Financing the Purchase of Your First Home

Your new home will be a financial asset plus much more: it's going to be a place to live as well as raise children; a plan for the future; and an investment in your local community. That is why I am proud of my work to help first-time homebuyers. Knowledge has been said to open doors. This is particularly true in regards to buying a home. This simple tutorial was created to provide you with the essential knowledge you will need to first select the home of your dreams and then purchase it. So why don't we get started.

First why don't we start with the very basics and say what a mortgage is. Many people think the mortgage is the money that you promise to pay a lender in return for borrowing money to buy a home. Technically speaking a mortgage is the pledging of the real estate to a lender as security for the mortgage loan or note. While a mortgage in itself is not the debt, it is evidence of a debt. In the US, it is the mortgage note, that is the promise to repay a specified sum of money plus interest. It contains a specific rate of interest and the amount of time you have to satisfy the promise. Therefore, the "mortgage" itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt which is the note. All mortgage notes have two features in common: principal, where you are paying down on the loan, and interest, where you are paying for the privilege of using a lenders money.

As a first time homebuyer, you might be wondering if there are any special programs available to you. The answer to that is Yes. There are certain affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home challenging in the past. Some of these programs are able to assist borrowers who don't have a lot of money saved for the down payment as well as closing costs, don't have a credit rating or a challenged credit history, have a substantial amount of long-term debt, or have experienced income irregularities. Keep in mind that credit repair may be a good option for you too if your credit is challenged. Again, I can show you exactly how credit repair works, and how it may be a good solution for you. Other benefits may include extra tax advantages.

The first step in securing a loan is to complete a formal loan application. To do so, you'll need the following information:

Year to date pay stubs for the past 2-3 months

W-2 forms for the past 2 years

Information on long-term debts like car payments or student loans

Recent bank statements for all your accounts

Tax returns for the past 2 years; proof of any other income

The address and description of the property you wish to buy with a copy of the Sales contract

The name of the company you would like to use for homeowners insurance

A 12 month rental history.

During the application process, the lender will order a credit report which shows your credit history and a professional appraisal of the property you want to purchase. The application process typically takes between 1-6 weeks.

As you begin the process of looking for a home, it is wise to get pre-qualified. Pre-qualification is an informal way to see how much you may be able to borrow. You can be 'pre-qualified' over the phone with no paperwork by telling a lender your income, your long-term debts, and how large a down payment you can afford. This helps you arrive at a ballpark figure of the amount you may have available to spend on a house. However, this is not a formal commitment to you from the lender to loan you money. It simply says, with the information you have provided, you would qualify for a loan.

Pre-approval on the other hand, is a lender's actual commitment to lend to you. It involves assembling your financial information (without the property description and sales contract) and going through a preliminary approval process. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying.

The lender is going to want to pull your credit to see what your credit score is. These scores are often called FICO scores because many credit bureau scores used in the U.S. are produced from software developed by Fair Isaac and Company. FICO scores are provided to lenders by the major credit reporting agencies. The score shows what the risk of lending to you is at a given moment in time. The higher the credit score, the lower the risk. While this is a good gage, no score says whether a specific individual will be a good or bad customer. And while many lenders use FICO scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable for a given credit product. There is no single cutoff score used by all lenders and there are many additional factors that lenders use to determine your actual interest rates.

This Credit Score is generated by three major credit reporting companies: Equifax, Experian, and Trans Union. You can get one free copy of your credit report each year from the credit bureaus or you can go to www.annualcreditreport.com. Once you receive the report, it's important to verify its accuracy. Double check the "high credit limit, total loan, and 'past due" columns. It's a good idea to get copies from all three companies to assure there are no mistakes since any of the three could be providing a report to your lender.

To learn more about the home buying process and to get answers to the top 25 mortgage questions home buyers ask, visit www.njfirsttimehomebuyerloans.com.