Today, the average price of a decent home hovers anywhere from $100,000 to $300,000, depending on your location. Unfortunately, even homes that are priced at the low end of this scale are nothing to scoff at. The average “want-to-be” homeowner doesn’t usually have this type of money simply stashed under his mattress (or sitting around in his checking account).
In order to purchase their first home, the majority of people need to secure a home loan, or mortgage.
First Time Home Loans
As their name suggests, first time home loans enable first time home buyers to borrow enough money to purchase a home. The money borrowed for a home loan is typically paid back over a long period of time, usually between 15 and 30 years. The time it takes a home buyer to pay off a home loan will usually be influenced by the monthly payments and the amount of the loan. Many financial advisors recommend that households only have monthly mortgage payments that are no more than roughly one quarter of the household income.
Basic Home Loan Process
Getting a home loan for the first time may seem like a daunting task. Understanding this process, however, can help put your mind at ease.
The first thing you need to do in order to get a home loan is to speak with a lender, usually a bank or mortgage broker. During the initial interview, you and the lender can go over information such as what you are looking for in a home as well as how much you can afford to pay.
Next, you will be asked to fill out a home loan application, which will include personal and financial information. Supporting documentation, like pay stubs or tax returns, is also normally required. All of this information will then be put together into a home loan packet.
Then an underwriter will review your home loan packet to determine whether or not you qualify for a home loan. The underwriter might also determine how much you can borrow as well as what your monthly payments and interest rate will be.
Interest Rates of Home Loans
Along with paying back the amount of the loan – known as the principal – first time home owners will also have to pay interest. Most home loans have either variable or fixed interest rates.
- Variable interest rates vary, or fluctuate, over time, depending on the market conditions.
- Fixed interest rates stay the same, regardless of the current market conditions.
In general, the interest rates that first time home buyers will have to pay will usually be determined by few different factors. It may be determined by current market conditions, for instance. However, a first time home loan borrower’s credit history and credit score will typically have a big influence on their interest rate.
How Credit History and Credit Score Effect Home Loans
Your credit score and credit history are two of the most important things you should consider when getting a home loan for the first time. In some cases, you may not even be able to get a home loan if your credit score is not high enough. Most lenders require a person’s credit score to be in the high 600′s at least. Typically, if your credit score is higher than average, you will be able to qualify for lower interest rates.
Lenders will consider your credit history as well. A history of late payments, for instance, could hurt your chances of getting the lowest possible interest rate or your chances of even qualifying for a home loan.