less than 20%, most lenders will require Private Mortgage Insurance, often called PMI. That will add to your mortgage payment. Compare that with the total payments on an FHA loan. You will normally need 5% down at least for a conventional loan even with PMI.

Avoid those 125% loans like the plague. The interest rates are very high!

If you buy a fixer, the FHA has a program that may help you and keep rates and expenses reasonable. I believe it's called the 203b program, but any mortgage lender can advise you. It's handy for taking care of major items like a new roof or major plumbing repairs. You can then do other less important repairs as time allows.

The best type of loan will depend upon how long you intend to stay in the property. If you know for absolute certainty that you will sell within 3 years, look into a 30 year ARM with a 5-year rate lock. This will keep your payments level for 5 years but if interest rates go up between now and then you may get hit with breathtaking mortgage payment increases. Some ARMs have a rate increase limit each year and for the life of the loan. Typically, it might be limited to 1% rate increase and a total rate increase of 6% for the life of the loan. Many types are available, discuss them with your lender.

If you're on the fencepost about keeping it after 3 years and renting it out, I'd get a fixed rate mortgage. Your principal and interest payments will not change for the life of the loan.

There is a type of mortgage that you MUST avoid. It's called a "negative amortization" mortgage. The payments are set artificially low to qualify you for the loan but are too low to pay the interest due and something towards the principal. Your outstanding balance goes UP each month, not down as it's supposed to since the shortage is added to the balance! These are illegal in some states (TX for one that I personally know of) but are perfectly legal in others. Usually they contain a requirement that you refinance once the balance has increased by a certain percentage, or the payments will rise enough to pay the loan off on time. These are extremely risky loans and are only appropriate for experienced real estate speculators who can affort to take a major hit once in a while.

Review any proposed mortgage contract before you sign. Better yet, have an attorney review everything for you! If the lender won't allow that, leave IMMEDIATELY and do NOT return to that lender! An attorney isn't absolutely necessary in most states but is a very good investment for your first home and the fees aren't all that bad, often no more than most title companies charge for closing but the title companies can't give legal advice.

Once you've picked a house, you normally should close within 30 - 45 days in most cases. The original contract will probably say 30 days, but it's not unusual to have to slip this once or twice to get the loan package past the underwriter (sort of a quality control inspector, if you will). Don't let that get to you; I've bought a number of homes and it's happened every time!

One last comment on points and fees, covered by some other posters. Points ARE deductible in the year that you take out a mortgage to purchase a home. If you refinance, you have to amortize them over the life of the loan. Your other fees are NOT tax deductible but you can add them to the cost of the home when figuring your gain when you do sell. This will lower any tax on the gain, if any tax is due at all, when you eventually do sell.

Answer 6

I haven't had great luck with Mortgage Brokers. While Mortgage Brokers can get almost anybody a loan, I always felt like I had been "taken" or that the deal seemed a little shady when dealing with mortgage brokers. I have, on the other hand, had good look with banks and mortgage companies. Mortgage companies, such as Country Wide (www.countrywide.com) or Aegis (www.aegismtg.com), are very different that mortgage brokers, and I haven't had feelings of uneasiness when dealing with banks or mortgage companies (but that's just my opinion).

First, I would check with your bank. Bank of America and Washington Mutual both have pretty good mortgage programs, as well as Country Wide and Aegis.

Important - In preparation for a home loan make sure to follow the basics:
- Pay down any credit cards as much as you can
- Do not make any large cash purchases (keep that in your account while you are looking to get approved for a loan)
- Do not take on any new loans or leases (no new cars)
- Do not take on any new credit cards
- Do not apply for any new credit cards
- Make sure to get a copy of your credit report to make sure there aren't any errors and so you know exactly what the lenders are looking at.

Good Luck!

Answer 7

Getting a loan is easier than you think.

Go to a mortgage broker and they can walk you through it.

It takes a few weeks, but not months. Maybe less now, its been awhile since I got one.

You really don't have to put a large down payment. You can do it for zero, but try to have at least five. The higher the payment, the less you have to pay in interest and mortgage insurance.

Points are basically an extra percentage that you pay to get the interest rate down. Not many people use them.

You should get the house appraised. The bank will not let you make too bad of a deal. But you need to know if the bank will support the price you intend to pay . If they don't you can use that as negotiating leverage to try to get the seller to lower their price.

Good luck.

Answer 8

e mail me if you still need help with this question...:)

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