First-time homebuyers usually have plenty of questions regarding the home buying process, and this is completely understandable, especially given the size of the investment involved.
Purchasing a home is likely to be the largest and most important financial investment many people will make in their lifetime; however, the benefits of buying usually outweigh the challenges involved. It is important to ask the relevant questions and do your homework before buying a house.
The following common questions and answers will help you make a more informed decision.
Question 1: Should I buy or rent?
Answer: The answer can be different from one person to another, and you should do the math before deciding which option is optimal. That said, when you buy a home, there is a good chance that you will build equity if you stay in the home long enough. If you rent an apartment, you will write monthly checks, and that amount is gone forever. Also, rents can increase over the years, but if you have a fixed-rate mortgage, your payments will remain the same.
Also, when you own a house, you may be able to deduct the expenses of the mortgage interest charges from your federal taxes, and perhaps from your state taxes. The deductions may save you considerable money each year. As a homeowner, you may be able to deduct property taxes. Consult with a tax professional to get the details on mortgages and taxes.
Question 2: Which mortgage should I choose?
Answer: There are several types of home loans, such as adjustable-rate (ARM), 30 or 15-year fixed-rate, FHA, VA, etc. Talk to one of our expert mortgage professionals to find out more about the various loan options.
When you research the different types of mortgages, try to find a home loan that best aligns with your needs. Consider the pros and cons of your options.
As a rule of thumb, if you plan on being in a home for an extended period (such as ten years or even longer), it makes sense to consider a fixed-rate mortgage. You can look into 15 and 30-year mortgages, compare interest rates, and consider the pros and cons of each option. In contrast, if you think you will only be in your home for three or four years, you may want to look into an adjustable-rate mortgage to save money during your shorter period of ownership. The most important takeaway here is that only you know your goals and needs.
Question 3: How much down payment do I need for a mortgage?
Answer: Down payments are expressed in percentages. You could qualify for a mortgage that only requires a small down payment, such as 5%. But there is a price for making such a small down payment. When you make a down payment of less than 20%, the lender will require you to pay for mortgage insurance, also known as private mortgage insurance (PMI). The mortgage insurance is to mitigate the lender’s risk if you default on the loan. Mortgage insurance is expensive, and even though it protects the lender, you have to pay for it. If you can afford it, try to make a down payment of 20% or more to avoid paying for mortgage insurance.
You can use a mortgage calculator to see how the size of the down payment impacts your payments.
Question 4: Am I ready to buy?
Answer: Although each person’s situation is unique, you may be ready to buy a home if:
- You have enough income to pay the monthly mortgage payments.
- You have enough money saved for a down payment.
- Your credit is in good shape.
- You have been in the same job long enough.
- You have been paying your bills on time.
- You have been managing your debts.
Question 5: What is the difference between pre-qualified and pre-approved?
Pre-qualified: If you are pre-qualified for a mortgage, it will give you an idea of how much you “might” qualify to borrow. Remember that this mortgage amount or interest rate isn’t guaranteed. Think of it as a rough estimate.
Pre-approved: Getting pre-approved is the next step, and it is usually much more involved. For the pre-approval, you will have to complete a mortgage application, and supply your lender with all the requisite documentation to perform a detailed check on your current credit score and financial background.
Going through with mortgage pre-approval is preferable. The process is similar to a complete mortgage application. It makes sense to get a pre-approval because it helps you determine how much you can afford to spend on a home. A mortgage pre-approval might also help you make a more competitive offer on the house.
5 First-Time Home Buyers Mistakes To Avoid
Buying a home is exciting. But the home buying process is also a bit scary too. There are so many moving parts to think about as a first-time homebuyer. At first, the home buying process can feel intimidating. For most of us, buying a house means getting a mortgage. The process of applying for your first mortgage takes time and a lot of patience. Millions have done it before you.
Mistakes can make the homebuying journey more difficult than it needs to be, especially if you haven’t been through the experience before. If you are a property virgin about to buy your first home, here are five common mistakes you should avoid.
Buying a Home, You Can’t Afford
When you know how much of a house you can afford, you are more likely to find your dream home. Many first-time homebuyers start their house hunt without a budget. A great way to determine your homebuying budget is to get pre-approved. Mortgage pre-approval is similar to a complete mortgage application. The lender will check your credit and ask you for supporting financial documents. At the end of the mortgage pre-approval, the lender will give you an idea about the loans available to you. The pre-approval can save you time because you will be able to look at homes you know you can afford. The pre-approval might also help you put in a more competitive offer on your dream home.
Ignoring Additional Home Buying Expenses
Buying a home and owning a home comes with additional expenses. If you are a first-time homebuyer, you might fail to consider additional expenses. When you buy a property, you should expect expenses above your mortgage payment. Unlike renting, owning involves a lot more expenses. As a homeowner, you will be responsible for paying for property taxes, insurance, and repairs to the house (which might be anything from replacing a furnace to fixing a leaky roof). Also, if you buy property in an HOA (Home Owners Association) community, you are going to pay a monthly HOA fee.
Ignoring the Need for Good Credit to Buy a House
Your credit history is one of the principal factors lenders consider during the mortgage application. Credit scores range somewhere between 300-850. A credit score above 700 or higher is generally considered good. Credit scores above 800 or above are excellent. Your credit score is a critical tool for mortgage lenders. A higher credit score means that you have more options to choose from. Keep in mind that credit score is not the only factor for mortgage approval. The size of the down payment, your current income, your employment history, your total savings, and the amount of your total debts are also crucial for qualifying for a mortgage.
Check your credit before you apply for a mortgage to avoid any surprises. A great place to request a free credit report is annualcreditreport.com. Get your credit report. If you find mistakes or errors on your credit report, contact the credit bureaus to clear them up.
Failing to Seek the Help of Professionals
As you get ready to buy your first house, it is best to reach out to experienced professionals. Interview some of the most successful real estate agents in the area you want to buy in before you start your house hunt. A good real estate agent will coach and guide you through the home buying process.
The same is true for contacting a mortgage professional as soon as possible. Don’t settle to work with the most convenient mortgage broker. Just because your neighbor, friend, or family member works in the mortgage business, seek out the best option for you. Talk with at least three mortgage brokers before you make a decision. Work with a professional that understands your needs and takes the time to answer all of your questions about your mortgage options.
Identifying the right professionals to support you through the house buying process is an important step.
Failing to Manage Your Mortgage
It is wonderful to buy your first home and to qualify for a mortgage, but your work doesn’t end there. To keep your home, you have to make your payments on time. With every mortgage payment, you are one month closer to paying off your home loan. The best way to ensure that you stay current on your mortgage payments is to take advantage of auto-pay. With auto-pay, you can schedule your payments in advance. You can also set up automatic reminders to make sure that you never forget a monthly payment.
