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Eight Tips for First-Time Home Buyers
Buying your first home is like life's other firsts: exciting—even romantic—and a little bit scary as you wade into new waters. You can ease the process and avoid being ripped off by knowing these eight points—before you take another move toward home ownership.
You will also have to choose between a 30-year or 15-year mortgage. A 30-year mortgage will mean lower monthly payments but a higher interest rate. In the long run, you'll be paying more for your house because you'll be making more interest payments. With a 15-year mortgage, the monthly bill will be higher but the interest rate lower; thus you'll pay less for your house because it will be paid off in a shorter period of time.
Have each lender provide you with a written statement of all fees connected to the loan. Then, ask each to reduce one or more of the fees. Use the lowest amount of fees to negotiate with the other lenders to see if they'll reduce their fees.
Also, check out the FTC 's publication Looking for the Best Mortgage .
Tip: If you have an excellent credit rating, you may qualify for a lower down payment through a special Fannie Mae program: The Flexible 100™ requires no down payment while the Flexible 97™ requires just 3 percent down.
Get a preapproval letter This gives you substantial leverage: Sellers immediately see you as a serious buyer. Not only will you know the exact price range you can afford, you'll be able to negotiate a better deal and move faster when you see a house you like. Work with your lender to get preapproval—you'll need to supply information to verify your income, credit history, debts and assets. The lender will then issue a letter stating that your mortgage is approved for a certain dollar amount for a certain time period. Don't confuse preapproval with prequalification: The latter is a non-binding estimate of how much mortgage you can afford.
Once you get preapproved for a mortgage, avoid taking on any serious new debt and make timely payments on all existing debts. Otherwise you risk degrading your credit rating partway through the buying process.
Tip: If you're charged a preapproval fee, negotiate to have it refunded at the closing.
Lock in your interest rate Once you get what you think are the best terms possible, ask for a written rate lock. It will include the interest rate, how long the lock-in will last and the number of points to be paid. A lock-in protects you from a rate increase if rates go up during the time your loan is being processed.
Play it close to the chest If you fall in love a house, keep your feelings to yourself. Don't let the seller or the seller's agent know. Handing over that bit of information will empower them to hold out for the asking price. Keep in mind that there's always another house at the right price.
Tip: Visit at night and on a weekday. Most people look at homes on weekends in the daylight; before you buy, find out what the neighborhood is like at other times. Is it quiet? Noisy? Full of traffic? Dead as a doornail? Also, drive the surrounding few blocks in each direction from the house, to make sure there aren't unsavory areas or unexpected industrial sites nearby.
Negotiate Before making an offer, ask the agent for a Comparative Market Analysis (CMA). The CMA lists the addresses of recently sold homes in the same neighborhood, with the date sold, the price and the number of bedrooms and bathrooms. Your offer should be comparable and not necessarily based on the seller's asking price.
Then, insist that the contract include two types of escape clauses: a financing (or mortgage) contingency and an inspection contingency.
Tip: Never use an inspector recommended by the seller's real estate agent.
Watch out for predatory lending Every once in a while, the FTC issues a warning about unscrupulous lenders. Signs of trouble:
The bottom line is that "Knowledge is power." Written a long time ago by the English statesman Francis Bacon (1561-1626), it's as true today as then. Make it your personal mantra.
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