PLANNING ON BUYING YOUR OWN HOME?
Tips for the First Time Home Buyer


Owning a home of your own is one of the first major steps to living the American Dream. Imagine not having to pay rent anymore and settling in place that you can proudly say is the fruit of your labor. However, as with any grand dream, buying your first home can be a rather challenging task.

So youve finally decided its time to reward yourself a nice home. You also think youre financially capable enough to support a loan to make this dream a reality. Lucky for you and for nearly all Americans of today, there are a number of financing options you can use, which allow you to borrow as much as 97% of the value of your dream house. This means, based on the 2004 home price median of $183,800, you can place a down payment of as low as $5,514.

But loans can be rather tricky and even costly. For a first time home buyer, it is more likely that lenders will place upon you a higher interest rate, based on the assumption that it would be more easy for you to walk away from a home loan because you do not have an equity in it. Rates for first time home buyers are usually 0.5% to 0.75% higher than normal interest rates. However, these should not deter you from buying your own home. If you feel youre ready, by all means, go for it. But before you jump in, consider these tips first.

- It is better to pay off all your debts before you take a home loan, than to place a large down payment on your loan and postpone paying your other bills. Take credit card bills, for instance. It would be more prudent to pay your credit card debt first because its average interest rate is nearly double that of a mortgage. While this technique eventually leaves you with less money to put as down payment to your home loan, it will help you breathe easier and meet mortgage payments in the long run.
- Know your limits. Your yearly mortgage, insurance and tax payments should not be more than 28% of your gross annual income. Also, determine if you have enough money, usually 3% to 5% of the homes value, for the closing fees, and make sure you still have adequate funds for personal consumption and for possible home repairs.
- Consult an expert about the best first-home financing program for you. Those who do not have much money saved up may opt to take on piggyback loans, which eliminate the need to pay the private mortgage insurance. If you have a relatively small income, you may want to try out loans insured by the Federal Housing Authority, which are comparably lenient. See if the home you want to purchase is included under the governments accredited list.
- If you have questionable credit, you may want to inquire about Fannie Maes expanded approval scheme. This allows those with slightly blemished credits to avail of competitive mortgage deals. But, more than just seeking out loan schemes that accommodate your tainted credit background, make sure there is no reason for the lenders to doubt your capacity to pay. It is best to start off on a clean slate. Local governments also provide financial assistance to those whose incomes fall under the regional median income.

When you really think about it, everyone has the opportunity to own his or her own home. However, be reminded that there is no such thing as a free lunch. The road to buying your first home is paved with challenges. Be ready to face them when they come.