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First Time Buyer Mortgages

If you’re a first time buyer, mortgages can be a pretty scary word that may as well be from a foreign language. There seems to be so much you have to take on board and if you feel nervous about talking to someone then you aren’t alone. Nobody wants to speak to a broker when they first start because often they don’t want to sound like a fool because of a lack of understanding.

It helps to know some of the more important things that may help a lot when looking for your first mortgage. If you are armed with the right questions and know a little about what you are looking for you’ll get a much better deal. You don’t want to be sold something that suits the lender or broker; you need something that suits you.

An important ally for the first time home buyer is the FHA or Federal Housing Administration. They are geared to help people start their climb on the property ladder. Reasons they can help include;

  • FHA insure your mortgage making you a more attractive prospect for lenders by having an insurance policy running alongside the mortgage or paid up front.
  • You can qualify for FHA loans even with bad credit. Even if you have been bankrupt there may be ways you can qualify.
  • 3% down payment which can come from donations. Most lenders need you to put your own money down. With FHA mortgages you can receive the money from family, a charity or elsewhere.
  • Competitive interest rates when compared to the rest of the market.

The Federal Housing Administration is a very helpful organization for those that need it especially for first time buyer mortgages. For those that don’t, getting an FHA mortgage can be more expensive. It’s all down to your situation when trying to get in to the market for the first time. If you have been planning and preparing your finances over a period of time then you will be in a much better position.

If you have saved a sizeable deposit then the total end cost of your property is going to be much less. The less you borrow, the less you have to spend on interest which is just making the banks richer not you. Also if you can manage to save around 20% of the value of your home then you may not need Private Mortgage Insurance.

PMI is often required if you take out a mortgage for a property and the property will not have enough equity to cover the value of the mortgage. Private mortgage insurance is generally more cost effective than insurance with an FHA loan.

The Benefits of PMI

  • With such a competitive market there can be savings made on your insurance premium compared with FHS Insurance.
  • The FHA has become over stretched with too much market share. It has now been trying to cut back and one way of lowering market share is increasing costs. Over a period of a few years FHA insurance could cost many thousands more than PMI.
  • In the FHA Reform Act of 2010 The FHA are looking for legislation that ultimately meant that mortgagees would have ultimate responsibility for their loans. Fearing a market crash in the future they are seeking to relieve themselves of liability.

But if you do take out a mortgage which puts your property in negative equity, then you are going to need some insurance. Negative equity is when the value of your property is worth less than the loans you have against it. Say for instance you take out a loan for a house worth $300,000 and you pay a small down payment of less than 5%. With interest added on to the loan there is a good chance you will owe more than the house is worth. If the housing market dips or interest rates rise then you could owe considerably more.

When looking for first time home buyer mortgages you should always do a lot of research. If you have a question that you can’t find the answer for then ask your broker. Getting the right answer to something you think you understand will sometimes tell a good broker from a mediocre one. The most important thing to remember is that you shouldn’t rush in to commitment.