If you’re in the market to purchase your first home, you’re likely feeling overcome with emotions, questions and possibly even some worry. After all, you’ve been advised that buying a home is one of largest purchases you’ll ever make in your life. Of course, you don’t want to make a mistake so all of the questions you may be asking and concerns you may be feeling are more than normal.
To help guide first-time homebuyers through their big purchase, we’ve compiled a list of some of the most frequently asked questions received. Here are a few of those questions, along with some answers to help ease your mind during the home buying process:
1. What is the first step in the home buying process?
Getting pre-approved for a mortgage loan is the first step in the buying process. Getting a pre-approval letter will get the ball rolling in the right direction.
2. Am I ready to buy?
To answer this question you have to ask yourself the following questions when considering you're ready to buy:
3. Why should I buy a home instead of renting one?
The real estate market is constantly changing, but often times, it is more cost efficient to buy a home rather than rent one. Think about it... When you buy, you are investing in your own future. When you rent, you are helping your landlord to invest in his or her future! There also are financial perks like tax deductions and home equity that come along with owning your own home.
So that you don’t enter the home buying process blindly, it is a good idea to meet with a Broker who can help you determine a range of home prices that you may be approved to buy in. Lenders will consider how much a buyer makes, how much debt they have, any assets they own and their credit history before issuing a preapproval letter, which details the amount they can purchase, providing their financial picture does not drastically change during the home-buying process.
5. How do I find the right lender?
When it comes to financing a home, it is a good idea to shop around for the best mortgage terms. The federal government offers competitive loan programs for first-time homebuyers and buyers are able to seek out mortgage rates from several lenders before selecting the one that is best for them.
6. Am I able to buy a home with average credit and little or no money down?
This question is one reason that it is always a good idea to shop around for a mortgage. In most cases, there are loan programs for nearly every homebuyer who is looking to get into the real estate market. A buyer’s credit score and down payment may impact the amount they’re approved to buy or their financing rate, but there are typically mortgage options to meet many financial situations.
7. How much money do I need for a down payment?
The amount of money you’ll need to put down on a new home depends on the price of the home you select, along with the mortgage terms that you’re approved for. Different lenders offer different loan options that may allow a buyer to put as little as 3-5% down or even less. However, you may encounter private mortgage insurance (PMI) during part of your loan, which will add on to your monthly mortgage payment until you pay off the PMI.
8. What is PMI?
PMI or private mortgage insurance is something that lenders use to protect themselves against a buyer who defaults on their home loan. PMI is money a buyer pays along with their principal and interest to reimburse a lender in case they default. This fee is usually lumped into a buyer’s monthly mortgage payment until about 80% of their home is paid off, at which point PMI is typically cancelled.
9. What does a monthly mortgage payment cover?
When a first time homebuyer is looking to purchase a home, it is important to realize that a monthly payment does not cover all of the monthly expenses that go along with home ownership. Often times, a monthly mortgage payment covers the principal amount borrowed, homeowners insurance, property taxes, interest fees and PMI, if applicable. Monthly mortgage payments do not cover things like utilities, upkeep of the home, cable and internet service or homeowners association fees.
10. Do I need a real estate agent?
Technically, it is possible to buy a home without a professional real estate agent. It’s just a whole lot harder to do on your own. Not only have professional real estate agents received training to help buyers, but they’re also up-to-date on current market conditions, real estate procedures and the closing process. They’ve also got helpful industry contacts, like lenders, appraisers and other service professionals at their disposal that can make the buying-process go more smoothly. Finally, a professional real estate agent is happy to represent a buyer while making an initial offer, negotiating on price and at any other time during the home-buying process.
11. What happens during the closing process?
After buyers and sellers agree on a home’s price, the closing process begins and it typically lasts between 30-60 days. During this time, the purchase contract is drawn up and signed, financial documents are finalized, home inspections and appraisals are completed and various other legalities are handled, too. On closing day, both buying and selling parties meet to sign final documents and hand over your keys!