First Home Mortgages

The World of First Home Mortgages

Your first duty as a potential homebuyer is deciding if this is the right time for you to buy a home. There are many things to consider, including:

• Career and personal life: If you just finished school or are thinking about a move to another part of the country, you probably want to hold off on buying a home. However, if you are set in your career path and see yourself living in the same area for the next few years, you might be ready to put down roots.
• Finances: Buying a home is big financial commitment, so your finances have to be in order. You’ll need a big chunk of change for the down payment and closing costs, so take an honest look at your monthly budget and see if there are areas in which you are willing to cut back. There are several loans designed just for first home mortgages, so you may be able to get some assistance if you need it.
• Leaving rentals behind: You may love your apartment, but you don’t get anything back from it when you move out. By investing in your own home, you may make a profit when you sell it, and the interest on your mortgage is deductible, a considerable cost-savings to those who itemize their taxes. On the downside, you have to pay property tax on a home, which you probably don’t pay on your rental.
• Responsibility: The biggest pro and con in buying a home is the same thing: the responsibility that comes with home ownership. Want to paint the walls orange with a green carpet? Go ahead, there’s no one to stop you. But if the pipes break at 2:00am, you have to fix it. There is no landlord looking over your shoulder, but then again, there is also no one to call if something goes wrong, aside from the repairman, and you are the who will pay the repair bill.

To figure out if you’re financially ready for your first home mortgage, try using some online calculators that compare the cost of renting with buying. Both Ginnie Mae and Home Fair offer easy-to-use tools with no obligation.

What’s in Your Mortgage, Anyway?

Your monthly mortgage payment is based on more than just the cost of your house, a surprise for some people with first home mortgages. You’re actually paying four separate costs, know collectively as PITI:

• Principal: The principal is the cost of the house that your mortgage covers. If you buy a $150,000 home and put down $10,000, your mortgage principal starts out at $140,000.
• Interest: Interest is the fee charged by your mortgage lender for the use of their money. Most of your mortgage payments for the first few years will be interest. On a $140,000 mortgage with 6.55 percent interest, your monthly payment of $889.50 would include about $760 of interest. Over time, the interest amount goes down, and more of your money will be applied toward principal.
• Taxes: The annual fees you pay for property and school taxes are broken down monthly and lumped into your mortgage payment. These funds go into an escrow account which will pay the taxes as they’re due. Keep in mind that not all mortgage lenders require escrow. In the event you do not pay escrow as a part of your monthly mortgage payment, you will need to set aside funds to pay your home-related taxes yourself.
• Insurance: All mortgages require proof of homeowners insurance and, in some cases, mortgage insurance. These also go into your escrow account, provided your lender requires escrow.

First Home Mortgage Programs

Lenders are eager to work with first-time homebuyers to help them establish mortgage history and get them on the path to successful homeownership. Many mortgage lenders offer programs that assist with down payments, or they may waive some of the closing costs for you. National companies, like GMAC Mortgage and Quicken Loans, have specific programs for first home mortgages that are designed to guide buyers through the application process and are open to low to no down payments.

FHA mortgages are another option for first-time homebuyers who are struggling to make a down payment. These mortgages, which are insured by the Federal Housing Administration, give buyers greater options with closing costs and down payments. This program is generally reserved for people with low income or credit problems, so check with your lender to see if you qualify.