Purchasing your first home can be overwhelming, but if you are educated on the process it can relieve some of that overwhelm to focus on the joy of your first home. Below are a list of some most frequently asked questions from new home buyers.
1. How much mortgage can I afford?
This is a very important question to ask primarily your lender. Determining this will help you to set expectations on what amount you can afford on your new home. Your Mortgage payment has many determining factors such as, interest rate, down payment, property taxes, mortgage insurance and sale price. Using Title One’s mortgage calculator you can create an estimated monthly mortgage amount by clicking here.
2. What do I need to qualify for a loan?
Among many other determining factors your lender will consider employment history, credit score, debt-to-income ratio and the down payment you will be able to place on a house. Most lenders will look for stability in employment history within the same industry prior to giving a loan. When looking at your credit score they will look at your total debt including student loans, credit cards, and car payments to determine what you will need to pay off (if anything) to build your credit. The goal is to create a manageable percentage of your pre-tax income. Before feeling discouraged about buying a home speak with a lender! Your lender will give you the stepping stones and assistance you need to get you on the right track to purchasing your first home.
3. Should I get a fixed rate or an adjustable rate of mortgage?
Fixed rate loans include an interest rate that is determined when you initially set up the mortgage loan. When you obtain a fixed rate loan it does not change. While interest rates on adjustable rate mortgages might change. This type of mortgage rate will start with a lower fixed rate, but will likely go up after an introductory period.
If a homeowner is likely to move within a few years, an adjustable rate mortgage will be a better option being that the interest rate will be lower in the short term. A fixed rate is best for homeowners who would like stability when they are living in the home for a long period of time.
4. What is PMI?
Private Mortgage Insurance (PMI) is a insurance that most lenders require homeowners to pay when less than 20% down is placed on the home. PMI would protect the lender if you defaulted on your loan payments.
5. Should I get a 15 or 30 year mortgage?
A fifteen year mortgage will generally charge lower interest rates with higher monthly payments. This is due to the amount of time to pay off the loan is cut in half. As you can assume when you receive a thirty year loan you will receive higher interest rates with lower monthly payment. Depending on your goals with the home should determine which option you should choose.
6. How much should I put down?
Depending on what you can afford you should be able to purchase a home with 3% of the purchase price, or less! If it’s an affordable option, it’s recommended to place 20% down on a home. When you place more down on your home you are lowering your monthly payment and the amount of time you will be paying off your home.
7. What are mortgage points?
Mortgage points or discount points, are an extra fee that you pain in exchange for a lower interest rate. Homeowners who plan to keep the home for a longer period of time should look into the options and benefits of buying points to save money in the long term.
8. Will I have to pay for closing fees?
Your lender is the best person to discuss the closing costs you might be required to cover. This costs is different based on the lender and the closing costs you agreed to pay on your initial offer. Closing costs include things such as appraisal fees, attorney fees, title insurance fees, documentation fess, insurance, and pre-paid taxes. Typically closing costs can be several thousand dollars and can be lowered based on the information listed above.
9. What is pre-qualification?
Pre-Qualifications are not the official amount you are approved for. This process is taken place when you speak with a lender about your credit, income, and other factors. Based on that information your lender tells you an estimated amount you could be approved for. Your amount can be determined when you get an official pre-approval from your lender.
10. What is refinancing, and when should I do it?
Refinancing is the process of replacing your existing mortgage with a new one, typically to secure one with a lower interest rate, lower monthly payments, or to receive cash. Once you have had your mortgage for more than a year you might be eligible for a refinance on your loan. This can be done by contacting your previous lender or a lender you are familiar with.