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Financing Your Home

Get Pre-approved
      Before your start hunting for your first home, it is wise to find out what your price range is. I cannot stress how important this first step is. This is done by the simple process of obtaining a pre-approval from a lending institution, such as a bank or mortgage company. Getting pre-approved is a smart move for the serious home buyer because it shows sellers that you come to the negotiating table ready to complete the transaction. In fact, most sellers will not even look at an offer on their property unless the buyer is pre-approved. For a free pre-approval, contact one of the mortgage lenders HERE. If a lender charges you for a pre-approval, go elsewhere.

Even if you don't plan on buying a home for several months, now is the time to start getting your finances in order. Do not buy that new car or furniture on credit until you buy your home. Every time you use your credit (unless you pay it off each month) you will lower the amount of mortgage you qualify for. Your qualification for a mortgage is base on the ratio of how much you make, and your total monthly payments on all your credit cards and loans. If you have an additional $300 car payment, that could lower the amount of mortgage that you qualify for by as much as $50,000! Wait until after you buy your home before you buy anything else on credit. In fact, once you own a home and start making monthly mortgage payments, your credit score goes up! Creditors consider home owners a better credit risk than renters.

If you talk with a good mortgage person, he/she can give you advice on what steps you need to take to raise your credit score (also known as FICO score), and what you can do to qualify for a better interest rate. You will also find out how much of a down payment you will need, and the approximate closing costs you will have to pay (in most cases, we can get the seller of a home to pay your closing costs). You will also want to run your credit report with all 3 major credit reporting companies - Experian, Transunion and Equifax. Make sure there are no errors contained in any of your reports that could lower your credit score. It can sometimes take several months to get any erroneous information removed, which is why you want to do this now and not wait until you are about to make an offer on a home.

By law, you are entitled to obtain a free credit report once a year by going to This is the only legitimate web site for obtaining a free credit report. The others that you hear advertise may say they are free, but require you to enroll in a program to obtain your report - ie: It is a good idea to obtain your credit report once a year just to make sure everything is correct, even if you don't plan on obtaining financing in the near future.

Your lender can help you with all aspects of your financing. Again, if your lender is not helpful and does not answer all your questions, get another lender. There are plenty of banks and mortgage companies out there willing to bend over backwards to get your business.  In many cases, homebuyers qualify for more money than they thought (or may want to spend!)

Types of Mortgages
      Mortgages come in a wide variety of types and sizes to meet a wide variety of needs. Below is a list of some of the more common types, though it can vary from lender to lender.

Type of Loan Benefits Who is it good for?
Fixed Rate
Interest rate remains the same for the life of the loan, usually 15-30 years.
Provides protection against rising  interest payments. Predictable payments make budgeting for the future easier. Especially attractive when interest rates are low. Ideal when you plan to stay in your home for at least 5 years.
Adjustable Rate (ARM)
Interest rates and payment can rise or fall as a result of an annual rate adjustment. Initial rate is normally fixed for a period of 1-7 years.
Initial interest rates and payments are lower than that of a fixed rate mortgage. May be a good choice homebuyers who do not plan on keeping their home for more than a few years, or if you need a lower rate to qualify for financing a particular home.
Convertible ARM
Offers the option to convert your adjustable rate to a fixed rate mortgage after a certain period of time.
Start off with a lower initial rate and convert to a fixed rate when you can afford it to prevent further increases in payment. When you need a initial lower rate that an adjustable rate offers. May be good for someone who expects an increase in income in the near future.
Balloon Loan
Offers fixed payments for a period of time followed by one balloon payment for the balance of the loan at the end of the term (usually 5-7 years)
Interest rate is lower than that of a fixed rate mortgage. A choice of a home buyer who will be moving or refinancing in 5-7 years.
Renovation Loan
Could be a fixed or adjustable rate. Examples are the FHA 203K and MassHousing Rehab loans.
The amount of funds that can be borrowed is based on the future value of the property after remodeling. Perfect for the home buyer looking to purchase a "fixer-upper" or "handyman special". Perfect for bank-owned and short sale properties that usually need work.
New Construction Loan
Finances the construction of of a new home.
Loans for new construction offer options such as an extended rate lock of bridge loan. Home buyers building their own home or purchasing from a builder.

      Under each of the above loan types are many different programs are available such as interest only loans, jumbo mortgages and many more...too much to explain here. Your best option is to talk to your mortgage consultant and decide what is best for your particular situation.

     There are many programs that are specifically designed for first time home buyers. FHA and MassHousing are two government agencies that have great mortgage programs that require less of a down payment than most standard mortgages. Also many towns have special matching downpayment programs for first time home buyers. This can double the amount of money you put down on a home, and reduce your mortgage payment.



More Articles on Financing a Home

To search for special financing and down payment assistance program on the north shore, CLICK HERE

For more information on financing, CLICK HERE.

- Some Common Questions on Buying a Home

- Common Credit Myths About Buying a Home


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