Mortgage 101: First Time Home Buyers Must Read!

There is so much information available to the first time home buyer both on and offline; there really is no excuse for the home buyer to not be educated when going into the mortgage buying process. However, it can be difficult to gather all the mortgage facts and terms into one easy to understand, compact guide.



Here I have gathered the basics of a mortgage and what it involves. This is a broad overview and it will give you the "big picture" regarding mortgages and the mortgage process.



Use it as a general guideline as to what should occur when you purchase your first home.



After finding a home that you feel is in the right community, has the amenities you want, room enough for your family, close to freeways and good schools, or whatever it is that is important to you and your family, and within your price range, it is time to put an offer in with your broker.



During escrow, or the time where funds are founded to purchase the house, you will meet with your real estate agent or broker, who may have suggestions for a mortgage lender.



A mortgage lender is an entity that actually provides you the funds to purchase the property. Mortgage lenders can be commercial banks, private lenders, mortgage banks, and many other entities that have the ability to finance your purchase.



You can use the mortgage lender that your agent or broker provide, or you can ask them to shop more lenders that may get you a better deal. A broker is usually in contact with many different lenders so that they may be able to work out a better deal than you shopping yourself.



Another option is to shop mortgages yourself. This will take a lot of time and energy, but you may find an option that works best for your financial situation. Using online services can be a great way to shop and compare mortgages.



After you have found and discussed basic terms with your mortgage lender, it is time to put in an application. This application will include your credit history, total income and expenses, as well as any short and long term debt.



Needless to say, the better financial environment that you have, the better deal you will be able to obtain.



You and your mortgage lender, or broker, will discuss the terms of a mortgage including mortgage rate, life of the loan, payments, fees, and any other contingencies such as prepayment penalties or Private Mortgage Insurance.



The mortgage rate is the amount you will pay in interest for borrowing the money, and it dictates how your monthly payments are determined.



For example, you may choose a fixed rate mortgage where the interest rate, as quoted by your lender, remains the same for the entire life of the loan, or how long the loan will last. This could be anywhere from 5 to 40 years depending on your financial arrangement with your lender. If you choose an adjustable rate mortgage, then the interest rate will fluctuate according to the current market rate at the time of the change.



Another option to be considered would be a bi-monthly payment, where you take a single monthly payment, divide it in two, and pay every 15 days rather than 30 days.



This will yield approximately two extra payments a year, building the equity in your home faster, and saving you money in interest!



There are many terms to be discussed regarding the mortgage. Besides mortgage rates and interest rate, life of the loan, and payments, you may discuss Private Mortgage Insurance and prepayment penalties.



Private Mortgage Insurance (PMI) is extra insurance paid by the home owner in exchange for not putting down at least 20% of the property purchase price.



This assures the mortgage lender that you will pay back all the money. It often results in thousands of extra dollars, so it is recommended that you negotiate not to have PMI or wait until your finances are in a better position to pay a larger down payment.



Prepayment penalties are fees paid to the mortgage lender if the home owner chooses to pay off the mortgage before the life of the loan is complete. The fee is usually a percentage of the final amount owed on the property.



This too can be negotiated not to a part of the mortgage agreement.



After negotiating the terms of the mortgage, and filling out the application, you either qualify or don't qualify for the loan. If you do, congratulations and welcome to your new home! If you don't, don't worry. There are many mortgage lenders out there who would like your business. If it is a financial issue, find a mortgage lender who works with difficult cases.



Ask for the exact reason why you did not qualify, and try to rectify the problem or find someone who might give you a higher interest rate or more strict terms in exchange for financing a higher risk loan.



Here is your crash course in mortgages. You should have a good idea as to the process, and the most important elements of a mortgage. Continue your research and education so that the process runs more smoothly and you have a better chance in getting the best deal for your situation.

Heinous Mortgage Mistakes

Homeowners make a variety of costly mistakes when it comes to mortgages. Here is all you need to know to avoid these mistakes.

Any homeowner regardless of their credit, needs to avoid making financial mistakes when it comes to their mortgage. If you are in the process of taking out a mortgage you need to research lenders and do your homework to avoid common mistakes.

Here is a checklist to help you avoid costly mistakes when taking out a mortgage.



Does The Mortgage Have a Prepayment Penalty?

This is one of the first things you should look for when evaluating mortgage offers. Prepayment penalties are a fee you will have to pay if you refinance or sell your home. This expense can be as high as six months worth of interest on 85 percent of the original loan value. This expense defeats the purpose of refinancing; any potential savings from refinancing will be lost to the penalty.

This is especially undesirable if you had to take out a mortgage with a high interest rate or unfavorable terms due to your credit.



After six months to a year of a bad credit mortgage you will want to refinance to a traditional mortgage with better rates and conditions; avoiding a prepayment penalty will save you money.

What is the Exact Interest Rate?

Getting the lender to commit to an interest rate can be harder than it sounds. Make sure you get the exact interest rate in writing. Make sure it is not a "Discount Rate" or an "Introductory Offer." Make sure the lender or broker will lock this mortgage rate and give you enough time to close on the loan.



Negotiate with your lender for a lower interest rate; you might offer to prepay points in exchange for a better rate or more favorable terms.

Is Your Lender Pushy?

Do not be a victim of pressure sales tactics. If you feel your lender or broker is being pushy, look elsewhere. Mortgage lenders that practice pressure sales are more likely to practice predatory lending practices as well. To avoid being taken advantage of you should look for your mortgage somewhere else.



Know Your Budget Before You Shop

Many homeowners rush their financing to avoid losing their dream home. The are happy enough just being approved that they take a mortgage with unfavorable terms and rates. You can avoid falling into this trap by doing your homework first and having a budget. Do not plan on having lower payments in 2-3 years; you need to budget for today, especially if your financing falls through 2 or 3 years down the road.

To learn more about avoiding common homeowner mistakes sign up for our free mortgage guidebook.



St Louis Mortgage Refinance

Louie Latour has twenty years of experience in the mortgage industry as a mortgage broker.

He is the owner of Mortgages Refinance Advisor, a mortgage help site devoted to saving homeowners money with a free guidebook Mortgage Refinance: What You Need to Know. Sign up for your free guide today at: http://www.refiadvisor.com