Your First Time Home Mortgage

This is the fast and easy way to get your 1st home mortgage.

How do you get your mortgage preapproved?
You go to mortgage lenders. Ask to have Your First Time Home Mortgage Preapproval. They’ll tell you how much they would lend you, and on what terms.

You get several questions answered at once:
a) Yes! You can buy your first home. It is possible. You will get a mortgage.
b) You can start looking for homes. Yippee!!  
c) House hunting is going to be easy and pain free. Because you know exactly what price range to ask for. You are not going to waste time and emotional energy on unattainable homes.
d) You’re not under pressure if your lender locks your rate. If interest rates go up before you find your new home, you don’t care. You’re not affected.
e)  You know that house hunting is really going to be a lot of fun. Because you will get to see the best properties. You see, realtors and sellers will take you a lot more seriously.
f) You can start getting very excited.

Your Mortgage Preapproval Checklist

When getting a preapproved mortgage, you must ask, find out, and do the following, to make the best use of your preapproval:

• How long does your guarantee hold for. It  usually holds for 60 days, but can go up to 90 days for newly built homes. There again it could be less than 60 days. You need to check. Once you know, enter the date in your diary.
• What exactly is your guarantee? Are you protected from interest rates rising within your guarantee period? Are you also ‘protected’ against interest rates falling, or will your lender adjust your interest rate to the lower, current rate?
• When exactly does your guarantee hold until? At what stage in the house buying process will your mortgage rate be set. Once your house purchase is complete? Or at a specific stage during the process?
• Ask what happens if your guarantee period expires before you’ve found your new home.
• Ask what happens if you decide not to go ahead with the preapproved mortgage. (I think you’ll find the answer is … Nothing! But check)
• Once you’ve got your preapproval, make several copies and keep them all handy. If you got your preapproval on-line, again print off a few copies. But also save the document to a special, easy-to-find place on your computer, AND consider making a digital back-up copy (CD, memory wand, etc).

Where can you get preapproval for a mortgage from?
Here’s a quick and easy place to start -> Your First Time Home Mortgage Preapproval

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To help you remember what you need to include in your First Time Home Mortgage Affordability Finder, here’s a list for you to go through.

If you think I’ve missed anything out, please write a note in the comments below. I would appreciate it very much. And so would other readers. Thank you.

General
Rent
Bank Account Fees
Overdraft fees

Loans Payments
Car loan
Hire purchase and catalogue
Credit card
Personal loan
Student loan

Savings and Investments
Regular savings
Pension (if not deducted at source or you are self employed)
Stocks and shares

Insurance
Home insurance
Auto insurance
Bike insurance
Pet insurance
Travel insurance
Medical insurance
Dental insurance

At Home
Utilities
Internet access
Home telephone
Family cell phones
Cleaner
Gardener

Food, Drink, …
Groceries
Eating out (Meals, Coffees, Juices, Smoothies, Snacks)
Drinking out
Tobacco
Meals at work

Travel
Recovery/ Breakdown cover
Car maintenance
Bike maintenance
Train/ Bus/ Taxi/ Car share
Road tax
Parking
Fuel
Shoe leather (if you do a lot of walking)

Family Obligations
Alimony payments
Child payments
Regular charitable donations

Family
Childcare costs (nursery, baby sitting)
Children’s travel
Laundry/ Dry cleaning
Nappies/ Baby things
Pocket money
School meals
School trips
Pet food

Entertainment
Hobbies/ books/ music/ toys
Baby groups
TV/ newspaper/ magazine subscriptions
Video/DVD rental
Pet costs (vet fees, grooming, holiday care)
Educational and fun trips
Club memberships
Computer games

Healthcare and Fitness
Classes/ Sports/ Gym
Dental care
Haircare
Vision care (glasses, contact lenses, eye exams)
Complimentary therapies
Beauty treatments
Grooming

Clothing
Work clothes
School uniform
Home clothes
Shoes
Accessories
Underwear
Nightwear

Education
Course fees
School fees
Tuition fees
Books/ computer programmes
Stationery

Infrequent and/or Irregular
Christmas
Thanksgiving
Main/ Family Vacation
Birthdays
Projects eg buying furniture, redecorating, wedding
Charitable donations

Technorati Tags: 1st home mortgage, first time home mortgage, how much can i borrow for a mortgage, mortgage how much can i borrow, what is needed to get a mortgage

This really is the place to start for your first time home mortgage . Not ‘What mortgage can I get’, certainly not ‘What house can I get’. Not even, ‘How much can I borrow’.  Your first question has to be, ‘How much can I afford to spend on a mortgage’. Because, until you answer this question, you can’t do any meaningful research into mortgages.

So, how much can you afford to spend on your mortgage?

Here’s a simple way to find out:

Your First Time Home Mortgage Affordability Finder
This is the most powerful ‘tool’ you can have to help you get the mortgage that will get you your dream. Your home.

1. Write down everything you earn, and everything you spend. Each month.
2. Add up everything you earn. Each month.
3. Add up everything you spend each month (less rent if you’re paying rent at the moment).
4. Take the total amount you spend (3) away from the total amount you earn (2).
5. Add up all your savings.

Your results:

• The number you get at step 4 above is  the maximum amount of money you can spend in mortgage payments.
• The figure you get at step 5 above is  the maximum amount of money you have to spend on your down payment and your costs.
• And that is it.

First Time Home Mortgage Affordability Finder Tips
Here are some very important points you need to be aware of, to make sure you get this calculation done correctly. Accurately.

And it is very important you get this right because the results you get, and the action you take on these numbers, can make the difference between struggling to scrape by, once you’ve got your mortgage, and living abundantly, stress-free.

• Before you begin,  have all your paperwork to hand. Bank statements, credit card statements, all your receipts, payslips and any other records you have of your income and expenses. All going back 3 or 4 months. Makes it easier and quicker for you.
• What you spend on items such as groceries, clothing, medicine usually changes from week to week. You need an average figure. Here’s what to do to get  your average monthly spend: For each item, add up all you’ve spent in the last three months and divide by three.
• If you get paid weekly, multiply your pay by 52 and then divide by 12 to get your monthly income.
• If you are employed, use your take-home income after tax, pension and other deductions have come out of your pay. Don’t enter any payments such as tax or pension payments into your calculation, at all, if they are deducted before you receive your pay.
• If you are self-employed, enter your income before tax AND enter your tax, pension, insurance and other payments in your spend section (Steps 1 & 3).
• You can’t leave out items you spend on, but not every month. These are the sorts of costs that could throw  you into financial trouble. Why? Because if you don’t make allowance for these events, but you still spend  on them (and people usually spend heavily here), where’s the extra money coming from?  For example: Christmas, Thanksgiving, summer vacation, winter vacation, home maintenance, subscriptions. Leaving these out is an easy but disastrous mistake to make. Easiest thing to do is to add up what you spend on all these items in a year, then divide by 12 to give you a monthly spend.
• Whenever you have to estimate how much you spend on something, always overestimate rather than underestimate. This way you won’t come up short.
• In a similar way, whenever you have to estimate how much you earn, always underestimate rather than overestimate.
• Thoroughly check everything – all the numbers you’ve put down, all the addition, subtraction, division, and multiplication. Double check that nothing is missing from your lists.
• Be ferociously honest with yourself. If you don’t like the way your finances look, now is the time to see that and start turning things around. Not at some point in the future when your home is at stake and you’re out of time.

Technorati Tags: 1st home mortgage, first time home mortgage, how much can i borrow for a mortgage, mortgage how much can i borrow, what is needed to get a mortgage

You don’t want a poorly chosen first time home mortgage to put you in a situation where you have to make this kind of choice:

An article in The San Francisco Chronicle    reported the results of a recent study conducted by Equifax, a major consumer credit rating agency. They found that: “When faced with the possibility of falling behind on home loans, credit card payments or car loans, borrowers are more likely to choose to let their mortgages slide than the other kinds of debt”. 

Does that surprise you?

I was stunned when I first read that.

But then a couple of explanations are put forward which do make sense:

• “They know they have to make payments on their credit card because they need that [to pay for food, heating, etc] and they need their car to get to work.”
• People “lack the monthly income to pay all of their bills, so they pay the minimum on their credit cards”

The overwhelming tragedy is the observation that: “This is especially true of those who took out adjustable rate mortgages, only to see their monthly payments rise past the point of affordability”.

Aaaaargghh!! Makes you want to scream. Because most of those people would probably NOT be in that situation, if they’d done a little homework before taking out their mortgages. Using a basic tool like this one -> First Time Home Mortgage Checklist For Adjustable Rate Mortgages

You can find details of the study here   

Technorati Tags: adjustable rate mortgages, first time home mortgage, variable mortgage

Although you want to keep on top of rates when applying for your first time home mortgage , you probably don’t want to follow absolutely every single twitch. Not good for the nerves.

Having said so, could the following be a (good) sign of things to come?

• 30-year fixed-rate mortgages are down from 6.10 percent to 5.94 percent this week.
• 15-year fixed-rate mortgages dropped from 5.78 to 5.63 percent.
• Five-year adjustable-rate mortgages fell from 6.00 to 5.90 percent.

…Going Down !!!!!

Please understand, these are very average figures They may have absolutely no bearing on the rates you get offered. The point is the direction in which the numbers are going. If average rates are going down, then the rates you get offered should go down too.

So might it be worth getting your information together (First Time Home Mortgage - What Is Needed To Get A Mortgage) and attending to your credit status (Free Credit Score Check For 1st Home Mortgage ) now? So you are poised and ready to pitch in with your sizzling hot application, when the time is right for you?

You can read about the rates here

Technorati Tags: 1st home loan, 1st home mortgage, first time buyer home loans, first time home mortgage

In the post entitled First Time Home Mortgage - What Is Needed To Get A Mortgage?, you discovered the one – the only - question that lenders care about when considering your mortgage application.

Now, we are going to look more closely at how your lender finds the answer to that key question.  You’ll discover the different sources of information your lender uses, and why. In doing so, you will understand what your lender needs from you.

Because, of course, when you give your lenders what they need, they will give you the first time home mortgage you want.

1. Your lender wants to know how you have handled previous, smaller loans. Loans such as credit cards, hire purchase, store cards, and other unsecured loans.

To find out, your lender will  look at your credit report and your credit score. Your credit report lists what types of credit you use, the length of time your accounts have been open, and whether you’ve paid your bills on time. It tells lenders how much credit you’ve used and whether you’re seeking new sources of credit.

Based on all this information, your  credit score is calculated. This score is the number one piece of information that lenders will use to decide whether or not to give you a mortgage at all. If they decide to give you a mortgage, your credit score determines how good a deal you get. So, generally, the lower your score, the higher your interest rate will be  and the greater the down payment your lender will require.

So, these day, what credit score is your lender looking for?
According to financial correspondent Vera Gibbons, you must have a credit rating above 650. Better if it’s 750 and above.  You can listen to her interview here -> What is good credit score?
   

2. Your lender wants to know if you can afford to pay them back.

So, they look at your income. They’ll be asking: How much is it? How much of it is disposable or uncommitted? Is it stable? Will it stay the same? Will it rise?

The answers your lender wants:
a) You earn enough to pay your mortgage with relative ‘ease’ - you will not be taking food and heating money to pay your mortgage.
b) Your income does not swing about wildly so that  some months you have to take food and heating money to pay your mortgage.
c)  At worst, your income will stay the same
d)  At best, your income will rise.

3. Your lender considers how much you want to borrow from them.

They look at: The down payment you bring. The amount you want to borrow, compared to the cost of the  house and your regular income.

What your lender wants: To see that you have a big investment in this house buying venture. So,  the less significant the amount you want to borrow, compared to the cost of the house, the happier lenders will be to approve your mortgage.

Because they’ll be more confident that:

• It’s not too much of a stretch for you, so you’re less likely to have a financial crisis and be unable to pay back
• Because you stand to lose a lot (your life savings, possibly), you will be highly motivated to do whatever is needed to keep your mortgage going.
• They’ll be able to get their money back if it all goes horribly wrong

Put another way, applying for a $120,000 mortgage to buy a $200,000 house is much more appealing to the lender, than applying for a $198,000 mortgage to buy the $200,000 house. (I know, dear reader, wouldn’t it be fabulous to have 80K as a down payment?)

4. Lender try to make an educated guess about whether you’ll continue being able to afford repayments.

Lenders look at your employment. How long you have  been in your current job, Your employment history. How frequently you change jobs. Employment gaps.

Your lender wants to know that: you’ll have money coming in each month. For as long as the mortgage lasts.

5. Your lender wants to see that you are able to, and do, put back ups in place (to insure their money keeps coming, whatever happens to you). That’s insurance.

6. Lenders decide if they actually want to work with you or not. The H Factor.
Although this is not as touchy feely as it sounds, it’s still difficult to pin down. And, for your application to be successful,  it is very important you get this.

So where do lenders look for the H Factor? It’s the unquantifiable conclusions that are drawn from the way you interact with your lender. It’s also the unspoken messages that your other answers leak about you.

For Example:

• Lenders want to know that they can trust you. So, you need to be as truthful and transparent as possible. Always.
• When lenders see you are organized and efficient when you deal with them, there is the implication that you are organized and efficient  in the rest of your life. Particularly the parts that have to do with earning a stable income, and paying bills on time.
• Your down payment speaks of your level of preparedness, your ability – or willingness – to plan ahead. It demonstrates your financial discipline and how serious you are about buying a house.

Decisions, Decisions …
As you  can see, this is not always a clear cut decision for a lender to make.  Especially when they’ve never worked with you before. So, to be assured of getting the mortgage you want, you have to make this decision as easy as possible for your lender.

How?
By going through all the points mentioned above, one by one. By making sure that in all the ways mentioned above, you are presenting yourself as best you can.

So please bookmark this page and return soon because we’ll be putting up more notes and tips on how to sharpen your case, and make your  first time home mortgage application a success.

Technorati Tags: 1st home mortgage, first time home mortgage, what is needed to get a mortgage

A first time home mortgage with balloon payment is a fixed interest mortgage with a very short life span. So, while the payments are set up as if the mortgage were going to last say 30 years, after 2 to 7 years, the mortgage actually comes to an end. And you need to pay off the rest of the mortgage at that point. That’s the balloon payment.

Where does this balloon payment come from?
Unless you’ve won the lottery or you have that amount saved up, you will then need to get an entirely new mortgage at that point. However, it will be based on what’s going on with current interest rates then. You don’t generally get favourable rates locked in place.

This could be very good if interest rates had dropped a lot by the time you came to re mortgage.

But, the risk is, will you be able to get a loan for the amount you need (to clear that mortgage balance) at that time? Your credit status could have weakened, interest rates could have soared, your income could have stagnated or dropped …

Some balloon loans have a refinancing option bolted on. With these, your mortgage would convert into a normal fixed rate loan when the balloon payment is due. Going with this option, you could wipe out the risks mentioned above because you and your home won’t have to re-qualify. However, that means you are tied to this lender and you can’t shop around for the best rates at refinance time.

Also with the added refinance option, do look out for conditions and fees.

Balloon Mortgage Loan Action Plan:

• Ask about conditions
• Ask about fees
• Use this checklist -> Two Step Mortgage Checklist
• Compare with a Two Step Mortgage

Technorati Tags: first time home mortgage, Hybrid Loans, mortgage with balloon, mortgage with balloon payment

Use this checklist as a reminder of questions to have answered when you review a two step mortgage.

Also, if you take a two step mortgage, use this to help you keep on track and make a successful transition into ‘act 2‘.

1.   What will the monthly payments be for the first part of the mortgage?
2.   Does this include taxes, insurance, condo or home-owner’s association fees?
If not, what are the estimates for these amounts?
3.   When is the interest rate recalculated?
IMPORTANT: If you are going ahead with a two step mortgage, mark and highlight this date in all your diaries, calendars, planners and digital organizers.
4. What index is the interest rate based on?  
5.   What  margin is added to the index to get your final mortgage rate (index plus margin = mortgage rate)
6.   Is there a cap?
7.   If ‘yes’ to a cap:
    7a.  What is it?     
    7b.  What happens to interest that accumulates above the cap? Is it added to the balance? Is it carried over? And for how long does this continue? How is the loan then recalculated?
8.   What is the largest possible monthly repayment figure you could ever have with this mortgage?
(Yes, this is the same as the question above. But this just to make sure)  
9.  What is the prepayment penalty?
    9a.  How much is the penalty?
    9b.  When does it end?  (ACTION: Enter date in diaries and planners)
10.  Can you make additional payments to clear your mortgage early? Are there any penalties for doing this?

Checklist Notes

• As well as the specific recommended actions in items 3 and 4 above, Make a note of  all the answers you get, on one sheet of paper (print off the checklist and write on it) and file it carefully.
• When you consider the highest mortgage payment you could be making, think also about your near to mid future. Will you be taking on other significant debts, such as a car loan or school tuition?
• The point of marking the date of the adjustment so prominently is so that it doesn’t take you by surprise. And, so you can prepare.  

Technorati Tags: Fixed Interest Mortgage, Hybrid Loans, two step mortgage

Hybrid loans are mortgages that are played out in two acts.

Like a play with a very short interval.

It’s easiest to just describe a few of them, look at what makes them good, and point out the not-so-good things to be aware of.

Because new hybrid loans are constantly being created, you are likely to find they are called different names. But don’t worry - they all tend to be variations on the basic themes we are looking at here. So this will give you ideas of what to look for and what you’d want to double check.
  
Fixed-period ARM

Here, the first act is a fixed interest mortgage. It can last three to ten years.

In the second act, the mortgage becomes a variable mortgage for the rest of it’s life.

So you’ll see hybrid loans described as 3/27 Hybrids or 5/1 ARMs, for example. The 3/27 Hybrid   starts off as a 3 year  fixed interest mortgage. It then becomes a  variable mortgage for the next 27 years. The first act of the 5/1 ARM is a 5 year  fixed interest mortgage. Act two is a variable mortgage that adjusts once a year until the loan is paid off.

Some thoughts on why you may wish to consider fixed-period ARMs  for your first time home mortgage:

• You get one stable, fixed interest rate for a while. So you know exactly where you are, every month.
• The interest rate is usually lower than that of a 30 year fixed interest mortgage.
• If interest rates are quite low at the time you first sign up for this mortgage, you’ll continue to benefit with low mortgage payments, even after rates have gone up. During the first act. 

Why you may think fixed-period ARMs are a bad idea for your first time home mortgage:

• If rates drop after you start the mortgage, you’re stuck with the high rate you have, and high payments. For as long as act one lasts.
• The interest rate you get in act two will be based on the current rates at the time. What if they are sky-high?
• After the stability of the first act, you now have to deal with instability in the second. Changing mortgage payments. Anticipating changes. Making sure you have enough to cover payments.

Could you use a little help?
Here’s a really simple tool that points out important questions to ask about Fixed-period ARMs. Should you choose to have a Fixed-period ARM, this will also give you invaluable help in adjusting (please excuse the pun), to the potentially troublesome act two.

You can get it here -> First Time Home Mortgage Checklist For Adjustable Rate Mortgages 

Two Step Mortgage ( Two Step Loan)
With a two step mortgage, act one is a fixed interest mortgage which can last up to seven years.

In act two, the interest rate is calculated, based on the rates at the time, and then a second fixed interest mortgage is rolled out.

Here’s a checklist of 10 items to make special note of, with a two step mortgage -> Two Step Mortgage Checklist

Convertible Adjustable Rate Mortgages
In Act 1 you get a variable mortgage.
In Act 2, if you want, you can convert the variable mortgage into a fixed interest mortgage,  based on what the rates are at the time you convert.
So, if interest rates start going up, you can freeze your mortgage rate and stop any further increases.

Be aware: 
Carefully compare the rates with standard adjustable and fixed rate mortgages. You might find that these convertible ones come with higher interest rates
You’ll probably have to pay a  conversion fee.
There may be restrictions on when you make the conversion.

Action plan
When reviewing convertible adjustable rate mortgages, look out for the above three points and use this -> Variable Mortgage Checklist

Convertible  Fixed Interest Mortgage.
Act 1 is a fixed interest mortgage.
Act 2 is still the fixed interest mortgage. But the interest rate has been adjusted, based on market rates at the time when you convert.
So, if interest rates drop after you get the mortgage, you can take advantage of  them by changing your mortgage rate. And you keep all the advantages of a fixed interest mortgage – stability, etc.
It’s a bit like a two step mortgage.
 
Be aware:
You may have to pay a  conversion fee.
There will be conditions

Action plan
When reviewing any convertible fixed interest mortgage, ask about the two points above  and use this -> The Two Step Mortgage Checklist

Technorati Tags: convertible mortgage, Fixed-period ARM, Hybrid Loans, two step mortgage

If you want to pay off your first time home mortgage early – by refinancing, selling your home, or with cash, you need to be aware that you could be charged a fee. This is the  prepayment penalty. It’s standard practice. Your lender is trying to recoup a minimum return (profit) on the loan.

What mortgage lenders will usually do is state a length of time – usually 3, 4 or 5 years – from the start of the loan, during which the penalty will apply. After this time, you can pay off or refinance your mortgage without getting slapped with this extra fee.

Prepayment penalties can either be fixed amounts or a percentage of your loan. They are always hefty sums of money. So you need to be clear about them before you take on your first time home mortgage.

Different loans and different lenders charge this penalty under different conditions. For example, some will charge only if you refinance your mortgage but not if you sell your home). You need to look at the prepayment penalty clause of each individual loan you review.  

If you are looking at adjustable rate mortages, here are some other important points to be clear about before you sign anything:  First Time Home Mortgage Checklist For Adjustable Rate Mortgages

Technorati Tags: first time home mortgage, prepayment penalty