How to Navigate the Maze of Mortgage Loans
A Guide for First Time Home Buyers
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Stress has become part of getting a
home loan. However, if you know what
to expect, the stress level will
significantly reduced

I had no idea what to expect after the
offer on my first home was accepted.
After 60 days and many requests for
information from the  home loan
lender, my mortgage loan was finally
approved. Even though, I was finally
able to close on the home loan, I felt
that I could have done better if I had
been better informed on the different
processes and options available to me.
I could have led the process instead of
been led by the requests from the
home loan lender.
If you are a first time buyer or would like to know how to navigate the financial maze, the
information in this article will lead you through the mortgage process. Let’s get started:
How do you get the best mortgage loan for your needs from all the financing options
available?, How do you know what is the best loan for your personal situation?, Which
type of financial institution will lend you the money? - a bank, mortgage broker,
mortgage company, a private investor?.

The wrong answer to any of these question can have a very significant impact on your
financial health for a very long time. The best place to start is with your real estate
agent. They have the necessary contacts for you to start getting the necessary
financing.

Prior to meeting with a loan officer from your financial institution, you will need to learn
about the different options. You will need Educate Yourself. You do not want a PHD on
Mortgage Financing. However, you need to know enough to understand all the terms  
and be able to make decision based on your understanding.

What documents to take to the first meeting with your loan officer?. The following
documents are usually requested for the meeting:

•        Copies of your last two tax returns
•        Pay stubs for the last month
•        Statements for all your bank accounts for the last 3 months
•        Addresses of employers and land lords for the previous two years
•        Documents of any investments you have.
•        Call your financial institution for any additional requirements.
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One of the first tasks that your loan officer will do is to run your credit report. The credit report will have a
big impact on the interest rate you are able to get. It is a good idea to request your credit report from the
reporting agencies before you start your real estate search. In this way, you will be able to clear any
reporting errors on your credit report and there will be no surprises when you meet your loan officer.
Remember, the secret to getting your loan is to be prepared and organized.

Types of financing available:
Fixed Rate Mortgages: Fixed rate mortgages are very popular because the monthly payment remains the
same for the life of the loan. Your financial objectives will determine the term of the loan that you chose –
30 years, 20 years, 15 year, or 10 years.
If you want to pay off your loan faster than the terms of the loan, you can send an additional amount every
month. For instance, if you send $100 extra every month, it will take years off the life of your mortgage.
The extra money that you send goes directly to  reduce the principal of the loan.
Fixed rate mortgage loans are a clear choice when the interest rates are low and you intend to keep you
property for a period of over five years.

ARMs: Adjustable Rate Mortgages - A popular way to lower your monthly payments is to chose an ARM.
In this case, your lender will reward you with a lower rate in exchange for higher rates in the coming years,
depending on the agreement you signed. Adjustable or variable rate mortgage payments are indexed to
the current interest rates. This is great if the interest rates are dropping. You know what happens if the
rates are on their way up.
You are probably thinking “why would any one chose an ARM vs. a fixed rate?”. The main reason are the
teaser rates.  When you are presented with a very low rate, your imagination goes on overdrive. Most of
the people think that in 3 years, their income will have increased to be able to meet the new indexed
payment. Just be careful. If your goal is to refinance or to buy another house before the loan is indexed,
then this type of loan will work to your benefit.

FHA Loans: The Federal Housing Administration insures the mortgage, it does not lend money. If you take
an FHA loan from a financial institution, the government will provide insurance on the loan. Most of the time
the interest rate is a bit lower, although the points can be higher.
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VA Loans: These home loans work on the same principle as the FHA Loans. In this case, the Department of
veterans Affairs will in sure the loan. On advantage is that the borrower does not need to come up with a down
payment.

What is a first time buyer? - Most of the people would answer this question as someone who buys a house
for the first time. However, for the purposes getting a mortgage loan, a first time buyer is defined as someone
who has not owned a home for the last 3 years. There are mortgage programs with incentives that are geared
to first time buyers. These programs are usually administered by the local governments. If you are in this
bracket, you might can save some money by taking advantage of these loans.

How does the interest rate affect you?- Everybody knows lower interest rates will save you money during the
life of the loan.  A lower interest rate allows you to borrow more money than a high rate with the same monthly
payment.
There is another benefit of getting a lower interest rate. Your purchasing power gets magnified with a lower
rate. You are able to get a bigger loan based on the same monthly income.

What are points?- Points are additional charges you must pay when you close the loan. Discount points allow
you to lower the interest rate.  They are a single percentage of the loan.  For instance, a point on a $100,000
mortgage is $1,000. Discount points are a good way to lower your rate if you plan to stay in a home for some
period of time. They will lower your monthly payment.

Other loan Fees:
Loan fees are used to cover the costs incurred by the lender processing your loan.

How long is it going to take you to pay your loan?
The most popular terms are 15 and 30 years.  With a 15 year term, the loan is usually made at a lower rate and
the equity is built faster. On the other hand, with a 30 year mortgage equity is built very slowly. For the first 23
years, most of the payment goes to pay the interest.

Do you have credit?, How is your credit score? - Your credit report shows the lender what kind of borrower
you are, what much you owe, whether you pay on time, and if you had any delinquent accounts. With a good
credit history, the lenders will offer you lower interest rates.

Selecting a loan institution? - Banks. They require that you have a good track record, which means a good
credit history and the ability to put some money of your own – your down payment. If you have a relationship
with a  bank and a good credit history, you should be able to get the loan from them.

The information provided on this article is a summary of the different challenges that you will face when
requesting a mortgage loan. This is only the beginning
Guidelines for First Time Buyers
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