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Borrowing Tips for First Time Buyers


Investing in property for the very first time can be a scary prospect. Borrowing such a large sum of money can be really daunting, even if you have a stable income and secure employment. However, if you know what to avoid, what to demand, and how to negotiate with your lenders, you can be an informed and successful mortgage consumer.

Know Your Loans

If you know the various types of loans available to you, you can decide for yourself, or with the help of a trusted advisor, which one makes the most sense for your situation.

  • Fixed-Rate:  A fixed rate loan keeps your monthly payments consistent until it has been paid off.  Though these interest rates are typically on the higher side, many first time buyers prefer the stability that comes along with them.  You can obtain a fixed rate mortgage for 10, 20, or 30 years, and sometimes longer terms are available as well.  
  • Adjustable Rate:  The interest rate on an ARM fluctuates at various times, many are stable for a period of three or so years and then jump to the current rate at that point, while others change yearly.  It is important not to get in over your head and to be prepared for higher payments if they are ever needed.  An ARM can be a great way to save and afford a better house than you could finance on a fixed rate loan, but you should be prepared to refinance if you stay in your home once the rate begins to change.  
  • Balloon Mortgages:  These are usually taken out for a period of 5 or 7 years.  Borrowers pay a consistent monthly amount, including interest, and must pay off the loan in full when it expires.  Buyers typically consider balloon mortgages when they are planning to move in a short time frame because they can enjoy smaller payments and then pay off the remainder once they sell.  

About Your Down Payment

Many first-time buyers worry about putting together a sizable down payment.  We understand that this isn't always a realistic option.  While larger down payments do help to lower the cost of your loan and improve the interest rate you receive, with good credit and secure employment, a small amount of money down can often be enough to get you into a loan – and a home!  Our company frequently works with borrowers who cannot afford more than 5% or 10%, and we sometimes do business with customers who have no down payment at all.

Credit Scores Count

Another common fear for first timers is the credit report that always gets pulled before a mortgage can be obtained.  If you are nervous that there may be errors on your report, or that your score is too low, you are able to request a free copy of each of the reports from the three major credit bureaus yearly.  Check in advance and work with your creditors to fix any errors that appear – but do not panic if your score is less than stellar.  Though excellent credit scores will certain earn you preferential treatment from mortgage lenders, even people with poor credit can obtain a home loan.  If you are disappointed in your score, keep working to improve it.  When you do, you can always refinance for a better interest rate or more favorable terms.  It is never too late to earn good credit!

Though buying your first property will surely bring you many worries and concerns, you can rest assured that in the end, you will feel pride in your new home and confidence in your ability to shop for real estate and mortgages again in the future.


Down Payment Options:

  20% or More Down
    This is the most commonly requested down payment, and being able to invest this much in your own home will make you a good candidate for low rates.
  5-10% Down
    Because this is a lower down payment, you can expect higher rates. However, you will likely still be qualified to borrow from many lenders.
  Zero Percent Down
    If you cannot afford a down payment, you may still qualify with certain lenders. A specialist can help you investigate your options.
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