Are you ready to leap from renting to buying a home? Purchasing a home is an exciting milestone but requires careful consideration. That's why it's important for renters to arm themselves with the knowledge of what to expect and the questions to ask when taking this big step. First Savings Mortgage can help you understand the process and provide answers to the 10 most important questions renters should ask before purchasing a home.
How Much Can I Afford for a House?
Your budget should be based on your current income, debts, and any future expenses you may have. Factors considered to determine affordability are your gross monthly income (before taxes) and all your monthly expenses, such as credit card payments, car loans, student loans, and your estimated monthly mortgage payment including taxes, insurance, mortgage insurance (if applicable) and HOA/Condo dues. You can also use a mortgage calculator to better assess what kind of house you can purchase.
Once you've determined how much payment you'd feel comfortable with based on your expenses, you can start shopping for a loan that fits your budget. First Savings Mortgage has many loan options to help make your homeownership dreams come true. With their knowledgeable staff and comprehensive resources, they can provide the guidance and assistance you need to make an informed decision when buying a home.
What Kind of Loan Should I Get?
When it comes to buying a home, there are many loan options available to prospective homeowners. Understanding the different types of loans and which is best for you can make the process easier.
Some of the most common loan options include:
- Conventional Loans: Conventional loans are typically the most popular loan option. These loans often offer lower interest rates on fixed rate loans and are generally favored by those who have good credit and a sizable down payment
- FHA Loans: An FHA loan is a government-backed mortgage that requires only a 3.5% down payment from the borrower. This loan program is popular with first-time homebuyers and those with limited financial resources, but it also carries certain restrictions, such as limits on how much you can borrow and higher mortgage insurance costs
- VA Loans: A VA loan is a government-backed loan available to veterans and active duty military members. This type of loan typically has more lenient requirements, such as no down payment or mortgage insurance
- USDA Loans: A USDA loan is another government-backed loan designed to help borrowers in rural areas. These loans require no down payment and offer competitive interest rates
How Much Money Do I Need for a Down Payment?
The amount of the down payment can be as low as 0 but will vary depending on the type of loan you choose. Some loans may even require a down payment of up to 20%.
If you can put at least 20% down, you won't have to pay private mortgage insurance (PMI). But if you are a first time home buyer, there are programs available to help you with the downpayment.
What Are the Additional Costs of Homeownership?
Homeownership comes with additional costs that you should plan for. While some of these costs may be included in your mortgage payment, others may be out-of-pocket. Some of the additional costs of homeownership include:
- Mortgage insurance - This is an additional payment (usually built in to the monthly payment) if you're putting less than 20% down
- Property taxes - Depending on where you live, your property taxes may be due in one lump sum or broken up into quarterly or monthly payments (may be included in your mortgage payment if you escrow)
- Homeowners insurance - This covers losses and damages to your property, including liability. It also covers appliances, furniture, and other personal belongings (may be included in your mortgage payment if you escrow)
- Utilities - Your home will need water, electricity, and possibly sewer or septic service, depending on where you live
- Maintenance and repairs - As a homeowner, you'll be responsible for any maintenance and repairs that need to be made
- Association fees - If you purchase a home in a development or neighborhood with an association, you'll be responsible for paying their fees
How Long Will the Process Take?
When considering the purchase of a home, one of the most important questions to ask is how long the process will take. It's important to understand that this process can vary greatly depending on the specific circumstances. Generally speaking, the home-buying process usually takes anywhere from 30 to 60 days although at First Savings, we can close a loan in as little as 8 days.
To better understand the timeline, it's helpful to break down the process into three parts: pre-approval and home search, loan processing and closing. First, the pre-approval process which includes researching mortgage options and talking with lenders about loan terms. During this time, buyers should also get pre-approved for a loan to better understand what kind of house they can afford. While there is no set timeline for this portion, the length will vary based on inventory and your particular needs. This process includes researching properties online, scheduling tours, and making offers.
Once a contract is ratified, the loan processing will begin. Ideally, you would've already submitted all the documents needed during the preapproval process. Once an underwriter reviews the file, there may be additional documents to finalize the approval. The closing process concludes the timeline. This step usually involves signing paperwork, and transferring funds.
By clearly understanding how long it will take to purchase a home, buyers can better plan for their future. With the right preparation and guidance from experts like First Savings Mortgage, buyers can confidently navigate the home-buying process and make their dream of homeownership a reality.
What Does it Mean to Lock a Loan?
Locking a loan means that a borrower and a lender agree to a specific interest rate and points for a specific amount of time. This prevents the borrower from worrying about rate increases during the loan process.
The process of locking a loan starts when a lender or broker receives an application. Once they have reviewed the application and all the necessary paperwork, they can then lock in the loan. The length of time the loan is locked for will depend on the lender, their policies, and time till settlement but typically it is between 15 and 45 days. During this time, the lender will process the loan, including pulling credit reports, obtaining appraisals, and verifying income.
Overall, locking in a loan is an important step in the home-buying process and should be taken seriously. Borrowers should research their options and understand the costs associated with locking in a loan before making a decision. With the right information and guidance, borrowers can ensure they make the best decision when it comes to locking in a loan.
What is Private Mortgage Insurance (PMI)?
Private Mortgage Insurance (PMI) is a third party insurance lenders require to help protect against losses if the borrower defaults on their home loan. It is required for borrowers who have less than 20 percent of their home's purchase price as a down payment. PMI premiums are usually paid by the borrower and are usually included in the monthly mortgage payment.
The main benefit of PMI is that it allows borrowers with lower down payments to purchase a home.
How Can I Get the Best Interest Rate?
- Start by shopping around to compare rates from different lenders. Talk to family and friends who have recently purchased a home to find out what rate they got, and do your own research online
- Check your credit score, as this will play a large part in determining what interest rate you qualify for. Make sure there are no errors that could be dragging down your credit score, as this could cost you in the form of higher interest rates
- Compare fixed-rate mortgages to adjustable-rate mortgages. Fixed-rate mortgages provide stability, as your monthly payments remain the same for the life of the loan. With adjustable-rate mortgages, your rate may change over time, but the initial rate is usually lower
- Try to get pre-approved for a mortgage before you start house hunting. This will help you know exactly how much you can borrow and give you an idea of interest rate you'll be eligible for
- Negotiate with your lender. Don't be afraid to ask for a better rate if you have good credit and have done your research. Your lender may be willing to negotiate with you to earn your business
First Savings Mortgage provides you with best rates and exceptional client services.
What are the HOA fees?
Homeowners Association (HOA) fees are typically used to maintain the community and its amenities, such as swimming pools, parks, and walking trails.
The HOA fee may vary depending on the size of the property, the type of amenities offered, and the age of the home. Most HOAs also include annual assessments covering maintenance, utilities, and other costs.
When inquiring about HOA fees, it's a good idea to ask the seller if the fees have changed in the past year or if any upcoming assessments are planned.
Purchasing a home with HOA fees should not be overlooked. Knowing what your monthly payment includes can help you budget for the future and ensure you understand all the costs associated with owning a home. It's important to factor in these costs when determining if you can afford a mortgage payment.
Get Informed, Get a Loan: Purchase a Home
When it comes to purchasing a home, there are many questions that renters should ask before taking the plunge. Taking the time to research and ask questions can save you from making costly mistakes in the future. If you are interested in learning more about buying a home, reach out to a mortgage professional at First Savings Mortgage to get started. They have decades of experience helping first-time buyers understand the ins and outs of homeownership.