Congratulations on buying your first home. We bought our first home in 2002 when my wife and I were both 37 years old. We spent many years saving for a down payment and thought it would be a snap. It wasn't. My first advice is work with an agent, don't try dealing directly with a homeowner. Unless you have legal experience or a lot of real estate experience, you may end up being taken for an expensive ride, let the professionals do what they do best! I am not a real estate agent or a lawyer. I am a truck mechanic so I am speaking from personal experience.
When we first attempted to buy a home, we dealt with the homeowner. It was a tragic mistake and nearly cost us our down payment we had spent many years saving for. I would never recommend making that same mistake.
The next lesson I learned was my credit history which I believed was pretty good. Trust me, they will leave no stone un-turned when looking at your credit history. Unlike an auto loan or other loans which only go back a few years, mortgage lenders will go all the way back to the beginning of time. Remember, I said I was 37 when I bought my first home? The mortgage lender went all the way back to when I was 18 years old and discovered a library book I had checked out and never returned. They found a parking ticket I received in Arizona when I was 19 and never paid. And when we were 20 years old we bought a washer and dryer from a company who later went out of business and we never made our last two payments. Although our credit had been perfect from that point until we tried to buy a home 17 years later, those three strikes caused us to be denied by the mortgage lender. I actually had to drive back to our home town and square up with the library who still had the record of my never returned library book. I had to contact the Maricopa county court house and pay off my parking ticket of $12. I then had to go to the hall of records and find proof that Heilig Miers filed Chapter 7 bankruptcy before the final 2 payments of our washer and dryer were due.
If any one ever tells you bad debt will eventually go away on their own, don't believe them for a second. If you have ANY "skeletons in your closet", you may want to deal with them now before trying to buy a home. A good mortgage lender WILL find them. They are going to lend you money for a very long time and want to make sure you will pay them back.
If you don't have enough for a good down payment, you will be asked to buy mortgage insurance which will be rolled into the house payment. This assures the lender they will be repaid by a third party to cover the gap of your down payment. While it does get you into your home, it is also a terrible waste of money. You are much better off coming up with the entire down payment.
The biggest debate is a fixed interest rate and and adjustable rate loan. I will stand firmly with the fixed interest rate. That way you will always know what your house payment is. Adjustable rates may be lower but can change drastically. A lot of people lost their homes by going for the adjustable rate which was much lower in the beginning. But once interest rates jumped, their house payment rose by as much as 50%. Remember, its a long term loan. Even a half percent change in interest rate can change your payment a lot. If you choose the fixed interest rate and the interest rate falls a couple years later you can always refinance the home. We bought out home on a 15 year loan in 2002. When interest rates fell in 2005 we refinanced the home for 10 years at the same payment.
My final advice is to always pay more than the house payment. This significantly lowers the amount of interest. Our house payment was $650 a month which included insurance and property tax. We paid between $750 and $800 a month which allowed us to pay off our home nearly 2 years early. Some people advised us we would have been better off putting that extra $100-$150 a month in the bank where it could draw interest instead of paying on our mortgage. Maybe so, but there is no better feeling than paying off a house early.
