Home Loans for a First Time Buyer: 3 Questions to Ask

Getting a home loan for the first time can be an exciting experience. The number of different home loans first time buyer programs out there can be confusing. The home buying process is not something that most people do often. The average person does it only a few times in their life. Therefore, most people do not know what to expect or what to ask the potential lenders. Here are a few of the more important questions that first time homebuyers can ask.

1. What Are the Terms of the Loan?

This is the most basic and perhaps the most important question you can ask a mortgage lender. A legitimate mortgage lender will present you with a summary of all of the terms of the loan before you are ever asked to agree to anything. They will lay out the interest rate, the monthly payment, the private mortgage insurance payment, and the repayment schedule before anything happens. If an unscrupulous mortgage broker attempts to leave out any of this vital information on the front end, you should question their motives.

The interest rate is critical to your decision in getting a mortgage. This is what you should shop around for. You are not after the lowest payment, but the lowest interest rate. There are ways to manipulate your first payment, but the low interest rate is what you should be after.

2. Is There a Prepayment Penalty?

Knowing whether or not your mortgage has a prepayment penalty can save you a lot of money in the long run. Many mortgages will offer you a lower interest rate, but they will come with a prepayment penalty attached. This means that if you were to pay off the mortgage early, you will be charged a penalty fee. You might be thinking that there is no way you could pay off the mortgage early at your present salary, therefore it's not an issue. However, many people forget that they might have to sell their house. If you sell your house in four years, do you want to pay a fee of several thousand dollars just to pay off the mortgage? This can be an unexpected surprise down the road for homeowners.

3. Is This a Fixed Rate?

One vital question that you will need to know the answer to is whether or not your rate is fixed. If you have a fixed rate on your mortgage, you will make the same monthly payment from now until the loan is over. If you have an adjustable rate, your mortgage payment can vary greatly. Many adjustable rate mortgages are fixed for a certain period of time and then become adjustable. It might look attractive because of the lower monthly payment on the front end. However, if you are planning on being in your home for several years, you could be at a great risk. This could result in your payment being doubled or more over the course of your loan.