First-time home buyers’ mortgage
The biggest challenge for most first-time home buyers is saving up enough money for a down payment - especially in markets like San Francisco and New York City, where home prices have become sky high over the last few years. But thanks to growing financing options, it’s increasingly possible to find mortgages for as much as 97% of a home’s value. In other words, you could put down as little as $5,514 for a home that costs $183,800. Sounds great, doesn’t it? These deals could make financial sense even for some cash-strapped home buyers. But they can also be expensive. As Keith Gumbinger of HSH Associates (a mortgage-tracking company) says “There is no free lunch.” For starters, you’ll get stuck with a higher interest rate on a loan with down payment. And if you have almost no equity in your home, you’ll have to buy private mortgage insurance, which covers the bank if you default. That usually adds a 0,5% to 0,75% premium on top of your interest rate. Although the costs are high, there are still plenty of reasons to own your own home. Besides homeownership lets you build equity, and is the only biggest tax break available to most consumers.
Most of first home-buyers make the same mistakes. To cut the story short, they focus on saving as much money as possible for a down payment instead of paying off their debts. The best variant is to use extra cash to eliminate credit-card and other high-interest consumer debt, even if that means you can put down less on your future home! You can ask “why?” First, credit-card debt is expensive and limits your ability to save. The average interest rate on credit cards now equals 13,8%. That’s far more than the 5,33% national average for a 30-year fixed-rate mortgage. Second, credit-card debt will limit the amount of money you can borrow. The most frequently asked question is how much you can borrow. The answer is simple. How much you can borrow and how much of a down payment you can master. As a rule, your annual mortgage payment, taxes and homeowner’s insurance shouldn’t exceed 28% of your gross income. Then determine how much cash you have for a down payment, leaving yourself enough left over to pay closing costs, which can add up to 3% to 5% of your total home’s value.
After you are done with your debt-fixing, you are ready to start shopping for the right loan. Note that a first-time home buyer with a steady job and good credit can put down as little as 3% these days. These loans are more available and more reasonably priced, now that they’re acceptable to Fannie Mae and Freddie Mac (the two so-called government-sponsored agencies purchase mortgages worth up to $333,700 on the secondary market - $500,550 in Alaska and Hawaii). But the more money you can master for a down payment, the more options you will have. For example, Fannie Mae’s new “start-up mortgage” allows borrowers to put down 5% to qualify for a loan on a smaller salary than with a 3% down payment. You will need to find a Fannie Mae lender to take advantage of this program (www.fanniemae.com). Private lenders are also coming up with their own programs to help the first-time home buyers. Washington Mutual, for example, offers a program for buyers with a 10% down payment. Instead of charging for mortgage insurance, the savings-and-loan builds the cost into the interest rate making it tax-deductible. And if you really want to get creative and avoid paying mortgage insurance altogether, you can get two piggybacked loans. First, you need to put down 10% of the home’s value. Then, you take out a primary loan, usually a 30-year fixed-rate mortgage, for 80% of the home’s value. This interest rate should be competitive. For the remaining 10%, you’ll need to take out a 15-year fixed-rate mortgage at a far less competitive rate. Then combine the two monthly costs to come up with your total mortgage payment. Due to the complexity, a piggybacked loan is more expensive than a traditional mortgage and carries higher closing costs. But in general, they tend to be cheaper than paying private mortgage insurance.
And if you still run into the fact that you have troubles with your down payment then this may be interesting for you. Each year HUD (www.hud.org) gives states and municipalities money to distribute to low and moderate-income families for housing. Much of it is put toward down-payment assistance programs. Many young prospective home buyers may qualify for a $3,000 to $5,000 grant to put toward their down payment or closing costs. To qualify for a down-payment assistance program, an individual may earn no more than 80% of average income.
In conclusion, there can also be a few extra benefits if you are a first-time buyer. Who is interested, here we put Barclays Bank benefits for you to examine: 1) Get cash back that you could put towards stamp duty; 2) Choose a lifetime tracker or three-year fixed rate for easier budgeting at the start of your mortgage 3) Enjoy discounts on household goods at Argos.
Lifetime tracker is Barclays Bank Base Rate (BBBR), which is variable, currently 4.50% + 0.95% (5.45%) for the life of the mortgage. The overall cost for comparison is 5.7% APR. You can borrow up to 95% of the value of your home. Moreover, there’s no application fee and you get 1,50% of the amount you borrow as cash back (maximum property value £237,500). Early repayment charge is being repaid three years in a raw and equals 1,50% of the balance.
Three-year fixed rate equals 5.69% until 31 October 2009, thereafter reverting to the Barclays Bank Base Rate (which is variable) currently 4.50% + 0.95% = 5.45%. The overall cost for comparison is 5.7% APR. You may borrow up to 95% of the value of your home. There’s also no application fee and £500 cash back. Early repayment charge is 3% of the balance plus £500 and is repaid until 31 October 2009.