Lender411.com Articles First Time Buyers

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As a first-time buyer, you have a lot of questions. There is terminology you don't understand. And there are expenses you need to anticipate. Here are some explanations of just that, to help you on your way to homeownership. First, what costs should you expect? After you have become "pre-approved" for a mortgage, you will know how much you can spend (aka your "budget"). Pre-approval is done by the bank or lender who will be writing your mortgage. It is accessed by your: credit history, assets, employment history, and financial status.

Being pre-approved can quicken the time it takes to close, as well as give you an advantage over buyers who are not pre-approved, should a home garner multiple offers.

Next, figure out how much money you'll need to put down. Are you looking at an FHA loan with 3.5 percent down? Or are you planning on putting 15 to 20 percent down? Financial expert Suze Orman recommends that in today's troubled market, you put at least 20 percent down on a house.

Closing costs are what are paid, well, at closing. You should expect to pay for an appraisal, title services, title insurance, transfer taxes, inspections, loan origination, private mortgage insurance, and homeowners insurance, among a host of other charges. The average closing costs are paid, yes, by the buyer. And they average around 3 to 5 percent of the total purchase price of the home. You can, of course, negotiate payment of closing costs with the seller. This is especially true in a market which favors buyers.

What is mortgage insurance? Mortgage insurance, also known as private mortgage insurance (PMI), protects your lender, should you default on your loan. And it can be required when you have made only a small down payment. It costs around 1 percent of the total loan. According to the Federal Reserve Bank of San Francisco, "Under [The Homeowner's Protection Act of 1998], mortgage lenders or servicers must automatically cancel PMI coverage on most loans, once you pay down your mortgage to 78 percent of the value if you are current on your loan."

**On FHA there is a Mortgage Insurance Premium also known as MIP which is required to be paid at closing. In most cases this charge is rolled into the loan amount and paid out through the life of the loan. Buyers do have the option of paying this fee in total at closing. Besides MIP, FHA also requires you to pay a monthly premium on the mortgage insurance which is .9% of the loan amount every year. To cancel the mortgage insurance you must have had the loan for a period of no less than 5 years and have paid down the loan to 78% or less.

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