First time home buyers are filled with questions. Many times, more questions come up after a previous one has been answered. Mortgage loan officers have heard these questions over the years and we’ve put together a list of questions loan officers say they hear most often.
How much can I afford? Affordability means comparing your current gross monthly income and combining a new mortgage payment along with any current credit obligations. Lenders calculate what is known as “debt ratios” which compares monthly debt with income in the form of a percentage. Lenders like to see your mortgage payment, which includes principal and interest along with an allotment for property taxes and insurance, be about one-third of your gross monthly income and around 41-43 percent for all credit obligations.
What will be my monthly payment? Your monthly payment is a combination of principal and interest along with taxes and insurance. A lender will look up current interest rates and consider your loan amount and loan term. With a $150,000 loan stretched out over 30 years at 4.25% gives a $1,229 monthly payment.
How much down payment do I need? That will depend upon the type of loan you select. If you’re eligible for a VA home loan you don’t need a down payment. If you’re buying in a rural area and choose a USDA mortgage, a down payment for this loan isn’t required, either. With an FHA loan, the minimum down payment is 3.5% of the sales price. Other loans can ask for a minimum down payment ranging from 3.0 to 5.0%.
What are my closing costs? Your loan officer can give you these over the phone or in an email or provide you with a more official Loan Estimate. This estimate will show an approximate loan amount along with fees for services that will be required to close your loan. The general rule of thumb is about 4% of the sale price for closing costs and needed reserves for taxes and home insurance. You can also ask for a “no closing cost” loan which might be available for your situation or you can have the seller pay for part or all of your closing costs for you.
How do I know if I’m getting a good deal? Your real estate agent will research the market and in particular the home you’re thinking of making an offer on by comparing recent home sales in the area along with any adjustments that might need to be made. You want to offer the lowest you can in order to save money and to get the best deal but if you offer too low you just might be turned down. Your real estate is your best resource for this. Remember, the seller wants as much as possible at the same time. You’ll want to meet somewhere in the middle.
Do I need a real estate agent and if so how much do they charge? You definitely want a real estate agent, especially if you are a first-time homebuyer. But you don’t have to pay a real estate agent to help you find a home and negotiate a sales price. The agent represents you, not the seller. However, you don’t have to pay anything. The sellers pay your agent’s fee by splitting up the sales commission between your agent and theirs.
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