Buying your first home can be downright terrifying. Most Buyers will have lots of questions to ask themselves and their real estate agent pertaining to the purchase of their new home. We have gathered a list of the top questions first time home Buyers should ask, and break down why each question is important.
- How do I know how much house I can afford?
One of the first things a Buyer should do is connect with a real estate agent. Most agents have a list of mortgage loan officers or companies they can connect you with. Although the consumer always has the option to choose whatever company they would prefer, the real estate agent has worked with those lenders and have built a relationship with them through proven competence and mutual client satisfaction. Once a mortgage lender is selected, they will ask for items such as the previous year’s W-2, bank statements, employment history, etc. After compiling these things the mortgage company can issue an estimated loan amount. This will break down the monthly payment for the total loan balance, principal payment, insurance such as homeowners or PMI / MIP, taxes, and interest. This will give you a good idea of how much house you can afford based on this estimate.
- What do I need to qualify for a home loan?
Mortgage lenders will consider employment history, your credit score, how much you plan to put as a down payment, debt to income ratio, and other things when applying for a home loan. Obviously, they are looking to make sure that the applicant can manage the monthly mortgage payment based upon their income, and how stable the income and spending habits of the applicant are. Mortgage lender may also want to look at your total debt including student loans, credit cards, car payments, etc. Prior foreclosures or bankruptcies will also have an effect on approval.
- What should my credit score be?
This can vary depending on your loan type, and a mortgage loan officer can best explain how to position yourself for the best monthly payments based upon your needs and possible first time home buyer programs offered. Remember, the higher your credit score the more likely you will get a better interest rate. As a general rule of thumb:
720+ = Excellent 680-719 = Good 620-678 = Fair <620 = Poor
- What is PMI / MIP?
PMI stands for Private Mortgage Insurance, and MIP stands for Mortgage Insurance Premium. Essentially, when a consumer obtains a home loan and puts less than a certain percentage of funds as a down payment on the purchase, these items are required. Think of it as an insurance policy for the bank since the loan applicant is not putting down a large payment towards the purchase of a home. Although this can be construed as a negative thing, remember that you can always refinance the PMI off your loan once you reach a certain debt to loan ratio. Many people would rather pay an extra, say, $100/month on their payments versus having to put 20% of the home purchase price down. This allows them to save the chunk of cash in the bank in the event of emergencies.
- Will I have to pay closing fees?
Closing fees are often negotiable. Years back, and in a Buyers market, it was sometimes common for Sellers to help pay for some of the Buyers closing costs. In the current market, which could be considered a Sellers Market, a Seller may not be willing to pay for a Buyers closing costs and favor other offers without this type of request. Closing fees can range from surveys, appraisals, title fees, document searches, etc.
- What out of pocket expenses should I anticipate?
There are only a few out of pocket expenses that any home buyer will incur, and the other costs involved are often rolled into the mortgage. These can vary depending on what is negotiated by your agent, but out of pocket expenses generally include: Earnest Money check ($500 – $2000), Home Inspection fee ($300 – $500), and any closing fees that are applied ($0 – thousands).
- How can I buy a house with no money down?
There are two major loan programs which allow Buyers to purchase a home with no money down: the VA loan and USDA loan. To qualify for a VA mortgage you need to be a veteran or service member. For a USDA loan, the property must be in a “rural” area, and the applicant must meet local income caps. For people who don’t qualify for these programs, it is possible to buy a house with no money down using gift funds or applying for down payment assistance.
- Are there any fees when a home Buyer works with a real estate agent?
No, real estate agents are “free” for home Buyers because the Seller of the property is the one who pays both the Listing Agent and Buyer Agents commissions. Furthermore, there are almost no situations where it makes sense for a home buyer to work with the same real estate agent as the Seller due to conflicts of interest. This is often called limited or dual agency and is a highly debated topic in real estate. If a Seller has employed an agent to sell their home, that agent is working in the best interests of the Seller. As a Buyer, why wouldn’t you want professional representation on your side for free?