First Time Home Buyer Advice From a Realtor

First Time Home Buyer Advice From a Realtor

I just received an email today from a lender with this topic mentioned.  After a quick minute, I knew exactly the advice I would give a first time home buyer.  

Update to my 1st Piece of Advice - Ask the Seller to Buy Down Your Rate - this will help you with your monthly payments.  You don't know what will happen if you don't ask - so always ask!!

1st Piece of Advice - Do not pay points unless you are going to be in your home for a long time - longer than 2 years.

I purchased my first home in 1998.  At the time, interest rates were around the same amount they are today in the 6's or 7's.  I think my Realtor was fairly new in the business, and with my background in accounting and finance, I thought I knew it all!

I was offered to pay some points to bring down my interest rate.  I was all over that thinking I was so smart - paying upfront to lower my payments.  The points at the time would only reduce by 1/4 of a percent.  Little did I know I was only going to be in the home for 2 years, so the points that I paid to bring my rate down were like throwing money away.  If you plan on being in your home for a long time, then it is good to pay down the rate(pay points), or even ask the seller to pay some points for you!  

Basically paying for points is like buying down your interest rate, so you are paying the interest upfront or in advance.  For the past several years, there was no reason to pay points because the interest rates were so low.  That is not the case in today's market.  

If you are a seller in today's market, maybe instead of doing a price reduction, offer to pay down the rate for a buyer. This helps everyone and can make a huge difference in the buyers payment. 

2nd Piece of Advice - Get a 15 or 20 Year Loan instead of a 30 Year Loan if you are able

I wish someone would have given me this advice.  When you are a first time home buyer it is like going to a drive through, with the exception of ordering what you want or them asking what you want, they automatically give you what they want to give.  By they I mean most lenders. Don't get me wrong, there are a lot of great lenders out there, but they are just trained to do the one size fits all approach as far as loan term goes.  Everyone gets a 30 year term.  I have been told that people can always pay more and then they can pay it off early.  The only issue is, who usually pays more?  Most people are not inclined to pay more than what is due every month.  

The longer loan term means more interest paid over time.  Most people do not realize they can get a 15 or even a 20 year loan.  The payments usually run a little bit higher, but it is so much better for the buyer in the long term.  For example, a 15 year loan term will have less interest and more going towards principal(your loan balance), therefore actually bringing the balance down.  On a 30 year loan term, you may be paying 10-15 years before part of that large payment starts going towards any of your loan balance.  

You are able to write off your interest, but why pay more interest if you don't have to?  In my opinion a 30 year loan is like renting your property from the bank.  It is just my opinion, and I do know that everyone's situation is different.  I don't like to see people spending their hard earned money on more years of interest than is necessary. 

If you are in a 30 year mortgage, you can start putting extra towards your mortgage payment every month.  Every little bit does help, and on a 30 year mortgage it does give you the freedom to pay more if things are tight, and still continue to make the smaller payment to keep current.  You can still pay your balance down - it just takes discipline.  You may have more of that than I do.     

This is just some advice from someone who has seen rates go up and down and up again.  I have purchased several properties since this time, and I will never have a 30 year mortgage again.  When I saw the difference in my balance from a refinance to a lower rate, and lower # of years term, then that was enough for me to never go back to a 30 year mortgage ever again.  We all work hard for our money, and there is no reason to let it go so easily towards unnecessary mortgage interest. I hope you find this information helpful.  At least ask the lender the question and see how much the difference is in your payment.  You might be surprised.  Sometimes going for a shorter loan term can also mean a lower interest as well.  

Here are a few other Helpful Blog Post

What Residential Home Loan is Best for You? Conventional? FHA? VA? Jumbo?

Lender Placed Insurance - What Is It and What Does It Mean For You?

If you are a seller in today's market check out this blog!

Affordable Things Sold Fast!