The spring-summer home buying season in high gear, and for first-time home buyers, finding an affordable dream home in today’s market could be quite a challenge.
Then, after finding that ideal home, you have to secure a mortgage that makes financial sense both today and for the future. Here, Forbes offers some insider mortgage tips for first-time home buyers.
1. Apply for the mortgage you can afford today
As a first-time buyer in today’s Southern California market, you could end up buying too much home. While you may qualify for that mortgage, remember that making that steep monthly payment might impact all other parts of your lives. When you’re committing to paying for an asset like a house, you can put yourself in a tough situation and not have money left over each month to pay for other things like travel and savings.
2. Get a better rate
You may be surprised by the options available to obtain a more favorable interest rate. The obvious things you can do to lower your rate is to increase your down payment or reduce your debt-to-income ratio. Some fortunate first-time buyers receive help with down payments from their parents. If both parties are willing, adding parents as a co-signer can trim rates. Increasing the down payment and adding a co-signer reduces a lender’s risk, often resulting in a lower rate.
3. Buy points for a lower rate
Points are a form of pre-paid interest. For example, if you buy $5,000 in points, you pay that upfront as opposed to paying that $5,000 out as part of your mortgage over time. The lender will give you a lower rate, but if you are not planning on staying in the house for a significant amount of time, it just doesn’t make financial sense. To figure it out, factor in the interest rate reduction and how long would it take to reach that break-even point if you bought points.
4. Understand the rate lock
When a lender approves you and guarantees a mortgage rate, there is a specific time period until that rate lock expires. If something goes wrong during escrow, and it looks like you may be late closing and funding will have to be delayed, you need to ask the lender and get it in writing on what happens specifically and where that rate goes to after the lock expires.
