October 25, 2013 Instead of travelling through town looking for a property the old fashioned way, most people search for properties online. This allows first time home buyers to have quick access to any information about the home that interests them. Unfortunately, one thing the paper and online home databases don’t share, is the many obstacles that new homeowners could face when applying for a mortgage. Extended move-in times and timely reference checks are often expected, but here are a few things that aren’t. Under-Budgeting the Down Payment Most first time home buyers create a financial plan that outlines what they can afford spend for their monthly mortgage, and how much they can afford to hand over as a down payment. This is usually where disappointment begins. As a rule of thumb, the standard advice is to budget for 2 to 5 percent of a home’s asking price as a down payment, but this is far from what’s being practiced. In fact, most mortgage lenders are weary of loaning to first-time owners, so they ask for a higher down payment (between 10 to 20 percent to be exact). This means that purchasing a home with an asking price of $100,000 could set a first time owner back $10,000 to $20,000 as a down payment. Luckily, FHA (Federal Housing Administration) home mortgages require a much smaller (3.5 percent) down payment. Hidden Costs Perhaps the biggest obstacle that first time home buyers face is hidden fees. These are fees that applicants are expected to pay before actually being approved for the loan. The fees are as follows: Homeowner’s insurance Notary of Public Fee Appraisal Fee Credit report and application fees Property Taxes (sometimes paid by the previous home owner) These fees are non-refundable, so be sure about the home you want to purchase before paying them. As a rule of thumb, it’s best to have an extra 5 percent of the home’s asking price to cover these fees. Having a Low Credit Score As with any other form of lending, mortgage lenders require a credit check before approving a mortgage loan. Credit scores range between 300 to 800, with 300 being poor credit and 800 being excellent. Most first time home buyers are surprised when they find out that most lenders won’t extend a mortgage to anyone with a score below 620. Not having active credit lines or a steady history of paying bills on-time can cause the credit score to decline, or remain unchanged for years. It’s best to run a quick credit check before applying for a mortgage to avoid loosing fees and suffering a score decline from a hard inquiry. (Those with low credit scores can still apply for a mortgage, but the down payment and interest is significantly higher.)Read the news to find out what the average interest rates are in the area you wish to move to. Purchasing a home for the first-time needn’t be a hassle. To have the most success in obtaining a mortgage loan, make sure to budget wisely and improve your credit worthiness before doing a property search & review.