Federated Lending Corporation

The millennial’s guide to first time home buying

Every first time home buyer has a lot to learn. If you’re a millennial, there may not be anyone who has given you pointers about obtaining your first mortgage or other tips that could be handy when it is your first time buying a home. There are some practical things you should know before you start house hunting.

Understanding Home Ownership

While it is easy to think about that if you are already paying rent you can make a mortgage payment, there are other things you must consider if this is your first time buying a home. Some of these include homeowner’s insurance and property taxes which may be added onto the costs of your loan. Most lenders will ask for escrow of taxes and insurance to minimize risk of default. New homeowners will also have to think about maintenance costs and costs of any utilities they are not currently paying as part of their rent.

Financing Your New Home

We are often asked “How do I find financing if I am buying my first home?”. Mortgages may be obtained from banks, credit unions and from private lenders. Most people turn to banks they have an established relationship with. However, there are some things you should know about financing:

• Credit scores impact rates — your credit score will have an impact on the interest rate you will be charged. Typically, if you manage your credit well, pay your bills on time and do not have significant outstanding debt, your credit should be fine. Discuss credit issues with your loan officer.

• Understand down payment requirements — every first time home buyer should be ready to make a down payment on their home. In addition, you should be prepared to pay certain closing costs.

• Your debt may impact your mortgage — lenders are typically looking for a specific debt to income ratio. This means one factor will be the amount of money you will be paying for all debt, including your mortgage as a ratio to your income.

Pre-Approvals Versus Pre-Qualifications

Another option you may have is if you are interested in buying your first home is to speak with your mortgage lender about getting pre-approved. The pre-approval process can give you negotiating power with potential sellers. This process is similar to going through the entire loan process; you will know exactly how much money you can borrow. Do not confuse this with a pre-qualification which is merely an estimate of what you can borrow without any time of commitment from the lender.

Remember, when you are purchasing your first home, search for a home with an eye to the future. You want to find a home that is the right size based on your lifestyle today, but keeping in mind, you may decide to get married and have children. You should also pay attention to the neighborhood so you will be living in a home that meets both your immediate and long-term needs.

Being a first time home buyer is exciting and can be stressful as well. If you are considering purchasing your first home in Pennsylvania or New Jersey, contact Federated Lending and talk to one of our loan officers about your first mortgage.