Whether you are a first-time home buyer or an experienced one, purchasing a home is a complex process. Use these five effective strategies to make your home-buying experience well organized, productive, and successful.

1. Set up a budget

Determine how much money you will need to buy a home and then calculate how much you can afford to borrow. Make sure you shop within that price range.

The amount of money you will need depends on several factors, including the cost of the house and the type of mortgage you get. You will need enough money up front to cover three costs:

– Ernest money – your deposit when you make an offer on a home, to prove to the seller that you are a serious buyer
– Down payment – the percentage of the cost of the home that you must pay when you go to settlement
– Closing costs – the costs associated with processing the paperwork to purchase a home.

For budgeting purposes, monthly mortgage payments should be no more than 29% of your gross income, according to guidelines set by the Federal Housing Administration (FHA). Other housing costs include homeowner’s insurance and property taxes. The monthly mortgage payment, combined with other fixed non-housing expenses (such as a car, student loans, alimony, child support) should total no more than 41% of income.

2. Know your credit history

Check your FICO credit score. It’s the three-digit number that lenders will use to evaluate your creditworthiness. A low credit score can cost you a higher interest rate on your mortgage or you may not get the loan you want. You can access the three major credit reporting companies online at Equifax.com, Experian.com, or TransUnion.com.

3. Shop for a loan

Home loans are available from banks, savings and loans, credit unions, private mortgage companies, and various state government lenders. Most lenders need 3 to 6 weeks to complete the loan approval process.

Do your research and look around for the best prices. Different lenders offer different interest rates and loan fees. A lower interest rate can make a big difference in how much home you can afford and the total amount (interest and principal) you will pay for your home during the lifetime of the loan.

To find local lenders:

– Ask for suggestions from your real estate broker
– Look in the real estate section of your local newspaper
– Search mortgage lenders online in your area
– Look in Yellow Pages

Choose your lender carefully. You will be looking for a company that is financially stable and has a reputation for customer satisfaction. It should offer helpful advice and be interested in your comfort. With today’s credit crunch, many lenders are charging higher mortgage rates and adding fees. To avoid overpaying, ask for a good-faith estimate of mortgage costs.

Then make a comparison checklist that includes:

a. Company name
b. Type of mortgage
c. Minimum down payment required
d. Interest rate and points
e. Closing costs
f. Loan processing time.

4.Choose the right mortgage

There are many types of mortgages. So explore your mortgage choices before securing a loan. Mortgage options include:

– Fixed rate mortgage. Your interest rate remains the same (fixed) for the term of the mortgage, so you always know exactly how much your mortgage payment will be. Most mortgages are for 30-year terms, although 15-year mortgages are available. Shorter-term mortgages cost more per month. Typically, a 15-year fixed mortgage will cost 25 percent more per month than a 30-year fixed. However, a 15-year fixed loan costs considerably less interest over the life of the loan.

Example: These days, 15-year fixed mortgages have interest rates of about 6.39 percent, compared with 6.8 percent for 30-year fixed loans. So, a 15-year fixed loan of $200,000 at 6.39 percent interest would cost approximately $111,426 in interest payments. By comparison, a 30-year fixed loan of $200,000 at 6.8 percent interest would cost approximately $269,396 in interest.

– Adjustable Rate Mortgage (ARM). Your interest rate and monthly payments usually start lower than a fixed rate mortgage, which may allow you to purchase a more expensive home. However, your rate and payment can change or “adjust” either up or down once or twice a year. The rate changes are tied to a financial index, such as the U.S. Treasury Securities index.

– Government mortgage programs. Federal, state and select cities and communities offer assistance for those purchasing a home. These programs include the Veteran’s Administration and the Department of Agriculture programs. Also, you may have heard of FHA mortgages.

– Fannie Mae. If you are a first-time home buyer, you may qualify for a program through Fannie Mae that requires a lower down payment and easier qualification limits than standard loans.

5.Understand the closing costs

Closing costs are the miscellaneous fees associated with the sale of a home. Make sure you are aware of them, or you could face an unwelcome surprise when finalizing your purchase. Typically, these costs represent 2 to 4 percent of the total sale price.

All closing costs are itemized in the lender’s Good Faith Estimate. Obtain at least three Good Faith Estimates from mortgage lenders to make sure you are paying the least amount possible in closing cost fees. If you see a charge that doesn’t make sense or that other lenders don’t list, be sure to ask questions.

The two categories of closing costs are non-recurring closing costs and recurring costs. The following lists itemize the non-recurring and recurring closing costs that you may be expected to pay:

Non-Recurring Closing Costs
– Title insurance
– Title search
– Attorney fees
– Escrow fees
– Notary fees
– Wire fees
– Courier fees
– Home inspection
– Recording fees (local fees)
– Credit check
– Document preparation
– Appraisal fees
– Endorsements
– Transfer fees (county/city)

Recurring Closing Costs
– Property tax
– Private mortgage insurance
– Flood insurance
– Fire insurance

Great preparations combined with patient and persistent execution can save you not only a great deal of grief but thousands of dollars.

Happy house hunting!

Author Bio: Timothy L. Carver is a full-time teacher, a published author and a part-time internet marketing consultant. He is happily married, has two married children and three grandchildren. His hobbies include writing, golf and internet marketing. His current interest is real estate marketing. His most recent website provides information for people in Utah who are looking for assistance in the purchase of a home. See Utah Housing Grants.

Category: Real Estate
Keywords: housing grants,federal,state,housing money,housing assistance,first time home buyer,