Buying Guide for First Timers

Step 1: Spiff up your credit

Good credit can lower your mortgage interest rates, potentially saving you hundreds of dollar a month. Order a credit report (usually free online). You can dispute any mistakes, but the most important thing is to build up good credit from here out.

Lenders want clients who can pay bills on time and who don’t owe too much to anybody else. Automated bill-paying services help. Stop applying for credit cards just for a free T-shirt or shuffling your debt around. Consider closing some of your accounts, but that’s tricky. Maxine Sweet, Vice President of public education at Experian, says lenders don?t want to you to owe near your limit, which can happen if you consolidate to one card. Your score can dip temporarily when you make any big change — even for the better– so work on your credit long before you seek a mortgage, she says.

Step 2: Start saving for a down payment and closing costs

Home buyers traditionally had to put up a 20% down payment. Now it’s more like 5-10%. Some don’t put anything down. “There’s nothing typical today,” says Pat Vredevoogd Combs, president-elect of the National Association of Realtors.

You’ll always get a better deal if you make a down payment. Until you’ve paid for 20% of your home, your lender will probably want you to buy insurance on your mortgage.

The buyer also has to come up with closing costs, about 1-2% of the price.

Step 3: Calculate how much house you can afford

Housing eats up more of everyone?s paycheck these days, but as a rule of thumb buyers spend 25-30% of their pre-tax pay on housing. That translates roughly to a mortgage of 3 to 4 times your salary. Consider your entire budget: How is your credit card bill, student loan or kids? tuition? How much will your new palace cost to maintain? Will you get a big break on your taxes from the mortgage interest rate deduction?

Step 4: Shop for a mortgage

New loan offerings make it easier to buy a home, but harder to pick which mortgage is right for you. The standard 30-year fixed rate mortgage allows predictable payments. If you?re planning on moving quickly, consider an adjustable rate mortgage, which has low interest and payments for the first few years. Buyers have really low starting payments with interest-only loans, but they don’t build up any equity in their homes. These new fangled mortgages are often sold to those who want to buy more house than they can afford.

Compare terms and rates from several sources. A pre-approved mortgage will let you pounce on the right house. Your lender usually calculates your monthly expenses?including principal, interest, taxes and insurance. You’ll pay a monthly bill into an escrow account instead of getting clobbered by annual taxes.

Step 5: Shop for a home

Make a list of the features you want or don’t want. A realtor can be a great help, so much so that some start planning here months or years before they’re ready to buy.

The buyer pays the sale commission, which typically runs 5-7%, split between the seller’s agent and buyer’s agent. So — especially first time buyers — get the service basically for free. Some also shop from people who are selling their own homes, figuring the lack of a commission means a lower price.

Some agents specialize in buyers. To put customers at ease about potential conflicts of interest, some go as far as not working at firms that take any listings. Kathleen Chiras, a spokesman for the National Association of Exclusive Buyer Agents, says the potential for a double commission gives agents a reason to sell homes that are “not necessarily the best house for that person.”

Step 6: Make an offer

How much did similar homes sell for nearby? How long has this house been on the market? (Weary sellers may be more flexible.) Your realtor can evaluate market conditions and help you make a reasonable offer.

Step 7: Sign a contract

You sign and pay a deposit that is held by a neutral third party. In some states, you?ll want a real estate lawyer to go over the deal. Typically buyers can back out if the home inspector finds big trouble or if they can’t find financing or, in a new twist, Combs says, homeowner?s insurance.

Step 8: Take a Close Look at Your House

Make sure your contract is contingent on a home inspection for a detailed, objective evaluation of your home’s infrastructure. After, negotiate with the seller over needed repairs. Be sure the title of the house is free of any liens. Your bank will appraise the house, too.

Step 9: Shop for homeowners insurance

Shop around, but your own car or life insurer will probably give you a good package deal. As always, a higher deductible saves you money.

Step 10: Sign papers

You’ll meet at lawyer’s office or title company, sign a big stack of papers and receive the keys to your new home.

Article via AOL

Why Close At The End Of The Month?

When you close on your mortgage, you must pay accrued interest from the date you close through the end of that month. The nearer to the last day of the month you close, the less interest you owe at closing for that month.

In other words, if you close on April 29, your closing costs include accrued interest for April 29 and 30. If you close earlier in the month–for example, on the 15th of April–you owe interest from the date that you close to the last day of that month. In the second example, you would owe accrued interest from the 15th through the 30th.

You can see just how much less you’ll pay upfront by closing later in the month. Using the April scenarios above as examples for a $200,000 mortgage at 5.00 percent interest, you would realize the following up-front savings:

  • Mortgage amount: $200,000
  • Interest rate: 5%
  • Daily interest accrued: ($200,000 x 5%) 1/365 = $27.40 per day
  • Closing on April 15, you would prepay 15 days of interest (15 x $27.40 = $411.00)
  • Closing on April 29, you would prepay 2 days of interest (2 x $27.40 = $54.80)

Your out-of-pocket savings at closing in this example would be $356.20. Depending on the day of the month you close, you could save a substantial amount of up-front costs by scheduling your closing date as near to the end of the month as possible.

Skipping Your First Mortgage Payment

Unlike rent, which is paid one month in advance, your mortgage payment is made in arrears. After closing, your first mortgage payment comes due one full month after the last day of the month in which your mortgage closed. Using the April example again, if you close April 15 or April 29, your first mortgage payment is due on June 1.

What if you expect to close on April 29, but the date gets pushed back to May 5 for some unforeseen reason? Your interest would accrue from May 5 until May 30 (25 x $27.40 = $685)–quite a substantial increase in what you expected to pay at closing.

Changes to the closing date can account for significant fluctuations in the closing costs from those set forth in your Good Faith Estimate (GFE). Your overall interest for the term of your loan, however, does not change. You benefit only in the short term by avoiding a larger outlay of money at a time when you might need it for other expenses, for example, moving or purchasing items for a new home.

Pushing the closing date forward to earlier in the following month moves the due date of your first mortgage payment ahead another month. In the previous example moving the closing to May 5, you would not need to make your first mortgage payment until July 1.

When you are financing a primary residence, HUD 4155.2 6.A.1.d, Per Diem Interest and Interest Credits at Closing states that if your closing date is pushed forward for unforeseen circumstances, “the lender may credit up to seven calendar days of per diem interest to the borrower and have the mortgage payments begin the first day of the succeeding month.”

Closing earlier in the month also avoids the lender’s and settlement agent’s busiest few days. You may benefit from their having more opportunity to devote extra attention to you at a time when you may appreciate the additional support.

When you close on your mortgage, you must pay accrued interest from the date you close through the end of that month. The nearer to the last day of the month you close, the less interest you owe at closing for that month.

In other words, if you close on April 29, your closing costs include accrued interest for April 29 and 30. If you close earlier in the month–for example, on the 15th of April–you owe interest from the date that you close to the last day of that month. In the second example, you would owe accrued interest from the 15th through the 30th.

You can see just how much less you’ll pay upfront by closing later in the month. Using the April scenarios above as examples for a $200,000 mortgage at 5.00 percent interest, you would realize the following up-front savings:

  • Mortgage amount: $200,000
  • Interest rate: 5%
  • Daily interest accrued: ($200,000 x 5%) 1/365 = $27.40 per day
  • Closing on April 15, you would prepay 15 days of interest (15 x $27.40 = $411.00)
  • Closing on April 29, you would prepay 2 days of interest (2 x $27.40 = $54.80)

Your out-of-pocket savings at closing in this example would be $356.20. Depending on the day of the month you close, you could save a substantial amount of up-front costs by scheduling your closing date as near to the end of the month as possible.

Skipping Your First Mortgage Payment

Unlike rent, which is paid one month in advance, your mortgage payment is made in arrears. After closing, your first mortgage payment comes due one full month after the last day of the month in which your mortgage closed. Using the April example again, if you close April 15 or April 29, your first mortgage payment is due on June 1.

What if you expect to close on April 29, but the date gets pushed back to May 5 for some unforeseen reason? Your interest would accrue from May 5 until May 30 (25 x $27.40 = $685)–quite a substantial increase in what you expected to pay at closing.

Changes to the closing date can account for significant fluctuations in the closing costs from those set forth in your Good Faith Estimate (GFE). Your overall interest for the term of your loan, however, does not change. You benefit only in the short term by avoiding a larger outlay of money at a time when you might need it for other expenses, for example, moving or purchasing items for a new home.

Pushing the closing date forward to earlier in the following month moves the due date of your first mortgage payment ahead another month. In the previous example moving the closing to May 5, you would not need to make your first mortgage payment until July 1.

When you are financing a primary residence, HUD 4155.2 6.A.1.d, Per Diem Interest and Interest Credits at Closing states that if your closing date is pushed forward for unforeseen circumstances, “the lender may credit up to seven calendar days of per diem interest to the borrower and have the mortgage payments begin the first day of the succeeding month.”

Closing earlier in the month also avoids the lender’s and settlement agent’s busiest few days. You may benefit from their having more opportunity to devote extra attention to you at a time when you may appreciate the additional support.

Article via LendingTree