6 Tips for First Time Home Buyers
1. Get Prequalified for your first home loan with a Signature Bank loan officer.
Meet our friendly and knowledgeable lenders here! Signature Mortgage Lenders
While they work on your "prequal" letter, you can make an estimate with this calculator.
2. Know what your Credit Score looks like.
You're entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies. Order online from www.annualcreditreport.com, the only authorized website for free credit reports, or call 1-877-322-8228. You will need to provide your name, address, social security number, and date of birth to verify your identity.
Your Source for a Truly Free Credit Report? AnnualCreditReport.com from Federal Trade Commission on Vimeo.
3. Know your Debt-to-Income Ratio.
When lenders consider your eligibilty for a loan, they take a hard look at this ratio. This number tells them if you are likely to be able to repay your loan. Think about your current debts, such as a car loan, student loans, etc. and compare them to your income with Bankrate's handy calculator.
4. Know your down payment options.
Concerned about coming up with 20% of your new home's value for the down payment? You have options! Be sure to study the pros and cons provided by Money Under 30 and make the decision that's best for you.
5. Budget for all home ownership costs.
Now that you've found the perfect home, be sure you understand what it will cost to live in the home. This calculator from Nerdwallet will help you calculate all those costs on top of your monthly mortgage payment, such as:
Cable | Utilities | Insurance | Property Taxes | Internet | Cleaning Services | Home Security | POA Dues | Maintenance
6. Learn about closing costs.
Buying a home involves a few fees outside of the price of the property. Some examples include:
- The cost of originating and underwriting the mortgage
- Realtor Commissions
- Home Inspection
- Filing Records
To learn about these costs in detail, check out Investopedia's article on closing costs.
Going through the home loan process can introduce you to quite a few new terms. Here's a helpful list to help you out along the way.
Adjustable Rate Mortgage (ARM): A mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as a renegotiable rate mortgage variable rate mortgage or Canadian rollover mortgage.
Annual Percentage Rate (APR): The measurement of the full cost of a loan including interest and loan fees expressed as a yearly percentage rate. Because all lenders apply the same rules in calculating the annual percentage rate it provides consumers with a good basis for comparing the cost of different loans.
Balloon Mortgage: A loan which is amortized for a longer period than the term of the loan. Usually this refers to a thirty year amortization and a five or seven year term. At the end of the term of the loan the remaining outstanding principal on the loan is due. This final payment is known as a balloon payment.
Closing: The meeting between the buyer seller and lender or their agents where the property and funds legally change hands also called settlement. Closing costs usually include an origination fee discount points appraisal fee title search and insurance survey taxes deed recording fee credit report charge and other costs assessed at settlement. The cost of closing usually are about 3 percent to 6 percent of the mortgage amount.
Consumer Reporting Agency (or Bureau): An organization that handles the preparation of reports used by lenders to determine a potential borrower's credit history. The agency gets data for these reports from a credit repository and other sources.
Conventional Loan: A mortgage not insured by FHA or guaranteed by VA.
Credit Report: A report documenting the credit history and current status of a borrower's credit standing.
Debt-to-Income Ratio: The ratio expressed as a percentage which results when a borrower's monthly payment obligation on long term debts is divided by his or her gross monthly income. See housing expenses-to-income ratio.
Down Payment: Money paid to make up the difference between the purchase price and the mortgage amount.
Equity: The difference between the fair market value and current indebtedness also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property.
Escrow: An account held by the lender into which the home buyer pays money for tax or insurance payments. Also earnest deposits held pending loan closing.
Fixed Installment: The monthly payment due on a mortgage loan including payment of both principal and interest.
Fixed Rate Mortgage: The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.
Installment: The regular periodic payment that a borrower agrees to make to a lender.
Insured Mortgage: A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI).
Interest: The fee charged for borrowing money.
Lien: A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
Lock: A lender's guarantee that the mortgage rate quoted will be good for a specific number of days from the day of application.
Mortgage: A legal document that pledges a property to the lender as security for payment of a debt.
Mortgage Banker: A company that originates mortgages for resale in the secondary mortgage market.
Mortgage Insurance: Money paid to insure the mortgage when the down payment is less than 20 percent
Origination Fee: The fee charged by a lender to prepare loan documents make credit checks inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.
Preapproval: The process of determining how much money you will be eligible to borrow before you apply for a loan.
Secondary Mortgage Market: The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders.
Title: A document that gives evidence of an individual's ownership of property.
Title Insurance: A policy usually issued by a title insurance company which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests.
Underwriting: The decision whether to make a loan to a potential home buyer based on credit employment assets and other factors and the matching of this risk to an appropriate rate and term or loan amount.
Verification of Employment (VOE): A document signed by the borrower's employer verifying his/her position and salary.