Getting a good mortgage: Tips for first-time home buyers

Take a deep breath.

In order to buy a home, you’re going to ask a bank (or some other lending institution) to look over your personal finances and decide whether to advance you $100,000. Maybe $200,000. Try to remember this: If it loans you the money, the bank will make money off the transaction. Probably lots.

Now imagine the bank is trying to sell you a consumer product, like a car. You’d be picky, right? You’d haggle over the options, like electric windows and air conditioning. Negotiating a home mortgage shouldn’t be any different. Think of it this way: You’re a potential customer, so you should be in the driver’s seat.

Too many people go into the process and they simply accept everything. You wouldn’t do that if you were buying a car or a washing machine. You’re going to pay a lot of interest for this purchase. It should meet your needs.

Every very first-time home buyer should know a few basic things about mortgages.

Getting a good mortgage: Tips for first-time home buyers

1. Right now is a great time to get a mortgage. Mortgage rates are at historically low levels.

2. You need to know the going mortgage interest rates.
Shop around. Read ads in the newspaper to see what kinds of mortgage rates you should be getting. But don’t make this the sole factor in selecting a lending institution, because they all should be competitive in this area.

Be aware that some mortgage brokers (the ones who sell your mortgage application to lenders) may have special arrangements with certain lenders. So the broker may suggest a certain lender, even though he or she doesn’t provide the best rate.

3. Anticipate what your lender will want to know.
Basically, any lender wants to know three things. If you have shown in the past a willingness to pay your bills, if you make enough money to make the mortgage payments for the loan you’re requesting, and whether or not the property you’re buying is worth the money you’re asking to borrow.

Do some research. Get a copy of your credit report. Work your way through an online mortgage calculator.

Lenders generally want you to spend no more than 28% of your gross monthly income on housing expenses, including principal, interest, insurance and taxes. They also don’t want you to have total debt that represents more than 36% of your gross monthly income.

4. Check into special programs for first-timers.
Check out federal, state and local housing programs for first-time home buyers, as well as programs of the government-sponsored enterprises Fannie Mae and Freddie Mac — they may offer lower interest rates or smaller down payments than standard mortgages.

Another one worth asking your lender about is the Federal Housing Administration’s (FHA) program, which insures very low down payment mortgages for first-time home buyers. F

5. Don’t be disheartened by less than perfect credit or a lack of down payment funds.
Credit problems can be fixed. Try a nonprofit credit counseling group in your area, or ask Fannie Mae for help. If you don’t have a rich aunt of your own (a relative can give, but not loan, your entire down payment), try a program chartered by Uncle Sam.

6. “Pre-qualifying” is a good way to get an idea of how much mortgage you’ll be able to carry.
You can pre-qualify through a bank. Getting “pre-approved” means you get a bank to agree in advance to make a loan to you for a certain amount. Pre-approval may cost you some money, and will likely involve your credit report.

7. Don’t forget about closing costs.
These can include a mortgage filing fee, inspection fees and lawyers’ fees, among others. (Lawyers are required in some states, but not all.) These costs can range from as little as $100 to as much as several thousand.

8. Research a fair price.
Ask your realtor or buyer’s broker to give you a list of sales of comparable homes that closed recently in your prospetive neighborhood.

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