Mortgage Advice for Buyers Looking for a Starter Home

Getting good mortgage advice is essential if you've never purchased a home before. First time home buyers are inexperienced when it comes to mortgages and getting the best deal is important. The mortgage market place can be a feisty place with many different brokers competing for your attention. Therefore, it is critical that you make the right decisions and choose the best mortgage for you. Here are a few things to consider when buying your first home.

Set a Budget

The first thing you need to do is set a budget for your first house. Everyone would love to be in that mansion on a cliff at the edge of the sea, but many first time buyers simply don't have the funds. Ask yourself what you really need out of your first house. This isn't going to be a permanent housing solution so don't get too down if you can't have everything that you want in your first home. Stick with the essentials and you will be much better off financially while you're still getting started in life. 

Get online and use one of the many mortgage payment calculators out there. Look up the current interest rate that is being offered to first time home buyers. Then plug that figure into the calculator and play with the figures. You'll be able to get an idea of what your house payment will look like. You may have to add a little for private mortgage insurance, taxes, and home insurance onto that figure. Then you will have a realistic number to budget with. Ask yourself how much you can really afford for a house payment each month.

Make the decision based on what you currently earn without any changes. Do not forecast a raise for yourself or an improvement financially and make decisions based on that. Base your decision on your current financial picture. If you start making more money, you will just have more for other things, like investment or retirement savings, each month. Don't overextend your budget right off the bat. Set a budget and then only look at houses in that range because if you start looking at larger homes, you will like them better.

Watch Out for ARMs

Adjustable rate mortgages or ARM's are a very popular lending method in today's market. Many first time home buyers are talked into using this method to finance their home. However, the consequences of using these mortgages have hurt many borrowers. With an adjustable rate mortgage, you usually receive a period of fixed interest at the beginning. The payment will be lower than a 30-year fixed mortgage. Therefore, it will seem attractive on the front end. After the initial period is up, your interest rate becomes variable. The interest rate will be tied to the prevailing interest rate in the market. If interest goes up while you have your mortgage, your payment will go up as well. Some people have been shocked when their payment doubled over the life of their loan. Don't make decisions on the short term. Look at what your financial situation might be five years from now. Remember that American salaries have remained level, or flat, for the last decade. Do not count on a raise to be able to cover new payment amounts or a second job. Work with what you have and you will stay out of trouble.