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First-Time Homebuyers Have Advantage in Mortgage Market

First-Time homebuyers and those thinking about refinancing are in a great position.  For the third straight week, mortgage rates have fallen according to Freddie Mac.

“The credit markets are tight, but they have loosedned up significantly from 90 days ago,” said Todd Wilson of Wells Fargo.

This means it’s a great time to enter a mortgage transaction right? No, not exactly.  If you can qualify it might be.  The 2 biggest issues are going to be your credit and the down payment.  These are the big guns that are going to decide whether you can get a mortgage or not.

Buying a Home
Start digging up all of your files including bank statements, W-2 wage and tax statement and pay stubs.  If you want to be fully prepared, these documents need to be ready at the pull of a trigger.  Overdocumentation is the name of the game right now.

Don’t walk into this process oblivious.  Go check your credit score.  This can be done for $15 online from Equifax, Experian, or TransUnion LLC.  The score that is most widely used is the FICO, which ranges from 300-850.  This will let lenders know if you’re likely to make your payments on time.  Of course the higher the number, the better.  By checking this ahead of time, you can clean up your credit by paying down debt, catch up on late payments, or settle disputes you may have.

You first-time homebuyers have that tax credit of $8,000 for homes purchased before December 1st.

The down payment is big because the lenders want to know that you’re in it to win it.  Mortgages insured by the Federal Housing Administration(FHA) require you put down 3.5% which can come from a family member, employer or charitable orgainzation as a gift.  For a non-FHA-insured loan, you’re looking at putting down 10%.

Refinancing
First things first, have plenty of equity.  Equity is the the ownership value you have accumulated over time by making your mortgage payments.  The lender want to see that you have a financial stake in the refi.  The last thing the lender wants to do is lend 100% of the value of the home.  Also, you don’t want to put yourself in a situation where you owe more than what your home is worth.

Another issue to consider is the amount of time you’re going to stay in the home.  You’ll want to stay long enough to make the refinacning worth it.  Recouping the closing costs that come along with refinacning usually run between $3,000-$5,000.  So if you’re going to ship out in less than 5 years, then it’s probably not worth it.  If you’re in it for the long haul then you’ll want to look at the costs vs. monthly savings to see when you can get out.

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