Keeping Safe As A First Time Mortgage Buyer

By Author: Lucy Carter
Total Articles: 102
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Taking out a mortgage is a huge step, for many it is the biggest financial risk they will take in their lives. When searching for first time buyer mortgages, there can be an overwhelming amount of information to take in so that you make the right choice and don't burn yourself during the process. The following advice will help you understand and avoid the main pitfalls when it comes to jumping on the property ladder.

Choose an above board mortgage lender

Once you've found the home you want to buy, the next step is finding a suitable mortgage lender for your loan. While it's crucial to get as low an interest rate as possible so that you pay a lesser monthly fee during your mortgage term, beware of lenders who try to dazzle you with a super low interest rate but charge higher premium rates or have other hidden costs. Also be on your guard against mortgage lenders who charge nasty penalties to discourage you from changing to a cheaper competitor in the future.

Pros and cons of mortgage brokers

The fact that there are not only tons of mortgage products available on the marketplace but also lenders offering ...
... different types of mortgages with different terms can make it very difficult for first time buyers to decide on what's best for them. Mortgage brokers are often a safe way to find the right mortgage to suit your needs. Apart from the time you could save researching what's on offer by yourself, often their expertise and industry contacts can help you find a better deal. They will also be able to help you tackle the necessary paperwork. On the other hand, mortgage brokers charge the standard fee of 1% of your total loan value. While the expedience of their service might be worth it for you, the main thing to steer clear of is tied-agents, who cannot give you full and impartial advice because they work for a limited panel of lenders.

Repayment verses interest only

Your mortgage debt is divided into capital repayments (the full amount you borrow) and interest payments (your interest rate for the loan). Repayment mortgages entail your monthly charge being split between capital and interest payment, so that when the mortgage term ends you have paid the load in full. You will usually pay off most of the interest in the early years and then gradually more of the capital debt. Interest only mortgages mean you have a low monthly payment of only the interest for your loan, but when the mortgage term ends you will have to pay the capital sum you originally borrowed in full. The choice depends on your circumstances and preferences, but if you choose an interest only mortgage you will need some form of investment such as an endowment, ISA or pension to guarantee that you will have the funds to repay your capital fee. It's always a good idea to use a mortgage repayments calculator when deciding what's best for you as this will help you understand the true payment costs so that you can budget accordingly.

Watch out for 'closing costs'

Apart from the cost of your actual mortgage, it's important to know there can be a variety of other fees lumped in under the miscellaneous title 'closing costs' when financing your property. Recurring costs under this banner can include homeowners insurance, real estate taxes and private mortgage insurance (which is generally compulsory if you are making a down payment of less than 20%). These fees must be funded at the time of your home purchase and the practise of doing this by having a year's worth of obligations in your bank account is called putting your money in escrow. Nonrecurring closing costs entail the application fee to your lender, a series of added loan fees (these can include an origination fee, credit report fee, underwriting fee, admin fee etc.), brokers fee (if you choose one) and mandatory home inspection fee to name a few. Make sure these costs are clearly explained to you and that you budget for them accordingly or your bank balance could be in for a nasty shock towards the end of the mortgaging process.

The above information will help you steer clear of the main pitfalls that you will face as a first time mortgage buyer. Since a mortgage is a huge financial investment, above all it's important to do your research so that you can make informed choices before taking the plunge.
Sean Raston - economics student and expert in first time buyer mortgages.